Gross profit margin, as a percent of net sales, was 24.0% in the first quarter of 2009, compared to 21.9% in the first quarter of 2008. The 210 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 loss of $1.5 million in the first quarter of 2009, which included pre-tax restructuring charges of $6.7 million relating to the company’s cost reduction initiatives, as well as unfavorable foreign currency translation of approximately $2.0 million. This compared to operating income of $8.3 million for the first quarter of 2008. Adjusted for the restructuring charge and unfavorable foreign currency translation, operating income for the first quarter of 2009 was $7.2 million, which represents a decline of approximately 13% compared to the 2008 first quarter.
Commenting on the company’s results, Mike McDonnell, president and chief executive officer, stated, “During the quarter, despite very weak demand, we were able to substantially increase our margin percentages through our focus on driving sustainable cost reductions throughout our organization as well as continuing our disciplined pricing for value, which we maintained in spite of downward pressure on our key raw material costs. I would like to once again thank our 4000 employees for their passion, hard work, and continued focus on our customers during these extraordinarily difficult economic times”.
McDonnell continued, “We expect weak demand to continue throughout 2009, particularly in our protective packaging businesses, so we continue to aggressively execute our cost reduction initiatives, which will help to mitigate the impacts of the weak economic environment as well as drive increased profitability when the economy recovers. We also will continue to focus on our disciplined pricing for value as well as driving our key growth objectives through our product innovation and geographic expansion efforts.”
In the first quarter of 2009, the company commenced the next phase of its global restructuring program, building on the work completed in 2008. This next phase of restructuring will focus on optimizing the company’s organizational structure and operating processes as well as additional overhead headcount reductions. These restructuring activities are expected to generate 2009 year-over-year savings of $15 to $20 million and should be fully implemented by Q3 2009. During the first quarter of 2009, the company realized year-over-year cost savings of approximately $9.5 million relating to its various 2008 and 2009 cost reduction programs.
Segment Performance
Comments on segment net sales performance for the first quarter of 2009 are as follows:
Net sales of the protective packaging segment decreased by $54.1 million, or 31.9%. The 2009 first quarter sales decline was driven by significant decreases in volume in both the US 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 24.8%.
Net sales of the specialty packaging segment decreased $19.6 million, or 21.9%. This sales decline was driven by unfavorable foreign currency translation, as well as decreased volumes driven in part by a reduction in volumes from a significant medical products customer, offset in part by positive pricing. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 6.9%.
Pregis is a manufacturer, marketer and supplier of protective packaging products and specialty packaging solutions.
