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080219 Deutsche Bank Report - Glatfelter's 4Q in 100 Words

Deutsche Bank - Equity Research

Glatfelter {Ticker: GLT, Closing Price: USD 13.15, Target Price: USD 20.00, Recommendation: Buy}.

* About in-line. GAAP EPS = $1.11. Pointing to $0.29 net of special items, helped somewhat by a 23% tax rate (partially offset by some one-time operating issues in Composite Fibers). DB @ $0.26 & FC @ $0.27. Comps: 3Q07 = $0.28, 4Q06 = $0.22. Profit improvement initiatives at Chillicothe continue to pay off.

* Specialty Papers. EBIT= $14.9MM, +$0.2MM q/q & +$8.2MM y/y. On y/y basis, prices were $4.3MM higher but input costs were $7.9MM higher. EBIT gain was driven by 7.6% volume gain and Chillicothe initiatives (paper machine performance, yield improvements, and raw material usage).

* Composite Fibers . EBIT= $5.9MM, -$2.3MM q/q & -$0.3MM y/y. $1.4MM of q/q EBIT decline = one-time tax & insurance benefits in 3Q. EBIT also hit by Lydney mill fire ($0.6MM) and slightly dilutive effect of Metallised Products acquisition.

* Other issues. (1) Sold 30K acres of timberland for $74MM. 40K acres left - half in PA and half in DE & VA. Expecting just $15-20MM in sales in '08, due to slower development markets. (2) Capex was just $29MM in '07, rising to $52-57MM in '08.

* Change in view? Cautiously encouraged. Despite challenging markets, GLT is increasing volumes and executing internal initiatives to grow EPS. Still on track for +$0.45-0.50 of Chillicothe accretion in '08. Maintain BUY. No change to forward estimates: '08 = $1.00 (1Q = $0.20) and '09 = $1.25.