Intertape Polymer Group Inc. recently released results for its second quarter ended June 30, 2020. Revenue decreased 9.4% to $267.8 million, primarily due to a decrease in volume/mix and lower selling prices. The decrease in volume/mix was primarily due to the net impact of COVID-19 on demand.
“Demand held up stronger than anticipated in our industrial and retail end markets towards the back half of the second quarter,” said Greg Yull, president and CEO. “This result, together with the continued strong momentum in the e-commerce market, enabled the business to deliver revenue 10% above and adjusted EBITDA 28% above the respective midpoints of the forecast we provided on the first quarter call, which represents a decrease of only 9% in each metric compared to the same period last year. The operational measures we implemented in the face of uncertain demand, which included capacity optimization, inventory management and cost controls, supported improved bottom line results…”
IPG reports that it has implemented measures to prioritize the health and safety of its employees while protecting its assets, customers, suppliers, and shareholders. The following reportedly represent some highlights of its efforts to this point:
- Management has put measures in place to enable employees to work safely according to U.S. Centers for Disease Control and Prevention and other applicable social distancing guidelines, wearing protective face coverings provided by the company where required and strongly encouraging employees to wear them in jurisdictions where they are not already required, and completing health interviews prior to entry on a regular basis. Cleaning and sanitization of the equipment and facilities has been increased significantly in the context of COVID-19, and the company is supporting remote work arrangements for approximately 20% of its workforce in North America. The remote work arrangements have not had any significant effect on the company’s ability to conduct its day-to-day operations.
- IPG’s facilities are open and operating, having qualified as essential under the applicable government orders and guidelines. Alternative capacity exists across all major product lines that would enable the continuation of operations if certain facilities were required to close. However, in most cases, this alternative capacity would produce less than current run rates. Management has and will continue to adjust production plans to align with demand and slow down as deemed necessary in order to manage working capital and associated cost levels. Management has successfully mitigated minor supply chain challenges experienced to date and continues to work closely with suppliers as supply chain risk mitigation plans are refined.
- The company’s cash and expense management initiatives to date include a company-wide salaried position hiring freeze applicable to positions vacated as a result of both normal attrition and terminations, the postponement of annual pay increases for salaried staff, the delay of non-essential capital projects, and suspension of business travel and other discretionary spending. In the second quarter of 2020, certain positions were eliminated as part of an employee restructuring initiative. This restructuring initiative resulted in cash charges for termination benefits of $2.7 million and is expected to yield estimated annual savings of $4.7 million in wages, salaries, and other short-term benefits with the effect of additional adjusted EBITDA of approximately $1.8 million in 2020. Minimal additional charges are expected to be incurred in the third quarter of 2020 as this initiative is completed. Further cost saving measures may be taken should the impact of the virus be worse than currently anticipated.
“The shelter-in-place practices implemented across North America, together with the de-stocking practices at distributors, impacted our end market demand across the portfolio by up to 20% at times during the second quarter,” said Yull. “As these practices have subsided, across different regions at different times, we have seen a notable improvement in our order book.
“Given the rapid change in demand and the pace of the demand recovery we experienced in just the second quarter alone, it remains very challenging to be definitive with an outlook. As a result we will not be providing specific outlook metrics at this time. However, the strength in e-commerce demand, which some reports estimate has pulled forward two or more years of growth into the ecommerce channel, and the sustainability of this increased demand should be key drivers for organic growth in our carton sealing and protective packaging applications.
“The pandemic may result in a permanent shift in the composition of our end markets in the event e-commerce growth is sustained at current levels. The investments we have made in water-activated tape capacity, protective packaging and packaging automation solutions, including sustainable alternatives within each category, put us in a strong position to compete as a leader in packaging and protective solutions.”
Additional details are available at www.itape.com.