Neenah Paper's (NP) CEO Doug Bauer on Q2 2014 Results - Earnings Call Transcript

Aug. 9.14 | About: Neenah Paper, (NP)

Neenah Paper, Inc. (NYSE:NP)

Q2 2014 Earnings Conference Call

August 7, 2014 11:00 AM ET

Executives

Bill McCarthy - VP, Financial Analysis and IR

John O’Donnell - CEO

Bonnie Lind - CFO

Analysts

Steve Chercover - D.A. Davidson & Co.

Jon Tanwanteng - CJS Securities

Dan Ducome - Sidoti & Company

Operator

Good morning, my name is Bernard and I will be your conference operator today, at this time I would like to welcome everyone to the Neenah paper second quarter 2014 earnings conference call, all line have been placed on mute to prevent any background noise. After the prepared remarks there will be a question and answer session (Operator Instructions). As a reminder ladies and gentlemen this conference is being recorded today August 7, 2014. Thank you, I will now turn the call over to Mr. Bill McCarthy, Vice President of Financial Analysis and Investor Relations. Please go ahead, sir.

Bill McCarthy

Okay good morning everyone and welcome to Neenah’s 2014 second quarter earnings call, we released earnings yesterday afternoon and also posted backup data in an updated presentation in the Investor Relations section of our website.

This morning after I recap a few headlines, John O’Donnell our Chief Executive Officer and Bonnie Lynd our Chief Financial Officer will discuss our activities and financial results in detail. As usual following these prepared remarks we’ll open up the call for questions.

At the risk of sounding like a broken record I’ll start off noting that in this past quarter we in fact broke a number of records. Consolidated net sales were a record 230 million, up 9% from a year ago, operating income of 25.9 million and earnings per share of $0.88 each grew approximately 15% to record levels, this performance was supported by both business units as Fine Paper achieved record sales and profits and technical products was just 1% short of record levels which they achieved in the first quarter.

Our adjusted earnings were $0.90 per share and this excluded costs of $0.02 for restructuring in our recent acquisition. Last year adjusted earnings in the second earnings in the second quarter were $0.80 and excluded $0.03 for debt refinancing, restructuring integration costs and a pension settlement charge. Adjusted earnings were provided to aid in comparability between periods but our non GAAP measure and our reconciled to corresponding GAAP figures in our press release.

Finally I’ll remind everyone that our call today contains forward looking statements, risks and uncertainties that could cause actual results to differ materially from these statements are outlined both in our SEC filings and in the Safe Harbor disclaimer on our website, and with that I’d like to turn things over to John.

John O’Donnell

Thanks Bill. As you heard our team’s delivered impressive results in the quarter with strong top line growth driven by 7% increase in volume and earnings that grew at a double digit pace. Our competitive position remains strong and we’re capturing share and expanding in new markets while never losing our focus on improving costs and operational efficiencies. We generated 32 million of free cash flow in the quarter and with our strong balance sheet we paid for the acquisition of Crane's non-woven filtration business on July 1 with available cash.

As usual I’ll first provide an update on progress against our strategic priorities including the recent acquisition, before turning things over to Bonnie to gush over financial results. First we’re continuing to expand our meaningful positions in core specialty markets. With the Crane acquisition filtration now represents almost half of our technical product sales. In the second quarter our core transportation filtration business continued to perform well with sales up 4% and EBIT growing 11%.

In addition to solid performance in Europe our largest market, international sales grew by double digits and continued to represent an attractive growth opportunity. As a result we remain committed to increasing our presence in meaningful geographies to support our global customers with the innovative high performance products we are known for.

The Crane acquisition represents another step in this direction providing an initial footprint in North America. Also we want to recognize the good performance of our technical backings business, where sales were up 9% led by strong growth in North America. These specialized backings for [indiscernible] grew as we gain share with existing customers and expanded our product portfolio. As Bill mentioned Fine Paper delivered a record quarter and under the strong leadership of this business continues to find ways to overcome a challenging market consistently delivering strong topline results and meaningful cash flow with a very attractive margins and returns on capital.

While I’m pleased with the quarter, it’s the longer term performance of this business that I think have been more impressive. Over the past few years Fine Paper has grown organically by around 1% annually, in addition we built on this performance with some very acquisitions. I’m excited about what this team is able to do and find it remarkable that the unique segment with Paper and its name can deliver this kind of performance while it continues to reinvent its future. Contributing to Fine Papers result has been rapid growth in premium packaging. Sales of these products grew by more than 30% both the first and second quarters, while still a small part of the fine paper portfolio today around 10% of sales we see opportunities for significant growth as we expand our operating and leverage our technical capabilities to make high quality media for customers who value image.

Our focus is on end use vertical markets like jewellery, electronics, cosmetics and alcohol. Valuable products in small packages and we believe these represent an addressable market of about 300 million, the second priority is to increase our presence and scale in growing strategic categories that value our core capabilities through efficient capital investments and value adding M&A. To do this we’ll continue to invest in fast growing defensible markets with a bias towards performance oriented technical products. Many products in these markets utilize wet laid non-woven technology which uses synthetic fibers in manufacturing instead of wood pulp. We currently make wet laid nonwovens in two of our German facilities. And with the recent acquisition we’re excited to add a U.S. footprint. Let me talk about that next.

We acquired Crane’s filtration business 37 days ago on July 1st, as a reminder this business has sales approaching $50 million hence expected to be around $0.20 per share accretive on an ongoing basis. Results of this business will be included in our technical product segment. This acquisition is a strong strategic fit and brings new technologies and product development capabilities that we can leverage with our European filtration business to unlock and act on new growth opportunities.

Almost two thirds of the Crane business is a membrane carrier for advanced water filtration products principally reverse osmosis. We’re the clear leader in the market's two biggest geographies the U.S. and China which have been growing in line with our expectation for filtration which is around two times GDP. We’re well positioned to participate in future growth with key technologies, strong customer relationships and sufficient capacity resulting for productivity improvements and prior capital investments.

The other third of our business is also in attractive growth markets with highly technical products used for environmental, energy management and thermoacoustical insulation. These products include solar panels, wire and cable insulation, media used in chemical filtration and separation, heat shields, battery separators just to name a few. The integration is going very smoothly and feedback has been very positive from customers, suppliers and our new employees.

As our third acquisition in three years we have confidence in our integration planning and execution and know that this is where value can be lost if it’s not done well. We inspect integration activities and associated cost to be complete by year end. Even though we are busy in near term with integration activities, we’re most excited about the potential this business brings when combined with our German filtration operation.

There has already been numerous interactions between our research and business teams and both have come away enthused about the opportunities to advance our wet laid nonwovens capabilities and develop new products and customer solutions both for existing markets and for markets new to Neenah. While current plans are not to make transportation filtration in these facilities, the acquisition establishes an on-the-ground filtration presence in North America, an important initial step and a key component of our growth strategy for filtration.

Turning back to our strategic priorities, last but not least, we intend to deliver attractive returns to shareholders with a meaningful cash component. Good returns should follow good results, especially if they’re delivered consistently and with no surprises. If heard me refer to this in previous calls as making the doughnuts. The hard work of our team is clearly evidence to what they accomplish this last quarter, growing earnings and cash flows coupled with disciplined capital management and cash deployment to support a rising share price and the ability to increase cash returns to the shareholders. In May, we announced our fourth dividend increase in the past 18 months and we’ve more than doubled our quarterly dividends since 2012.

We also renewed our share buyback program which provides another way of returning cash to shareholders and allows us to take advantage of buying opportunities.

So to wrap up, our businesses are performing very well with record financial results driven by volume growth in core markets boosted by success and targeted niches. The recent acquisition adds a new growth platform to our filtration business and we look forward to fully integrating it into Neenah taking full advantage of the growth opportunities we see in new products and with key strategic customers.

With our sizable cash flow generation and strong balance sheet, we remain in an enviable position that allows us to pursue these notable avenues to create value for our shareholders. And with that, I’ll turn things over to Bonnie, to review financial results for the quarter.

Bonnie Lind

Thanks John. As you’ve heard our consolidated financial results were driven by terrific performance in both business segments. I’ll start with technical products. Sales were up 117 million up 10% compared to prior year’s sales of 106 million. Higher volumes accounted for 8% of the growth with the remainder due to favorable currency translation partly offset by slightly lower net prices.

In present growth we’re seeing across all categories as sales of filtration and backing products each grew 9% and specialties being 13%. We are seeing benefits from improved global economic conditions as well as from share gains in many categories as we expand our geographic presence and capture new business. Excluding $0.5 million for restructuring cost, operating income was almost $14 million up 15% from $12 million in the second quarter of last year.

Higher income resulted primarily from our sales growth as manufacturing costs were relative flat year-on-year. Year-to-date our growth with growing sales and better operating performance profit margins have improved by 40 basis points continuing the longer term improvement trend we’ve seen in this segment. Turning to fine paper, sales in the quarter were 107 million an all-time record and up 7% compared with a 100 million last year like technical products sales growth was driven by higher volumes with shipments up 6%.

Volume growth resulted from gains in our core premium brand, growth in digital and international sales and the 35% increase in premium packaging we are now supplying packaging media for a number of well-known consumer products as well as have greater penetration in labels as we expand beyond wine into other areas such as the craft beer segment.

In addition sales reflect our expanded line of products following last September’s distribution agreement with Gruppo Cordenons that bought complementary new products and added capabilities to grow in packaging.

Operating income at Fine Paper was 17.3 million, up 12% compared with 15.5 million last year. The higher income in 2014 resulted primarily from increased sales but also from higher selling prices and over one million dollars of lower SG&A due mostly to timing of advertising expenditures, combined these benefits offset higher manufacturing cost including more than a million dollars of higher input costs mostly for pulp.

Unallocated corporate costs were 4.5 million in the quarter compared with 4.2 million last year. In 2014 costs included $200,000 related to the Crane acquisition and in 2013 there was 700,000 for debt refinancing and a pension settlement charge.

Excluding these items corporate costs increased in the quarter primarily due to the timing of expenses. Over the past few years' unallocated corporate costs has averaged around $4 million per quarter. Consolidated SG&A which includes corporate expense was 20.4 million up from 19.2 million in 2013 due mostly to the timing of corporate cost.

Our SG&A efficiency has improved as we’ve grown and this year SG&A as a percent of sales has averaged 8.8% down from 9.4% in 2013. The Crane acquisition will add approximately 5 million annually to our SG&A expense including approximately 1 million from non-cash amortization of intangibles. Moving to a few corporate PNO items that interest expense of 2.9 million declined from 3.1 million last year as a result of lower average interest rate following the refi of our PNOs that we did in May of 2013, the effective tax rate in the second quarter was 35% up slightly from 34% last year, for 2014 we expect to remain at or around this 35%.

As we previously communicated we expect to increase cash back payments in 2015 after our Federal NOLs are fully used, as of June remaining Federal NOLs were just under $20 million, these future higher tech payments should not significantly impact our overall cash flow however as our US pension plan is well funded and we expect to reduce pension contributions by a like amount.

In the second quarter cash from Ops was $37 million, up almost $10 million from last year. This increase resulted from higher earnings and working capital efficiencies.

Our teams continued to make progress in improving inventory efficiencies but we also benefited from timing of certain payments in the second quarter which is likely to reduce third-quarter cash flow by a $2 million.

As I previously mentioned our US pension plan is in great shape as a result of actions we’ve taken to fund and de-risk the plan over the last few years. This year pension contributions are expected to be around $21 million and cash payments for all pension and [indiscernible] plans are expected to be 13 million more than expect.

Capital spending was 4.8 million in the quarter compared to 5 million last year. On a year to date basis, free cash flow is 43 million more than twice last year’s level. While we don’t expect to maintain this pace in the second half due to seasonality and annual maintenance down, this performance underscores the very strong cash flow capability of our businesses.

This year we’ve used cash flow to pay dividends, reduce debt and build cash in anticipation of the acquisition, in the second quarter we reduced debt by 12 million and added almost 15 million of cash. On July 1, we used 72 million of cash on hand to purchase plant filtration business. Just a reminder this purchase price reflected around 8 million of value; we expect to realize from future cash tax benefits. Following the acquisition our balance sheet remains very strong with debt to EBITDA well below our targeted range of 2-3 times.

As we’ve indicated dividends are important parts of our cash component strategy. We recently announced the second dividend increase for 2014 with a 13% increase reflected in September. The new dividend represents annual cash of around 18 million and a payout ratio of 36% when based on 2013 net income. As our earnings and cash flow continue to grow we expect to move toward our targeted yield of at least 3%.

With that I’ll turn things back to you John.

John O’Donnell

Thank you, Bonnie. I’ll provide a few thoughts and reminder regarding the second half of the year and then wrap up with some summary comments.

In general the global economic environments improved which helped support demand for our products. Our market positions are strong and we’re growing share in key categories and expanding in profitable adjacent markets and geographies.

So while we’re well positioned there are a few items to keep in mind for the second half. First we’re seasonally slower particularly in technical products where historic sales in the back half of the year are only 48% of the full year. Based on year to date sales as to represent a change of about $15-$20 million.

With Fine Papers the seasonality impact is much less, however we may see a onetime reduction in sales this year as certain large customers move forward with their mergers and consolidate their inventories.

The bottom line is a larger variation due to seasonality. In addition to reduced profit contribution from lower sales and added holiday downtime, we schedule our annual maintenance down to the second half of the year. As is typical most of our down flow again incurred in the third quarter. However there are a few moving parts. First, we’ll have additional cost for mill down in 2014 that did not occur in 2013.

Second, the annual down at our German filtration mill is being shifted from the third to the fourth quarter and will also be extended in order to complete a project to increase quality and capacity on our largest machine.

This project has an attractive return on investment and the extended down will not result in any lost sales or impact customer service will not cause us to exceed our 2014 capital spending forecast of 30 million.

So to summarize, we expect third quarter cost for maintenance downs to be around 3 million roughly the same as last year. Because of the filtration project costs of downs in the fourth quarter will be approximately 2 million higher than last year.

Crane acquisition will be included in technical products starting in the third quarter. This business has similar season pattern to our existing technical products business and as we’ve said margin should be comparable. However, onetime cost of at least 2 million this year will largely offset any bottom line contribution in that second half of this year.

Lastly, we don’t see any major changes in input cost in the third quarter versus the second, energy has moderated from the first quarter’s spike in the U.S. but remains high year-on-year and pulp prices have continue to remain stubbornly high. It implemented selling price increases for most categories this year and that’s usual expect to offset changes in input cost over time through market pricing activities and cost efficiencies.

So, with that let me wrap up. Our businesses are very healthy and our teams delivered an outstanding second quarter. We’re aligned with the leading blue-chip customers who are winning in their markets. Many of these customers are global and looking for us to increase our participation with them as we expand beyond our home base. We’re continuing to invest in brands and capabilities we’re leveraging our Fine Paper knowhow and reputation to grow in premium packaging.

We continue to support growth in filtration and the acquisition brings new wet laid nonwoven technologies for us to further expand our platform especially in North America. Efforts to reduce cost and improve efficiencies are never ending and our teams are continually pursuing ways to enhance our competitive position.

Finally we remain disciplined in how we manage and deploy our capital through attractive organic investments, value adding M&A and meaningful direct cash returns to our shareholders.

It’s a commitment of our team and their ability to execute successfully that delivers the consistently good results we report to you each quarter. Thank you for your interest this morning and at this point I’d like to open up the call for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Steve Chercover.

Steve Chercover - D.A. Davidson & Co.

So we don't really know how many tons of paper you produce. But I was just wondering if you could tell us how many tons of pulp you buy. And if in fact there is a decline in market pulp prices, how that might benefit you.

John O’Donnell

We buy about 230,000 tons roughly of pulp from that. If you look, about half of it's in the fine paper business which is predominantly the hardwood portion and softwood in the technical product side. In the fine paper side business we move -- our prices move up very -- in small increments if you will because there tends to be a stickiness in that business so, we do not produce pricing with pulp in that business predominantly how the inventory and branded. On the technical side of the business there is about third of our business that has escalators and would move with any type of price movement overall.

Steve Chercover - D.A. Davidson & Co.

So I mean, I guess, it's my job as a paper analyst to have an opinion on pulp. And it seems like we might get a little bit of a tailwind on the hardwood side, which would benefit fine paper.

John O’Donnell

Yes, we could winkle for that.

Steve Chercover - D.A. Davidson & Co.

Yes, well, I know some guys who have been waiting for it for 12 of the last 4 quarters. So –

John O’Donnell

It’s right.

Steve Chercover - D.A. Davidson & Co.

Yes, go ahead, John.

John O’Donnell

That’s why it’s really important to our results are directly attributable to the input cost changes because we know that pulp goes up until it comes down again. I think what’s unique in Neenah is that our intention is to always overcome that with price in this mix activities to keep our margins fairly stable.

Steve Chercover - D.A. Davidson & Co.

Yes, it sounds like the opportunity in premium packaging is actually quite exciting. Do you have a sense of what your share of that, at $300 million addressable market, might be?

John O’Donnell

Well, about 10% of our business right now is in that premium packaging so about 40 million and we said that addressable market about 300 so, I can do the math but I know it's (above 15%) [ph].

Steve Chercover - D.A. Davidson & Co.

Perfect, thanks for that granularity. And then switching gears into filtration, it looks like Italy is tipping back into recession and there is a lot of risk in all of Europe. Any chance that would impact your auto filtration?

John O’Donnell

Well the majority of our demand is not in that market but it is in Germany, we have three facilities in Germany, obviously a poor economic environment can put pressure on all of our businesses. We like to believe that our transportation filtration business since its 30% to OEM and 70% to aftermarket that consumption will continue whether it’s new card or not and has historically been relatively recession proof that the great recession as the exclusion but obviously that help us from a piece of it but I am not overly concerned about their ability to continue to drive improvement in that business.

Steve Chercover - D.A. Davidson & Co.

Great. And then I think Crane has two facilities in Pittsfield. Is there a reason that there are two? Are there any chances to exact any efficiencies?

John O’Donnell

Our whole focus with that business is to continue to grow it. So that’s not one I would think about being in consolidation. One of the facilities has two machines in it. The other one has one machine in it with room for incremental growth if we need to have that incremental growth. So they are about a quarter mile from each other and that’s almost right next door as far as some of these facilities goes.

No I think our focus is going to be on continue to grow into that and I would also suggest these are not real capital intensive as are the additions in this business as well. So that’s another positive thing from a growth aspect.

Steve Chercover - D.A. Davidson & Co.

Perfect. And the final one, will you call out the $2 million in integration expenses as one time in nature?

John O’Donnell

Yes we will.

Operator

Our next question comes from the line of Jon Tanwanteng with CJS Securities

Jon Tanwanteng - CJS Securities

And again, just really nice fine paper margins there. I'm just wondering what the sustainable components of that were and maybe some more detail on how we should think about that, heading into your seasonal maintenance period, I mean, I know you touched on the input prices, but maybe more on the mix and other factors.

John O’Donnell

Sure. On the Fine Papers margin side, if you follow I know you have for some time that they have been sustainable mid teen margins these are very strong. And I think it’s really the value of consolidated market, the brand leader in the consolidated market from that standpoint and then their image focus versus a more commodity focus of transferring data. So mid-teen margins are very sustainable in that business.

As you look to the third quarter, I'll give you a little color again, I tried to talk about some of the moving pieces and I really want you to just get to the answer which is cost in the third quarter for maintenance downs will be about the same as they were last year which is typically about $3 million impact, but there is an incremental maintenance down in the fourth quarter tied to a value adding capacity addition of filtration and that’s going to impact by 2 million.

In regards to mix, all of our fine paper businesses are predominantly out of inventory so we will move through there and we are managing our technical products businesses downs to ensure there are no interruptions in any of the customer demand from that standpoint. So you shouldn’t see dramatic top line impact other than what happens with our customers. Now if our customers and many do take their downs in the third quarter and holidays in the third quarter so the consumption is lower, which is what’s driving our seasonality.

Expect a seasonally slower back half no impact to the top line, 3 million maintenance in third quarter, 2 million in incremental in the fourth quarter.

Jon Tanwanteng - CJS Securities

And then just on the Crane business. Are there seasonal downs in that segment at all?

John O’Donnell

The seasonality of their top probably meres really close to our technical products business like 52 to 48. As far as planned maintenance downs there no plant maintenance downs for the rest of this year and then will obviously some sort of part of the family as July 1 we will communicate the implications to any maintenance downs next year as we get closer to the third quarter.

Jon Tanwanteng - CJS Securities

Okay, great. And then on the business itself, can you discuss maybe the opportunities it creates, both maybe quantify the potential for cost or sales synergies with the existing technical products and maybe the potentials of platform for future M&A here in the US?

John O’Donnell

A few things, which we’re 37 days in from that standpoint. So it’s relatively new to us. So I think the -- but what isn’t new to us is the technologies were attractive, their markets are meaningful. And the growth opportunity really with our German businesses is where we see is the biggest opportunity. These technologies again 100% synthetic typically polyester in our RO filtration or glass fibers in our Crane mat businesses are incremental to our German facility’s capabilities.

And we found that the combination of moldable technologies whether it’s a filtration base sheet and a melt blown to create a unique attribute. We found that the crane technologies will add incremental opportunities for our German substrates as well and meet new market solutions for the existing customers that we have good relationship in our transportation filtration business. You’ve noticed I didn’t quantify anything there for you and that’s on purpose. So it’s really for us this was a growing business, brought new technologies initiated a footprint into the U.S. which we believe is a good growth opportunity for our future and we wasted no time in having our R&D teams it was actually on the eighth day which sounds a bit biblical but we had our German teams in our Pittsfield facilities working with the R&D teams there.

Jon Tanwanteng - CJS Securities

Okay, that's great color. And just one more quick one. In terms of M&A preference going forward, and I know you're still integrating Crane here, but are you more focusing on leveraging that as a technical platform domestically or are you focusing more on the packaging space, given the growth opportunity there?

John O’Donnell

If we find the right opportunity that leverages it, that’s ideally what -- when we’re looking, we’re being selective when we’re looking at acquisitions we’re looking to totally add on to something that we can’t leverage in a more meaningful way especially in filtration and our filtration buyers.

The fact that it's a U.S. platform for us is another key advantage there. So, I don’t want to say that we’re specifically looking to leverage it and nor do I suggest that we aren’t in that regards. From an M&A standpoint best way to think about it for us is defensible markets, performance materials, bias towards filtration, bias towards the U.S., that’s way to think about it.

Operator

The next question comes from the line of Dan Ducome with Sidoti & Company.

Dan Ducome - Sidoti & Company

Thanks for taking the question. I see you are selling some of the retail fine paper brands in Costco. And I was just kind of wondering just kind of big picture, are Costco and sort of Walmart, I know they are not huge businesses, but just wondering, are those meeting your expectations or any granularity there?

John O'Donnell

Yes, so just to remind that our retail business is a pretty meaningful business about $90 million overall from that standpoint, any distribution you can get with Walmart and any of the retail channels that are winning like you mentioned Costco as well, those are very important for us. We’ve had a lot of success recently in that business as well, I wouldn’t forget the one that like Amazon and others that aren’t brick and mortar but we're growing very, very well with them as well. So, it’s clearly a growth opportunity for us and we’re very pleased. Again some meaningful size business for us and the new channel we [indiscernible].

Dan Ducome - Sidoti & Company

Okay, great, good to hear. I guess turning to technical products, what you mentioned there was -- what exactly is going to be the symbiosis, I guess, in between sort of auto in Germany and then the water filtration in the US? It sounds like you're not going to be doing any water filtration out of Germany, right?

John O'Donnell

Yes, there is not going to be that direct link of transportation filtration out of our water filtration facilities and vice versa, it’s really the combination of technologies, majority of the products that we build in our Neenah technical materials are from the Crane facilities are unique to customers and they’re really designed in with end use capabilities. It’s taking advantage of the knowledge that exists there and the knowledge in the Germans to create a defensible unique solution to as I said before in existing market, we’re desirably to a new market for us as well. We believe we’ve got good solutions to some of the existing markets.

Dan Ducome - Sidoti & Company

Okay, good, good. And I guess staying there, I guess one of your transportation filtration competitors reported this weekend they had very good numbers and they are also raising prices. Looks pretty aggressively. But you guys are growing faster than them, but also raising prices. I'm just kind of wondering if you can even speak to that, what's giving you guys the edge right now?

John O'Donnell

Yes, I won’t be able to speak to the competitor but I can speak to ours. What we found especially in transportation filtration is the ability to have an innovative solution to the long term projects and the flexibility to work with the filter manufacturers to filter those unique needs. So, we’re always looking for new technologies that can bring tomorrow solution which is yesterday's solution. I think it’s that innovation we’ve got a significant R&D facility in Germany, we do a fabulous job of getting out in front of that and I think what makes me most comfortable about is, you're really earning that share gain with a long runway, it’s not a moment of pricing ecstasy, it's really over time.

The pricing increases that we’ve been able to capture as well is an illustration of the value we’re adding during that time period more than just -- in some industry sometimes people raise price because other people are. I think what we’re able to do here is increase the price because we’re delivering value for the product, so it’s Costco up our values increased we’re able to continue to pass that through to the marketplace and recover for our shareholders.

Dan Ducome - Sidoti & Company

Got you, got you. And then just two on paper and then one on pulp and I'll jump -- and I'll get off the line. But -- I guess what's the tail on this sort of the premium packaging? If you have 13% market share now and 60% in overall fine paper US, what's a reasonable sort of maturity or penetration rate for just premium packaging or -- what's reasonable?

John O'Donnell

Yes, what I would suggest here is that nobody in my groups use reasonable with any of my objectives but I would suggest that I wouldn’t took it to the 60% as you really a consolidated market versus but even if you took half of that, if you took half of that 300 that was $90 million opportunity for us. So I would suggest, it’s got the nice long runway of growth opportunities that I am very encouraged about our Group’s ability to go capture that. Now I know -- I hope I didn’t diminish their enthusiasm because I want to have a higher number than 30.

Dan Ducome - Sidoti & Company

No, that addresses my question perfectly and hopefully maybe even more than -- you do more than half that, but that still be pretty incredible. And then I guess just sticking on that, so what's going to be your strategy for the craft beer market, which seems to be sort of in the news every day and pretty exciting?

John O’Donnell

Well we are making a lot of progress in capturing a number of new pieces of business. Ideally, I always joke about why do you rob banks, that's where the money is. So focusing on the market leaders and from a craft beer standpoint is the best place for us to start where we've been making some significant headway. But I agree with you, it is enjoying some nice growth as are we.

Dan Ducome - Sidoti & Company

And then lastly, I guess bringing it back to pulp, I guess the issue would be softwood and your filtration side. So can you remind us just what percent of your technical business is on price adjusters and which is sort of more on negotiated?

John O’Donnell

Yes. That will be a third overall on adjusters and then a third of it well on annual type of contracts that’s and then a third goes with market announcements.

Operator

We have a follow up question from Steve Chercover with Davidson.

Steve Chercover - D.A. Davidson & Co.

Just a quick modeling question. So you indicated in technical specialties that you've got $15 million to $20 million of seasonality, which would be less revenue in the second half. But if Crane is running at about $12 million a quarter, is it appropriate just to model flat sales Q1 -- sorry, first half to second half?

John O’Donnell

I mentioned a little earlier in one of the other questions. The seasonality probably would be similar to the technical products, so the back half with the Crane would be similar from a 48% from a demand standpoint.

Bonnie Lind

Even with that Steve it probably would be once we add in the acquisition of the back half, it would be probably closer to flat.

Steve Chercover - D.A. Davidson & Co.

Yes, that's what I was thinking, that your -- we have some -- absent Crane, it would be (52 48) [ph]?

Bonnie Lind

Right.

Operator

We have a question from Dan Ducome with Sidoti & Company.

Dan Ducome - Sidoti & Company

I'm just wondering any callouts on the envelope business? I'm not sure if you mentioned it already, but how is that doing?

John O’Donnell

I did mention that, we talked about that in the past, we made significant gains and headways in that business. It’s up slightly 3% I would guess overall. And that’s not a business that has a significant growth rate to it, but we continue to find ways to capture the high end of it, but very nice business for us but nice addition to the fine paper business.

Dan Ducome - Sidoti & Company

So it's mostly like just pricing, right?

John O’Donnell

Price is a big contributor to it, that’s exactly right more than volume.

Operator

And there are no further questions at this time.

John O’Donnell

All right. Well thank you for your participation and interest in Neenah today. We look forward to updating you on our progress and results in the future. Thank you.

Operator

This does conclude today's conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!