RICHMOND, Va- Tredegar Corporation (NYSE:TG, also the 'Company' or 'Tredegar') today reported third quarter financial results for the period ended September 30, 2021.
Third quarter 2021 net income from continuing operations was $6.2 million (0.19 per diluted share) compared to net loss from continuing operations of $17.0 million ($0.51 per diluted share) in the third quarter of 2020. Net income from ongoing operations, which excludes special items and discontinued operations, was $7.2 million ($0.22 per diluted share) in the third quarter of 2021 compared with $13.2 million ($0.39 per diluted share) in the third quarter of 2020. A reconciliation of net income (loss) from continuing operations, a financial measure calculated in accordance with U.S. generally accepted accounting principles ('GAAP'), to net income from ongoing operations, a non-GAAP financial measure, for the three and nine months ended September 30, 2021 and 2020, is provided in Note (a) of the Notes to the Financial Tables in this press release.
Third Quarter Financial Results Highlights
Earnings before interest, taxes, depreciation and amortization ('EBITDA') from ongoing operations for Aluminum Extrusions of $12.0 million was $4.5 million lower than the third quarter of 2020
EBITDA from ongoing operations for PE Films of $4.8 million was $1.2 million lower than the third quarter of 2020
EBITDA from ongoing operations for Flexible Packaging Films of $7.4 million was $2.2 million lower than the third quarter of 2020
John Steitz, Tredegar's president and chief executive officer said, 'Bonnell Aluminum's production and sales continue to fall below robust demand and bookings due to a shortage of labor while backlog continues to grow. Price increases have helped keep pace with inflationary cost pressures.'
Mr. Steitz also stated, 'PE Films' profitability has been adversely impacted by previously disclosed customer product transitions and resin price increases. In addition, competitive pricing pressures are anticipated to further erode profitability by $6 million in 2022. PE Films is very focused on generating sales of new surface protection products, applications and customers and driving production efficiencies and cost savings.'
Mr. Steitz added, 'Terphane continues to perform well while overcoming pandemic-related and other obstacles. Debt, net of cash, declined to $96.7 million at the end of the third quarter, which was $25.5 million lower than the beginning of the year due to strong cash generation.'
THE IMPACT OF COVID-19 AND RELATED FINANCIAL CONSIDERATIONS
Essential Business and Employee Considerations
The Company's priorities during the coronavirus ('COVID-19') pandemic continue to be to protect the health and safety of employees while keeping its manufacturing sites open due to the essential nature of many of its products. The Company has continued to manufacture the full range of products at its facilities.
The Company's protocols to protect the health and well-being of its employees from COVID-19 continue to evolve as the Centers for Disease Control ('CDC'), the Office of the Surgeon General and other state and local health departments learn more about the virus and its variants. Consistent with recommendations and mandates from government agencies and health authorities, the Company has implemented multiple layers of COVID-19 protections and interventions.
The Company has engaged in an education campaign that provides employees with the most accurate and up-to-date information related to COVID-19 vaccines and has offered different monetary and/or time-away-from-work incentives to encourage employees to get vaccinated. While the Company believes that these efforts have encouraged employees to be vaccinated, vaccination rates in its U.S. manufacturing sites vary widely, ranging from 23% to 78%, with most U.S. sites having vaccination rates above 50%. The Company will continue to monitor available information to assess safeguards that may be taken to try to prevent a COVID-19 outbreak in the workplace.
Bonnell Aluminum continues to experience higher than normal absenteeism and hiring difficulties, which it attributes to COVID-19-related factors. While the average number of direct labor employees at Bonnell Aluminum facilities increased approximately 6% in the third quarter of 2021, compared with the abnormally low levels related to the pandemic in the second and third quarters of 2020, there continues to be a shortage of labor to meet existing demand and desired shipment levels. Moreover, onboarding new employees has resulted in higher hiring and training costs in 2021 versus last year.
All three of the Company's business segments are managing through supply chain disruptions and escalating costs, including raw material cost increases, shortages, transportation cost increases and delays. To offset growing cost pressures, Bonnell Aluminum implemented its second selling price increase in 2021, which became effective April 26, 2021, and is preparing for an upcoming price increase effective January 3, 2022. In response to unprecedented cost increases and supply issues for polyethylene and polypropylene resin, PE Films implemented a quarterly resin cost pass-through mechanism, effective July 1, 2021, for all products and customers not previously covered by such arrangements. Terphane, the Company's flexible packaging business headquartered in Brazil, continues to monitor cost escalations to adjust selling prices as market dynamics permit.
Financial Considerations
Approximately 62% of Bonnell Aluminum's sales volume in 2020 was related to building and construction ('B&C') markets (non-residential B&C of 55% and residential B&C of 7%). Non-residential B&C volume started to decline in the fourth quarter of 2020 after the fulfillment of contracts that existed at the start of the COVID-19 pandemic. Recently, market demand in this sector has been strong but was not reflected in Bonnell Aluminum's third quarter 2021 results, due to pandemic-related labor shortages and resulting production inefficiencies. Non-residential B&C volume declined 13.1% versus the third quarter of last year. However, current bookings and backlog remain at record high levels which we believe will bode well for future operations and results when production constraints are alleviated.
The Surface Protection component of PE Films had record EBITDA from ongoing operations in 2020 but is experiencing a decline in volume in 2021, primarily related to a previously disclosed customer product transition unrelated to the pandemic. In addition, the lag in the pass-through of significant pandemic-related increases in resin costs, and some of such cost increases incurred prior to mid-year that will not be recovered even on a lagging basis, have adversely impacted PE Films' profitability in 2021.
At Terphane, the Company believes that the pandemic-related surge in demand for flexible packaging films that began in early 2020 returned to lower pre-pandemic levels during the second quarter of 2021. Also, production and sales volumes for Terphane during the third quarter of 2021 were adversely impacted by an equipment failure on a manufacturing line that was unrelated to the pandemic and supply chain restrictions, which Terphane believes are impacting others in the industry as well. While the equipment failure is not expected to be fixed until early in 2022, Terphane has adjusted operations for the interim period to meet anticipated customer demand.
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions, which is also referred to as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength custom fabricated and finished aluminum extrusions primarily for the following markets: B&C, automotive, and specialty (which consists of consumer durables, machinery and equipment, electrical and renewable energy, and distribution end-use products). A summary of results for Aluminum Extrusions is provided below:
See full results at: https://ir.tredegar.com/news-releases/news-release-details/tredegar-reports-third-quarter-2021-results
Tredegar Corporation
Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
Source: Tredegar Corporation
TREDEGAR CORPORATION 
