Libbey Inc. (NYSE MKT: LBY) has reported results for the third quarter ended September 30, 2016.
“Third quarter results were seasonably lower, consistent with the expectations we provided last quarter, as challenging market conditions persisted across our various sales channels and end-markets. Despite continued softening in the foodservice channel, we were able to deliver our 14th consecutive quarter of foodservice unit volume growth even with a more pronounced decline in restaurant traffic during the quarter,” said William A. Foley, chairman and chief executive officer of Libbey Inc. “We are continuing to implement proactive improvements to our business in order to position the Company for long-term growth and performance. We are also beginning to see positive impacts from recent new product and sales initiatives.”
Foley continued, “We reconfirm our full-year 2016 guidance of net sales down 1 to 2 percent year over year on a reported basis and Adjusted EBITDA margin of approximately 14 percent.”
Third Quarter Segment Sales and Operational Review
•Net sales in the U.S. and Canada segment were $119.3 million, compared to $120.6 million in third quarter 2015, a decrease of 1.0 percent.  Strength in business-to-business net sales during the quarter, which grew 12.1 percent versus last year, was offset by net sales declines of 7.7 percent in the retail channel and 1.5 percent in the foodservice channel.
•Net sales in the Latin America segment were $40.1 million, compared to $42.4 million in third quarter 2015, a decrease of 5.2 percent (or an increase of 3.1 percent excluding currency impact). Strong net sales growth in the retail channel of 11.1 percent (or 22.5 percent when adjusted for currency) was primarily offset by weakness in business-to-business net sales.
•Net sales in the EMEA segment were $30.1 million, compared to $30.6 million in third quarter 2015, a decrease of 1.4 percent (or a decrease of 1.6 percent excluding currency impact). Softness in the business-to-business channel offset growth in the retail and foodservice channels.
•Net sales in Other were $7.2 million in third quarter 2016, compared to $8.2 million in the comparable prior-year quarter, reflecting a decrease of 12.2 percent (or a decrease of 7.3 percent excluding currency impact).
•The Company’s effective tax rate was 65.2 percent for the quarter ended September 30, 2016, compared to (15.4) percent for the quarter ended September 30, 2015. The change in the effective tax rate was driven by a valuation allowance in the United States in 2015, which resulted in pre-tax income that generated very little tax expense, and for 2016, a reserve for uncertain tax positions, an unbenefited pre-tax loss in the Netherlands due to a valuation allowance, and a smaller proportion of pre-tax income in lower tax rate jurisdictions.
Nine-Month Financial Highlights
•Net sales for the first nine months of 2016 were $587.6 million, compared to $603.2 million for the first nine months of 2015, a decrease of 2.6 percent (or a decrease of 0.2 percent when adjusted for currency).
•Net income for the first nine months of 2016 was $12.3 million, compared to $34.2 million during the first nine months of 2015.
•Adjusted EBITDA (see Table 1) was $87.0 million for the first nine months of 2016, compared to $85.2 million for the first nine months of 2015.
Nine-Month Segment Sales and Operational Review
•Net sales in the U.S. and Canada segment were $358.6 million for the first nine months of 2016, compared to $358.0 million in the first nine months of 2015, an increase of 0.2 percent. Foodservice channel growth of 3.7 percent and business-to-business channel growth of 1.5 percent were partially offset by a 7.2 percent decline in the retail channel.
•Net sales in the Latin America segment were $115.0 million, compared to $126.8 million in the first nine months of 2015, a decrease of 9.3 percent (or an increase of 0.6 percent in constant currency), primarily due to weakness in the business-to-business channel. Retail sales in the first nine months of 2016 increased 0.4 percent versus the prior-year period (or increased 13.0 percent when adjusted for currency).
•Net sales in the EMEA segment decreased 3.5 percent (or decreased 3.6 percent excluding currency impact) to $88.0 million, compared to $91.2 million in the first nine months of 2015. The decrease was primarily the result of weakness in the business-to-business channel.
•Net sales in Other were $25.9 million in the first nine months of 2016, compared to $27.2 million in the comparable prior-year period, reflecting a decrease of 4.6 percent (or an increase of 0.9 percent in constant currency).
•Our effective tax rate was 49.3 percent for the nine months ended September 30, 2016, compared to 4.1 percent for the nine months ended September 30, 2015. The change in the effective tax rate was driven by a valuation allowance in the United States in 2015, which resulted in pre-tax income that generated very little tax expense, and for 2016, a reserve for uncertain tax positions, an unbenefited pre-tax loss in the Netherlands due to a valuation allowance, and a smaller proportion of pre-tax income in lower tax rate jurisdictions.
Balance Sheet and Liquidity
•The Company had available capacity of $92.4 million under its ABL credit facility at September 30, 2016, with no loans outstanding. The Company also had cash on hand of $42.7 million at September 30, 2016.
•At September 30, 2016, Trade Working Capital, defined as inventories and accounts receivable less accounts payable, was $226.8 million, a decrease of $5.1 million, compared to $231.9 million at September 30, 2015 (see Table 3). The decrease was a result of lower inventories, partially offset by higher accounts receivable and lower accounts payable.
Sherry Buck, chief financial officer, commented: “We made an additional optional, early repayment on our Term Loan B of $5 million during the quarter, and we plan to continue prioritizing debt reduction during the near-term in support of our goal of reaching a target leverage ratio of 2.5x to 3.0x Debt Net of Cash to Adjusted EBITDA (See Table 5). We remain committed to our plan to return fifty percent of Free Cash Flow to shareholders during the period 2015 to 2017.”
A replay of the conference call will be available for 7 days on the company website.