Glatfelter's (GLT) CEO Dante Parrini on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: Glatfelter (GLT)

Glatfelter P. H. Company (NYSE:GLT)

Q2 2014 Results Earnings Conference Call

July 29, 2014 11:00 AM ET

Executives

John Jacunski - Chief Financial Officer

Dante Parrini - Chairman and CEO

Analysts

Chip Dillon - Veritcal Research Partners

Steve Chercover - D. A. Davidson

Mark Wilde - BMO Capital Markets

Debbie Jones - Deutsche Bank

Operator

Good morning. My name is Bridget and I will be your conference operator today. At this time, I would like to welcome everyone to the Glatfelter’s Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

And now I would like to turn the call over to John Jacunski. Mr. Jacunski you may begin your conference.

John Jacunski

Thank you Bridget. Good morning and welcome to Glatfelter’s 2014 second quarter earnings conference call. This is John Jacunski. I am the Company’s CFO. Before we begin our presentation, I have a few standard reminders. During our call this morning, we will use the term adjusted earnings as well as other non-GAAP financial measures. A reconciliation of these financial measures to our GAAP-based results is included in today’s earnings release and in the investor slides. We will also make forward-looking statements today that are subject to risks and uncertainties.

Our 2013 Form 10-K filed with the SEC and today’s release, both of which are available on our website, disclose factors that could cause our actual results to differ materially from those forward-looking statements. These forward-looking statements speak only as of today and we undertake no obligation to update them. And finally, we have made available a slide presentation to accompany our comments on this morning’s call. You may access the slides on our website or through this morning’s webcast provider.

I will now turn the call over to Dante Parrini, Glatfelter’s Chairman and Chief Executive Officer.

Dante Parrini

Thank you John. Good morning and thank you for joining us to discuss our earnings for the second quarter of 2014. Earlier today we reported second quarter net income of $4.7 million or $0.11 per share. After excluding non-core business items, we earned $0.09 per share compared to $0.12 in 2013. Net sales during the quarter increased 4.5% and totaled $445 million. More details can be found on slide three of the investor presentation.

The second quarter presented a number of challenges for our business and despite them we performed pretty well. Demand for composite fibers was impacted by the issues in Ukraine and Russia and at the same time we faced increased competitive activity in the non-woven wall cover market. The business responded well for the more challenging market environment for non-woven wall cover by improving efficiencies and reducing costs which led Dresden to deliver another solid quarter.

Revenue for our Composite Fibers was up 10%, reflecting a full quarter of Dresden and ongoing growth in single serve coffee and some of our technical specialty groups. When combined with solid operating performance throughout the business Composite Fibers generated operating profit of $17.3 million 5% higher than the second quarter of last year.

Advanced Airlaid Materials had surging demand in North America that exceeds our regional capacity. The business leveraged its strong customer relationships in global scale to meet our customers’ needs by supplementing our North American capacity with production from our facility in Germany. Shipment volumes were up 4% and revenue was up 6%. Operating profit came in at $6.2 million which represented a 17% improvement.

And in Specialty Papers our annual maintenance outages for both facilities were scheduled to be completed with an expanded scope of work. We executed the outages well and in line with cost expectations. The business realized higher selling prices and a 2.5% decline in shipments. Despite this decline we again outperformed the broader uncoated free sheet market which was down nearly 7%, reflecting the long-term demand decline and increased imports.

Operating profit for the second quarter declined $3.3 million to a loss of $7.2 million. Operationally, we’re performing better. The Ohio pulp mill issues are behind us and the annual outages are now complete. As a result, I expect better results going forward.

Overall, I’m pleased with how the business has responded to these challenges and I believe we’re well positioned to deliver improved earnings in the second half of the year.

John will now provide a more in-depth review of our second quarter and then I’ll close with some additional perspectives on our business. John?

John Jacunski

Thank you, Dante. For the second quarter, we reported adjusted earnings of $3.8 million or $0.09 per share compared to adjusted earnings in the year ago quarter of $5.1 million or $0.12 per share. Slide four shows a bridge of adjusted earnings per share from the second quarter of last year to this year. Composite Fibers and Advanced Airlaid Materials each added $0.01 to earnings per share. Specialty Papers results reduced earnings per share by $0.05, reflecting a broader spoke of work for annually scheduled maintenance average in 2014. And lower pension expense and a lower tax rate, increased earnings by $0.0.3, but this is offset by higher corporate costs.

Slide five summarizes results for Composite Fibers business. This business generated revenue of $157 million in the second quarter, up 10% over last year, reflecting a full quarter of the Dresden acquisition. Shipping volume was up 13% compared to the second quarter of last year. Excluding Dresden acquisition, shipping volumes were down slightly reflecting a favorable mix shift toward tea, coffee and technical specialty products and away from composite laminate papers.

This shift was expected after upgrading a flat wire machine to an inclined wire machine in 2013 for our facility in Gernsbach, Germany. The higher volume and improved mix added $2.6 million to operating profit during the quarter. Overall, selling prices declined during the quarter primarily from non-woven wall cover and metalized products with the total impact to operating profit of $3.4 million.

For our food and beverage, shipments increased 1% while prices were flat. The single served coffee market remains strong with shipments of 4% while shipments of tea bag products were flat. Shipments of non-woven wall cover products decreased 9% on a sequential quarter basis and were down 10% on a pro forma basis when compared to the second quarter of 2013.

This decline in shipments was driven by economic weakness in Russia and Ukraine due to the political instability. We expect demand from these markets to remain volatile until the political situation stabilized. Selling prices in this segment declined during the quarter due to more aggressive competition. However, we defended our positions to retain customers and were able to generate efficiency improvement and cost reductions to maintain our margins.

Shipments of technical specialty products were strong, increasing 8% year-over-year driven by growth in the electrical segment. As expected, composite laminate shipments were down 19%, reflecting our planned shift away from the lower end of this segment.

And shipments of metalized product were flat compared to last year. Demand for wet glue labeled products remains weak in this segment and competition is increased. This has also led to lower pricing of these products. However we grew our shipments in the self-adhesive label and inner liner markets to offset the decline in the wet glue label market.

We had a good operating quarter in Composite Fibers with improved productivity in waste levels compared to the second quarter of last year. When combined with the somewhat softer market conditions, inventories increased 14% which we will reduce over the balance of year with higher sales volumes and some machine down time.

Operating profit for composite fibers was $17.3 million during the quarter, up 5% compared to a year ago and EBITDA margins expanded by 20 basis points to 15.9%. The Dresden acquisition continues to meet expectations with EBITDA of 1.4% on a pro forma basis, when compared to a full second quarter of 2013, despite the lower shipments this year.

For the third quarter of 2014, we expect shipping volumes to be slightly higher than the second quarter. And we expect selling prices and input cost to be in line with the second quarter. We also plan to take machine downtime in the third quarter at drive standing and our metalized machines to reduce inventory levels. We expect cost associated with the downtime to be offset by ongoing benefits from operating efficiencies.

Advanced Airlaid Materials results are summarized on Slide 6. This business generated another strong quarter with shipping volumes up 4% led by increases in adult incontinence and feminine hygiene products. Our leadership positions in these key markets and specialty wipes continue to provide growth opportunities for us. As a result, net revenue in the second quarter was $70.5 million up 6% compared to the second quarter of last year.

Operating profit for Advanced Airlaid Materials totaled $6.2 million in the second quarter, up 17% compared to the second quarter of last year, driven by higher shipments of hygiene products. Our facility in Canada is operating at capacity and cannot meet all the customer demand. As a result, we are supplementing the Canadian facility with production from our facility in Germany. This has created some freight cost penalties in the near term for the business. For the third quarter of 2014, we expect shipping volumes to be slightly higher than the second quarter with slightly higher selling prices, primarily as a result of higher raw material cost.

Slide 7 provides a summary of specialty papers results for the quarter. Net sales for the quarter were up slightly, while selling price has improved $6 million compared to the year ago quarter. As a result of industry price increases announced late last year and early this year.

Shipping volumes were down 2.5% but this was much better than the broader end efficient market that was down nearly 7% compared to the same quarter last year. We continue to grow in key product lines to offset the impact of the broader market deployment, with shipments of non-carbonless forms products up 11% and engineered products increasing 8%. We saw declines in shipments of envelope products of 5% with book publishing products down 9% and carbonless products up 14%. The decline in shipments of carbonless products reflect some opportunistic export business we had last year.

Excluding these shipments, were down 10% which is in line to long-term ready decline for this market. We expect a broad product line, flexible assets and excellent customer service to allow us to continue outperform the broader end for the efficient market and run our facilities at or near capacity.

During the second quarter specialty papers had an operating loss of $7.2 million compared to a $3.9 million loss in the year ago quarter. During the second quarter, we completed our annually scheduled maintenance outages at both of our facilities which adversely impacted results by $28 million in 2014 as compared to $22 million in the second quarter of last year reflecting a broader scope of work.

In the quarter we experienced higher raw material and energy prices which negatively impacted earnings by approximately $1.7 million. These higher costs were predominantly for purchase pulp and wood. For this business unit in the third quarter we expect shipping volumes to increase 5% compared to the second quarter with slightly higher average selling prices. We expect raw material and energy prices to be in line with the second quarter.

Slide eight shows corporate cost and other financial items for the quarter. Overall corporate costs declined compared to last year. This is largely due to $4.8 million of acquisition and integration costs incurred last year, which are excluded from adjusted earnings, together with the $1.4 million decline in pension expense.

The sales of our pension plan is shown on slide nine. Our qualified plan remains well funded. We’ve not had to make cash contributions to our qualified plan for quite some time and we do not expect to for the foreseeable future. With respect to pension expense considering the impact of higher discount rates and the improved funded status, we expect full year 2014 expense of approximately $6.7 million compared to $14.2 million for 2013.

Slide 10 shows our free cash flow. During the second quarter we used cash from operations of $11.2 million compared to generation of $32.4 million in the second quarter of 2013. The decline in cash flow from operations was driven by a higher use of cash this year for working capital and higher cash tax payments.

Capital expenditures for the second quarter declined compared to last year due to the completion of the composite fibers capacity expansion project. For the full year we expect capital expenditures of $80 million to $90 million. As it’s typical for our business we expect strong cash flow over the second half of the year.

Finally slide 11 shows some balance sheet and liquidity metrics. Our net debt totaled $387 million at June 30, and is increased from the Dresden acquisition and from higher working capital used in 2014. In addition we used $9.5 million in 2014 for the repurchase of 360,000 shares. We have $36 million remaining on our authorization that expires on May 2016. We finished the quarter with $28 million of cash and $182 million available under our revolving credit facility.

So our balance sheet remains in good shape but leverage on a net debt basis of 2.3 times at June 30th. We believe this provides sufficient liquidity to continue to execute our growth strategies and we expect a substantial reduction in net debt in the second half of the year.

This concludes my comments I'll now turn the call back to Dante.

Dante Parrini

Thanks John. Before opening the call for your questions, I want to provide a few comments on our strategy as well as our expectations for the remainder of 2014. Our strategy focuses on generating substantial cash flow from our matured businesses and using that cash flow to invest in our growing fiber based engineered materials business and returning value to our shareholders.

This strategy has reshaped our business portfolio, such that half of our revenue and two-thirds of our EBITDA is now coming from our global growth businesses. And we've built leading positions in a variety of key markets with attractive growth rates.

Our businesses faced some challenges over the past few quarters, but I'm pleased with how Glatfelter people have responded. The underlying growth potential for our key markets remained strong in the steps we have taken provide us the opportunity to generate solid results in the second half of the year.

For Composite Fibers, we expect firm demand in our tea and single serve coffee markets. While there is some uncertainty with the non-woven wall cover markets in Russia and Ukraine, we currently expect demand for the third quarter to be in line with or a bit better than the second quarter.

We expect continuing strong demand hygiene products and advanced airlaid materials and we expect improved demand for specialty papers due to the seasonally stronger third quarter. We're also focused on sustaining or recently improved operating performance and tightly controlling costs. This gives us confidence in our ability to generate solid results for the second half of the year.

At this point, I'd like to open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of James Armstrong with Vertical Research Partners.

Chip Dillon - Veritcal Research Partners

Yes, hi. It's actually Chip Dillon on for James. How are you guys doing?

John Jacunski

Good morning Chip.

Chip Dillon - Veritcal Research Partners

Good. Listen, we were just wondering. Could you just give us a little more color on sort of the quarter-to-quarter change in mill maintenance and Specialty Papers I guess as it looks from the second quarter going into the third and fourth?

John Jacunski

Sure so with no maintenance internal outages were in the second quarter, we spent $20 million this year and $22 million last year. We had an expanded scope of work primarily in our pulp mills and boilers this year and it was a normal sort of course of the rotation of work. We also consumed more purchased pulp during the outage this year because we had our paper machines down fewer days for its annual maintenance. So purchase pulp in more expensive credit and additional cost penalties. So going forward Q3 and Q4 we would expect sort of normal type cost that we would have had in Q3 and Q4 of last year with sort of normal inflation rates, but nothing extraordinary in the balance of the year.

Chip Dillon - Veritcal Research Partners

Got you. And maybe just if you could tell us, give us a little of drill down in terms of how the pricing is working in some of the various specialty subgrades. And are you seeing some of the difficulty in the commodity guys in uncoated free sheet getting pricing? Is that starting to, I don't think you guys would have any kind of import pressure but are you seeing at least some collateral challenges in terms of your pricing?

Dante Parrini

Sure this is Dante. As we stated earlier we added about $6 million year-over-year in Q2 2014. If I look at the two different price increases that were announced, the first being in Q4 of 2013 and the second in Q1 of 2014, we had about a 60% price realization depending on grades and contract terms with the first price increase. And with the second price increase, we're estimating about a 20% realization, again depending on grades and contract terms.

So, this is approximately $50 a ton and it will apply to about 520,000 tons of our grades that we produce in North America.

Chip Dillon - Veritcal Research Partners

And then lastly, sorry go ahead.

Dante Parrini

You were asking about imports. And I’d say that the decrease in demand year-over-year was much closer to the typical trend line of down 3% to 4% where the additional pressure came was with trade flows. And as you know, our exports declined as an industry and we had greater imports from places like Brazil, Indonesia and Portugal that created additional headwind for I would say more the commodity producers but it has, it's own knock on effects for all industry players, fortunately less so for Glatfelter.

Chip Dillon - Veritcal Research Partners

Okay. And then one last one real quickly; any kind of variation you expect for the tax rate in the third quarter and what you think the whole year will look like?

John Jacunski

Yes, our tax rate we’re expecting in the second half of the year to be about 28%, little bit higher than our second quarter, but second quarter within annual maintenance outages, the income being down, the rate was a little bit lower. But we expect 28% for the second half of the year.

Chip Dillon - Veritcal Research Partners

Okay, guys. Thanks and good luck then.

Dante Parrini

Thank you.

Operator

And your next question comes from the line of Steve Chercover with D. A. Davidson.

Steve Chercover - D. A. Davidson

Hi Dante, hi John. A couple of quick ones, please. First of all, as I understand it, I think Keurig has a new type of pod that's coming to market that forms private label substation. Are you guys involved on that or can you discuss it?

Dante Parrini

So I think you are referring to the Keurig 2.0 and it does take portion packs that use filter paper. And we do not anticipate the introduction of that particular system to have any negative effects on our business at all.

Steve Chercover - D. A. Davidson

Yes. I mean I was think almost -- be positive and so far as I think some of the other alternatives include very fine wire mesh that will no longer be compatible.

Dante Parrini

Yes, I am happy to comment on that. We've been asked this several times. The penetration rate of non-licensed products has been quite low. And I think that Keurig Green Mountain has done an outstanding job with their marketing approach to partner with key brand owners throughout the broader industry.

And so we’re very bullish on single served coffee. I believe the industry views as a supplier of choice and we take them very seriously. And we're going to continue to make sure that we innovate well and that we have high quality available capacity that can continue to support growth and development of the segment and our customer. So we're very optimistic about single served coffee.

Steve Chercover - D. A. Davidson

Okay. And second question suppose Gatineau being sold out is a nice problem to have; is the market tight due perhaps to closure in British Columbia within the last 18 months? And do you have ability to somehow expand that facility; what would be the strategy to make sure that you're not always on allocation?

Dante Parrini

Sure. So I think there are a number of factors that play here. Clearly over the last couple of years, some capacity has been taking out of the market in North America whether it was in British Columbia or in Wisconsin. And the market continues to grow for hygiene products and the specialty wipes that we produce and serve. So, we’re very focused on projects to de-bottleneck our entire Airlaid system, both in Canada as well as Germany. We want to leverage our global scale and the fact that we have a very large portfolio of assets and the largest producer of Airlaid materials that go into the hygiene business so that customers know that they can rely on Glatfelter to continue to support the market growth. And we’re in the process of assessing future demand requirements in cost efficient ways to support our customers projected growth.

Steve Chercover - D. A. Davidson

Okay. And my last question is on the share repurchase. Doing the quick math, you’re buying back stock at an average price of just over 26 bucks and with the shares now $3 below that, presumably that’s an attractive entry point. Are you comfortable I suppose this is for you John that with the balance sheet and the cash flow generation that you could be aggressive in the second half?

John Jacunski

Well the program we have extends for about another two years. We have about $36 million and our intention with our program had been to offset share dilution. So, we look at share repurchases in the context of what our future needs are for investment in the business. Dante talked and we’ve talked about the growth that we see in our Airlaid business as well as our Composite Fibers business. So we will make those decisions in the context of our near-term cash flow needs for investment in the business and our view of what the share price is.

Steve Chercover - D. A. Davidson

Great. Thank you very much.

Operator

And your next question comes from the line of Mark Wilde with BMO Capital Markets.

Mark Wilde - BMO Capital Markets

Dante, good morning, John.

Dante Parrini

Good morning Mark.

John Jacunski

Good morning Mark.

Mark Wilde - BMO Capital Markets

I guess I want to start with Composite Fibers, can you just give us a sense between kind of T-bag and wall covering and everything that’s in this unit. What percent of the sales are going to Russia and Ukraine?

Dante Parrini

So in Composite Fibers, we have about 130 million a year of revenue that is generated in those two specific jurisdictions.

Mark Wilde - BMO Capital

Okay. And can you give us a sense…

Dante Parrini

Approximately 30% of Composite Fibers revenue.

Mark Wilde - BMO Capital

Okay. Alright. Can you give us as sense as volume we can further in the last few weeks just with the events that we've seen in the region?

Dante Parrini

Yes, a few comments there. Clearly the geopolitical unrest is creating volatility and some weakness in demand. The good news is the vast majority of our customers are located outside of hotspots and we are the costs and quality leader which is always an advantage. The increased volatility just makes it a little cloudier in terms of the demand profile overtime.

So as I stated in my prepared remarks, we're expecting demand to be on par or slightly better than what we expect in Q2 and Q3, it's just, you just don't know when you this geopolitical unrest and until things stabilize there, we will probably continue to adapt a more cautious approach to manage in this part of our business.

However, as John stated and as I stated we delivered another successful quarter that was very profitable for the business and we talked about improving our efficiencies and our cost profile and that was accomplished through several things that we had on the shelf and ready to go, which range from the benefits that previous capital investments that we have made, leveraging our procurement and supply chain synergies, addressing some commercial synergies post acquisition to help reduce agent costs and we deployed the Glatfelter continue to do some improvement toolset to our colleagues in Dresden and the combination of all these factors enabled us to respond very quickly to perhaps an unforeseen short term change in the market, but nonetheless we were prepared and ready and I think this speaks to some of the global scale that we have built overtime and the level of sophistication that we can bring to very niche businesses around the world.

And the long-term global growth rate is still very compelling for the category. So I view it as short-term turbulence.

Mark Wilde - BMO Capital

Okay. Dante, you guys mentioned in your commentary that you are seeing kind of increased competition in wall covering and metalized. I wonder if you could just give us a sense of where that's coming from, because I know your share was quite high in that nonwoven wall covering and I thought you had pretty good share in metalized as well.

Dante Parrini

Yes share in nonwoven wallcovers just a little 50% and when the market is growing at 10% per year globally it’s bound to attract some additional attention and what we saw companies like Alstom and Technocell started to allocate more capacity to this particular segment recognizing that there was projected strong demand with this conversion of paper to nonwoven. Nobody foresaw these issues in Russia Ukraine, and Russia Ukraine is a big driver in the European segment of the market, China, Asia Pac is also another big market. So I think was a convergence of some additional capacity being directed toward a growing market and an unforeseen geopolitical event that popped up at the same time.

Again we see these as near-term issues not fundamental shift in the market but we would like to see the geopolitical situation stabilize a little bit more and I think everybody’s crystal ball will get a little after that.

Mark Wilde - BMO Capital

You guys mentioned some downtime in this business, I think in the third quarter. I wonder if it's possible to kind of quantify what the costs of that might be?

John Jacunski

Mark I don’t have a specific estimate for you but as I Mentioned in our outlook, we expect that the impact at downtime will be offset by some of our efficiencies and cost reduction initiatives. So, our plan is to reduce inventories and reduce working capital that we have invested in inventories. But net-net we don't expect it to be a hit to our P&L, we think we can offset the impact.

Mark Wilde - BMO Capital

Okay. And just turning to Airlaid, one of your main customers there is I think expanding into adult incontinence. And I just wondered whether there's any of your Airlaid that kind of feeds into that new initiative?

Dante Parrini

So, we're very enthusiastic about the developing category the adult incontinence for the retail segment. In highly functional hygiene products, fit Glatfelter's technology exceptionally well. And I believe we're viewed as a supplier of choice, we are very well positioned to support this growth and the development of this segment. As you might be able to appreciate, but really don't comment on any customer specific activities, but I'll just summarize by saying that we're well positioned to support the growth of this category and we are enthusiastic at prospects for the future.

Mark Wilde - BMO Capital

Okay. That's good enough. And then finally, I just want to talk about CapEx. You mentioned $80 million to $90 million this year. Do you have any sense of where you will be in 2015, 2016? And I'm especially focused on kind of what type of environmental spend you may have over the next couple of years with Boiler MAC and other things?

John Jacunski

Sure Mark. So we haven't given a specific estimate yet for ‘15 and ‘16, but I can give you a little bit of color that will help. We for this year, the $80 million to $90 million includes about $10 million related to environmental client compliance investments for our boilers. The total cost of the boiler compliance over about a three year period is in the $70 million to $90 million range. So, we will invest $10 million this year and then the balance will be over the next two years. Our normal CapEx turns to be in the $70 million year range depending on whether we have any sort of capacity expansion or other significant investments. But we will see an uptick in capital spending from the boiler compliance situation.

Mark Wilde - BMO Capital Markets

Okay. At this point John, you're moving ahead with kind of boiler investments at both Spring Grove and Chillicothe?

John Jacunski

That's right.

Mark Wilde - BMO Capital Markets

Okay. All right, good enough. I'll turn it over.

Operator

(Operator Instructions). And your next question comes from the line of Debbie Jones with Deutsche Bank.

Debbie Jones - Deutsche Bank

I was wondering if you guys could actually quantify the impact of shifting more of the production to your Germany facility in Airlaid versus North America.

Dante Parrini

Sure. In the second quarter, the freight [penalty] was on the order of was $0.5.

Debbie Jones - Deutsche Bank

Okay. And then if you do move forward with P&G, if that becomes a better option for your guys, you said you’re constrained in North America, so would it be that if you were to pick up a new customer or category, you would have to actually add some capacity, number one. And then I guess my second question would be who else you compete with that could supply these absorbent materials to P&G?

Dante Parrini

Yes. So again, if you think about how we manage our business when we want to optimize the assets that we have. So going through and executing all of our various projects on debottlenecking, we've been very successful in the same approach in composite fibers to essentially create part of a paper machine that didn't exist with very little capital. So we're going through the same process in the airlaid business and I expect that to generate some incremental capacity. We'll again look to fully utilize both Germany and Canada and at the same time parallel path, we’re assessing the future demand requirements and how we can give confidence to the market that we’re there to continue to support ongoing growth whether that’s an investment in new capacity and expansion of existing facility, it’s a little bit premature.

We always have the option to manage our mix as well and we will apply all of these different approaches to satisfy the needs of our customers and make sure that people view us as a supplier of choice.

Debbie Jones - Deutsche Bank

Okay. And then the question about you can derisk?

Dante Parrini

Right. So, there are other producers of airlaid who may or may not be supplying the adult incontinence and are they supplying the institutional segment versus the retail segment because it’s new and evolving it’s still to be determined. But you’ve got companies like George Pacific who have airlaid assets, Domtar has a captive small airlaid business and then you’ve got some regional players tucked around Europe and Asia that don’t have anywhere near the scale or capabilities that we have.

Debbie Jones - Deutsche Bank

Okay. Thank you. That’s helpful. And then the last question I had just on the leadership changes that you’ve made over the last few months. Can you just address those and then how that will ultimately impact your management structure?

Dante Parrini

Sure. I suspect you’re referring to the two different announcements that we had, one in Specialty Papers when we announced some leadership changes to support the migration from a divisional operating model to a functional operating model. And we did this as our markets continue to evolve in North America, we want it to be able to better leverage the capabilities of our nine paper machine system, improve our service proposition to our customers and improve our cost profile. And as we thought through how we wanted to do this in a very logical fashion. We added a veteran manufacturing executive to our team as well as made several appointments and promotions with internal Glatfelter personal. So I am very excited about the approach for taking the Specialty Papers and I'm confident that this will help us continue to outperform the broader market.

When it comes to the announcements we made in our corporate finance group. We had again another exciting internal promotion in tax and then we had an external hire for treasury. And always looking at ways to strengthen our team, leverage the talent management infrastructure that we have in place and enhance our global business as we continue to execute our growth strategy. So I think these moves are very encouraging and I'm excited about the contributions that these leaders are going to make and into assignments.

Debbie Jones - Deutsche Bank

Okay. Thank you. That's helpful.

Operator

And your next question comes from the line of Dan (inaudible) of Sidoti.

Unidentified Analyst

Can you guys hear me?

John Jacunski

Yes, good morning.

Dante Parrini

Good morning.

Unidentified Analyst

Good morning, thanks for taking the question. Can you just talk a little bit about the envelope business, I think you guys it was down eight. What is going there, is that more function as a competitive environment or you just cycling I think you were up eight last year. So is it just function of cycling a hard compare? Thanks.

Dante Parrini

Sure. Envelope was down 4.7% year-over-year and we've had a track record over the last five plus years of growing and at about a 7% CAGR. So something as you get period to period variation but to the course of the year I feel that track record, we tripled that market share over that period of time and we anticipate maintaining that market share. So I wouldn't overreact to one quarter data.

Unidentified Analyst

Okay. Thank you.

Dante Parrini

Sure.

Operator

And there are no further questions at this time. I would now like to turn the call back over to John Jacunski for any closing remarks.

John Jacunski

Okay well, I would like to thank everyone for joining us today and we look forward to speaking with you next quarter. Have a good day.

Operator

And thank you, this does conclude today’s conference call. You may now disconnect your lines.

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Glatfelter (NYSE:GLT): Q2 EPS of $0.09 misses by $0.03. Revenue of $445.3M (+4.4% Y/Y) misses by $35.83M.