Pregis Corporation announces Q2 2009 financials

Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2009 second quarter financial results.

For the second quarter of 2009, the Company generated net sales of $196.0 million, a decrease of 28.8% versus net sales of $275.2 million in the second quarter of 2008. Excluding the impact of unfavorable foreign currency translation, resulting from the U.S. dollar strengthening against the euro and pound sterling, the quarter's net sales were down 19.8% compared to the prior year quarter due to the significant and continuing global recession.

Gross profit margin, as a percent of net sales, was 25.0% in the second quarter of 2009, compared to 21.4% in the second quarter of 2008. The 360 basis point increase in margin percentage was driven by the impact of the Company's aggressive cost reduction initiatives, continued disciplined pricing, and the impact from lower raw material costs.

The Company generated an operating income of $6.5 million in the second quarter of 2009, which included pre-tax restructuring charges of $5.1 million relating to the Company's cost reduction initiatives, as well as unfavorable foreign currency translation of approximately $1.0 million. This compared to operating income of $7.3 million for the second quarter of 2008 and pre-tax restructuring charges of $2.6 million. Adjusted for the restructuring charge and unfavorable foreign currency translation, operating income for the second quarter of 2009 was $12.6 million, which represents an increase of approximately 27% compared to the 2008 second quarter.

Adjusted EBITDA, or "Consolidated Cash Flow" as defined by our indentures, was $24.2 million in the second quarter of 2009 compared to $25.4 million for the same period in 2008. Adjusted EBITDA is a significant operating measure used by the Company to measure its operating performance and liquidity.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "During the second quarter, despite substantial volume decreases resulting from very difficult economic conditions, we delivered strong Adjusted EBITDA performance due in part to our success in driving aggressive cost reductions as well as our continued disciplined pricing for value, which we maintained in spite of downward pressure on our key raw material costs."

Mr. McDonnell continued, "Looking forward to the second half of 2009, we expect demand to remain weak, particularly in our protective packaging segment. Resin costs have increased by approximately 35% in both North America and Europe through the first seven months of 2009 based on their respective indices and are expected to continue to increase in the third quarter. In response to these cost increases and the expectation of further increases in the third quarter, we anticipate increasing our selling prices in North America and Europe in September 2009 to account for these cost increases. It is critical that these higher costs result in selling price increases so that we can avoid the significant margin compression we experienced last year associated with the excessive time lag between the sharp cost increases and higher selling prices."

Segment Performance

Comments on segment net sales and EBITDA performance for the second quarter of 2009 is as follows:

• Net sales of the protective packaging segment decreased by $59.8 million, or 33.5%. The 2009 second quarter sales decline was driven by significant decreases in volume in both the U.S. and European businesses resulting from continued economic weakness in both markets, as well as unfavorable foreign currency translation. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 27.3%.
• EBITDA of the protective packaging segment increased $0.9 million, or 6.2%. This increase reflects the significant cost savings realized from cost reduction programs as well as year-over-year reductions in the cost of resin and other materials. These impacts were offset by decreased volumes driven by the ongoing recession in North America and Europe.
• Net sales of the specialty packaging segment decreased $19.4 million, or 20.1%. This sales decline was driven by unfavorable foreign currency translation, as well as decreased volumes driven in part by a reduction in volumes from the termination of a contract with a significant medical products customer. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 5.9%.
• EBITDA of the specialty packaging segment decreased $1.8 million, or 15.3%. This decrease was a result of the decline in sales as described above, partially offset by savings resulting from our cost reduction program.

A summary of Adjusted EBITDA, a significant measure required by the Company's indentures and used by the Company to measure its operating performance and liquidity, is presented in the supplemental information at the end of this release.