TG - NYSE

Nancy Taylor - CEO Kevin O'Leary – CFO Neill Bellamy – IR

Drake Johnstone - Davenport & Company Mario Gabelli - GAMCO Investors

Greetings, and welcome to the Tredegar Corporation 2014 annual financial results review. [Operator Instructions] It is now my pleasure to introduce your host, Neill Bellamy. Thank you. You may begin.

Thank you, Danielle, and welcome to the Tredegar 2014 annual financial results review. Our earnings for the fourth quarter and full year 2014 were released after the market close today, and you'll find our press release, 10-K and supplemental materials, including non-GAAP reconciliations, on our website under the Investors Section at www.tredegar.com. As a reminder, some of the statements made here about the future performance of the company constitute forward-looking statements within the meaning of federal securities law. Please note the cautionary language about our forward-looking statements that is contained in our press release. That same language applies to this call. Please note that our comments today regarding financial results exclude all non-operating or special items, and reconciliations related to any non-GAAP financial measures discussed today may be found in the slides accompanying this presentation and our supplemental materials on our website. With that, I'll turn it over to Nancy Taylor.

Good afternoon. I'm Nancy Taylor, Tredegar's Chief Executive Officer. With me today is Kevin O'Leary, Tredegar's Chief Financial Officer. Thank you for joining us today for our annual financial results review. The agenda for today’s call is to discuss our yearend performance for 2014 and to update on our outlook for 2015 and beyond. We issued our earnings press release after the market closed today so as you see, 2014 was a year of mixed results. A tough year for our Film Products business and a breakout year for Bonnell, our aluminum extrusion business. I’ll get to the performance highlights shortly. First, a minute or two on our strategy. We’ve been focused on long term growth to diversify our market and customers in both of our businesses. As part of that strategy, we’ve made significant investments in our businesses. Those investments, which have been thoughtful and deliberate, lay the foundation for Tredegar’s long term growth. As we wind up recent investments to add capacity and capability, we’re now in a position to take advantage of favorable growth trends in several of our markets, which in turn should drive earnings growth and strong cash flow generation. Now moving to our 2014 performance. I’m going to discuss our performance highlights and then Kevin will walk you through the numbers. As tempting as it is to start with Bonnell’s terrific performance, I’ll begin with Film Products, and in particular, the issues around our flexible packaging films, which were the biggest drivers in Film Products overall performance in 2014. Throughout last year, we commented on the 3 major issues that negatively impacted the contribution of our flexible packaging films. Operational inefficiencies in our Cabo, Brazil plant, the 5 month delay in the startup of our new flexible packaging line, and very challenging market dynamics. Two of the variants were within our control, the third less so, but still necessitated decisive actions on our part. So I’d like to provide more color on those issues and our actions to address them. Our operational inefficiencies in our Brazil flexible packaging plant created supply constraints and increased costs. As discussed on the midyear call, we were slow to recognize that we needed strong local leadership to drive the changes, processes and resources required to address the issues. On that call, we committed to resolve the issues by the end of the year and we did that. Our local leadership has done a super job of delivering operational improvement, while placing a high priority on the sustainability of those improvements. Now that the team has stabilized operations, they’re focused on continuous improvement, which means optimizing production and reducing costs. We also experienced a five month delay in the startup of our new flexible packaging line in our Cabo, Brazil facility. I want to remind you that this was a very significant project for Tredegar, an $80 million investment over 2 years. The delay to the project played a significant role in film product’s miss against our 2014 volume growth target and had volume from the new line being available earlier in the year, it would have relieved the supply constraints created by the operational inefficiencies in the rest of the Cabo facility. The good news is that the project came in on budget and the pace at which we’ve been ramping up the production on the line has exceeded our expectations. As for the challenging market dynamics, we have previously described the global PET flexible packaging market as being in an over supplied situation. In anticipation of continued double digit growth in emerging markets, significant capacity expansion commitments were made by an array of PET producers in the 2011 and 2012 timeframe. While that capacity has been coming on stream in the last couple of years, the forecasted growth and associated demand in key markets like China and India has not materialized due to the economic slowdowns in those regions. Unfortunately, due to the attractiveness of our market, PET film producers from Asia and the Middle East, along with a new PET film producer in Peru, have targeted Brazil for their excess capacity. This has made the global over supply situation very real in Brazil. As you can see from this graph, industry projections indicate that this new global capacity will get absorbed over time. The overall trend towards flexible packaging is positive. The market continues to grow and we remain excited for the longer term prospect for flexible packaging films. In the meantime we’re working hard to mitigate the impact of current market conditions by leveraging our value added films and services, a competitive advantage that we have over most of the importers in Latin America and rising continuous improvement in our flexible packaging films operations, with a key focus on cost. It’s important that Film Products 2014 successes in other markets don’t get overlooked. In personal care, the previously announced loss of the baby care elastic laminate volume in North America impacted our volume growth. Through product mix and the introduction and expansion of other personal care materials and surface protection films, we were able to offset a very significant portion of the profit impact of that volume loss. When you consider the estimated $7 million profit impact, I call that a success. And this is a demonstration of how our strategy to diversify our customer base with a focus on launching new products is paying off. In particular, we’re delighted with the strong customer response to catch the rollout of our ForceField tool product in surface protection and our line of flexAir products in personal care. Product innovation was critical to our organic growth in 2014. We also had strong operational performance across the vast majority of our Film Products facilities. Notwithstanding the issues in our Cabo facility, our Film Products operations around the world are delivering on our promise of operational excellence. Bonnell Aluminum had a great year in 2014. In addition to the solid volume growth for the non-residential construction market during the second half of the year, Bonnell took big steps forward in executing on its market diversification strategy. Our new automotive press came online at the beginning of the year and we continue to be excited by the opportunities for this new capability in Bonnell. We also experienced growth for value-added fabrication anodizing, so much so that we’re expanding our anodizing capacity as we speak. Bonnell demonstrated operational excellence throughout its organization, from reducing working capital to new lows, to record setting performance in safety. We are convinced that our strategy has reshaped Bonnell into a much stronger company today than it was before the great recession. Translating strategy into action continues to be the overarching focus for Tredegar and a little later in the call, I’ll discuss what that looks like in 2015. Now I'll turn it over to Kevin for more detail on the financial results for the quarter and the year. Kevin?

Thank you, Nancy. I’ll start off with an overview of reported net income for the fourth quarter and full year for Tredegar Corporation. For the fourth quarter, diluted earnings per share from continuing operations were $0.40 per share. Excluding special items, earnings per share from ongoing operations were $0.23 per share. And for the full year, diluted earnings per share from continuing operations were $1.11 per share. Excluding special items, earnings per share from ongoing operations were $1.13 per share. Details of special items, which include the impact of non-operating investments, asset impairments and restructuring charges, are available on our website, along with additional information on discontinued operations. Now let’s focus on earnings per share from ongoing operations. The key components of variants for the quarter and full year were similar. So I’ll focus on comments on the full year. In 2014, as I mentioned, earnings per share from ongoing operations was $1.13 per share compared to $1.15 in the prior year. The key drivers were as follows. Earnings before taxes from ongoing operations was up $2.4 million. A couple of key drivers here. The combined operating profit from our business segments, Film Products and Bonnell, was $5.5 million below 2013. I'll get into the details results for our business segments in a moment. Noncash pension expense in 2014 was $6.7 million, a decrease of $7 million compared to 2013. As we’ve discussed on previous calls, the lower pension expense in 2014 was primarily a result of an increase in the discount rate of 78 basis points to 4.99%. Other corporate expenses were down approximately $1 million for the year. And finally, the full year effective tax rate on income from ongoing operations was 35% compared to 31% in 2013. The increase, which was driven primarily by geographical income mix, had an unfavorable impact on earnings per share of $0.07. Looking forward into 2015, our projection for noncash pension expense is approximately $12.3 million or an increase of $5.6 million over 2014. The increase is driven primarily by an 82 basis point reduction in the discount rate, dropping the rate to 4.17% for 2015. The discount rate for 2015 is actually below the 2013 rate. Also, the impact of our decision to freeze all future service benefits for certain pension plan participants and especially offset by the impact of new mortality tables. And finally in 2015, we expect an effective tax rate on income from operations to remain to be approximately 35% range, similar to the 2014 rte. Now focus on the financial performance of our business segments. Before getting into the specifics of results for the quarter and full year for Film Products, I’d like to highlight a couple of points that Nancy made at the outset. The loss of the baby care elastic laminate business in North America was mitigated in large part by the favorable results of other personal care materials and surface protection films. And clearly the biggest drivers of unfavorable performance for Film Products in 2014 were competitive pricing pressures and operational inefficiencies for our flexible packaging operations in Brazil. As Nancy mentioned, we committed to resolve production output and operational inefficiencies in Brazil and by yearend we did just that. Now for the numbers. For the fourth quarter, Film Products net sales of 4140 million was 7% below prior year. And operating profit from ongoing operations of $13.2 million was 16% below prior year. The key driver in lower net sales for the quarter was the loss of the baby care elastic laminate business in North America which reduced sales by $10.6 million or 7%. While there were a number of offsetting impacts to operating profit, the key elements of the $2.4 million variance to prior year were as follows. The loss of the baby care elastic laminate business had an unfavorable impact of $1.1 million. Excluding this impact, higher volume in other products had a favorable impact of $4.4 million. Comparative pricing pressures and operational inefficiencies reduced operating profit by $1.2 million and $4.4 million respectively as unfavorable results in flexible packaging films were partially offset by improved pricing and operational performance in surface protection films and personal care materials. Now looking at the full year, Film Products net sales of $579 million were 7% lower than prior year and operating profit of $58 million was 18% below prior year. Key driver in lower net sales was the loss of the baby care business which reduced sales by $34 million or 5.5%. The year over year change in profits for the full year was driven primarily by the following. Again, competitive pricing pressures and operational inefficiencies reduced operating profits by $3.4 million and $6 million respectively as unfavorable results in flexible packaging films were partially offset by improved pricing and operational performance in surface protection films and personal care materials. The baby care volume loss had an unfavorable impact of $7 million. And for the full year, the change in the dollar value of currency had a positive impact of approximately $4.5 million. EBITDA margin for the year was 15.3%, below our 16% target, driven by the performance in flexible packaging films. Now let’s take a look at Bonnell. As Nancy mentioned, this business had another strong year with broad based volume growth in its key markets. Bonnell’s success is a testament to translating the strategy of profitable growth and diversification into action and is the result of years of hard work by Bonnell to drive cost out of the business and increase its presence in non-construction markets. For the fourth quarter, compared to prior year, net sales were up 24% and operating profit was up 20%. Key factors improving profits were volume growth of 13% year over year, including 7% volume growth in non-residential building and construction and favorable product mix, reflecting continued strength in anodized and painted finished products and fabricated components. Higher volume and favorable product mix in the quarter were partially offset by operational inefficiencies associated with meeting the growth in demand for anodized products. Looking at the full year, net sales increased $35 million to $344 million in 2014. Volume grew at all key end use markets, with year over year growth of 7%. And after a typical winter, we saw solid growth in the second half of the year in the non-residential building and construction market, with volume up 6% year over year. We believe that we’ve successfully held our market share in this important market. With the successful expansion in the automotive extrusions market, Bonnell increased its presence in this rapidly growing market. Operating profit improved to $26 million, up 40% over the prior year. Higher volumes and improved product mix in line with what I just discussed in the fourth quarter, had a favorable impact of over $5 million. EBITDA margin of 10.3% was at the high end of our target range for this business. Now moving on to some other key financial measures. You can see that we finished out the year with cash flow from operations just above$50 million. Capital spending for 2014 was nearly $45 million, coming in just below 5% of net sales. We project capital spending for 2015 of just over $40 million, which includes the completion of our new surface protection line in Guangzhou, China and the upgrade and expansion of our anodizing capacity at Bonnell’s Carthage, Tennessee plant. In May of 2014, we raised our quarterly dividend to $0.9 per share, our fourth quarterly dividend increase in less than four years. For 2014, the total annual dividend paid was $11 million or $0.34 per share. Our balance sheet remains strong, with net debt of $87 million and total debt to adjusted EBITDA of 1.42x. So as I’ve said before, 2014 was a building year for Tredegar and the return on invested capital of 8.5% reflects that. We remain committed to our return on invested capital target of 11% to 12% in 2016. As we drive solid execution in 2015, we will continue our focus on cash performance and returning capital to shareholders while maintaining our financial strength and flexibility. Now with that, I'll turn it back to Nancy.

Thanks, Kevin. Now let’s talk about 2015. As Kevin said, 2014 was a building year and 2015 will be a year of execution for Tredegar. While we have a couple of key strategic projects that we’ll complete during the year, for the most part we’ve put the investments in place to drive top and bottom line improvement and that’s what we intend to do in 2015. For Film Products, that means leveraging our value added capabilities for our flexible packaging films and driving continuous improvement in our flexible packaging operations. It also means the continued successful ramp up of our new flexible packaging line. As I mentioned earlier, we expect market conditions for our flexible packaging films to be difficult, particularly in the first half of the year, but should see our commercial efforts translate into improved results as the year progresses. In the first half of the year, mainly in the first quarter, we will be impacted by the remaining year over year profit impact of the loss of the baby care elastic laminate volume in North America, which we estimate at about $2 million. The first quarter we’ll be expanding our anodizing capacity at Bonnell to address our customers growing demand. While this temporarily requires us to take capacity out of the system and will impact first quarter results, this expansion positions us well for the long term. As we look at the full year, we expect year over year volume growth for both Film Products and Bonnell in 2015 driven by solid market growth in our key market segments. In Film Products, we’re really pleased with the results from our new product and expect them to drive growth. As I mentioned earlier, our new surface protection films, ForceField PEARL, has been a major success in the market. We expect to continue to grow PEARL in 2015. We also see opportunities to expand our customer base for our surface protection film. We expect several new personal care product introductions to support topline growth. These include elastic films and laminate, as well as Acquisition Distribution Layer for Adult Incontinent and baby care applications. As we’ve said before, our product innovation is creating value and positioning us well for organic growth for 2015 and beyond. For Bonnell, the rollout of our new automotive programs will coincide with the continued successful ramp up of our automotive press. We’ve expanded our medium strength capability and look to grow in those end markets. And of course, we expect to realize growth for non-residential construction with the continued recovery of that market. As we look beyond 2015, we expect to continue to build on the momentum that should become evident during the second half of 2015. On our call last year, we shared our performance targets for 2016. Our main reasons for selecting 2016 was that we saw 2014 as a building year and we wanted to give investors some sense of when they could expect Tredegar’s return of the significant investments that we’ve made over the last few years. While outlook for 2016 hasn’t changed in any meaningful way, we have restated the 2016 volume growth targets to reflect a two year compounded annual growth rate now that we’ve closed the books on 2014. Our key volume drivers in Film Products will be the incremental volume from the new flexible packaging lines, as well as continued growth for surface protection and personal care materials, resulting in an overall compounded annual growth rate of 8% to 9%. We’re targeting Film Products adjusted EBITDA margins to rise to the 17% to 18% range from just above 15% in 2014. This target reflects some downward pressure versus our original target of 18% from the impact of competitive pricing for our flexible packaging films and lower volumes. While slightly down from 2014, Bonnell’s volume should grow at a healthy compounded annual growth rate of approximately 5% to 6%. We expect growth in the non-residential markets to be in line with this target, along with mid-single digit growth in some of our non-construction markets. We project the continued ramp up of automotive with the plants at full capacity in 2016. The adjusted EBIT margin for Bonnell was 10.3 in 2014, exceeding our original target of 9%. As we move forward, we anticipate that Bonnell’s EBITDA margin will be in the 10% to 11% range. As for Tredegar's return on invested capital performance, total company returns came in 8.5% for 2014, smack in the middle of our 2014 target range, largely as a result of the new capacity investments that came online during the year. With those capacity expansion projects finishing up, we expect return on invested capital to be in the 11% to 12% range in 2016. We are committed to our strategy, one that focuses on our manufacturing capability and innovation. We believe that the actions we’ve taken in executing this strategy will drive sustainable long term growth and we continue to look for opportunities to return capital to our shareholders. Our overarching objective is to create shareholder value and Tredegar's management team is committed to doing just that. And with that, we'll take questions. Danielle, may we have the first question?

[Operator Instructions] The first question comes from Drake Johnstone with Davenport.

Good evening. My first question has to do with your Film division. I get the impression from your release that you had a $4.4 million one-time cost in the fourth quarter associated with your flexible packaging line. And I’m assuming the impression from your release that you don’t expect that cost to reoccur. So would suggest in the first quarter that your volume and price remain similar to the fourth quarter, that you probably should be higher by that amount?

Hi Drake, this is Kevin. Thanks for the question. A couple of things. The $4.4 million number is the operational impact for Film Products. It’s not a one-time non-recurring thing. There are some one-time adjustments for inventory that we described that’s roughly $2 million. We also expect that the spending that had to improve the efficiencies in flexible packaging over the second half of the year were approximately $2 million that we don’t expect to happen again in 2015.

Okay. And on the capital expenditures, it sounds like it’s coming down a little bit in 2015. Do you expect a more significant step down in 2016?

We expect that certainly we have $40 million in 2015. I don’t think we project anything much beyond that. Our feeling is if we have opportunities that require investments, we’re comfortable doing that. But right now if you look at the target for 2016, we don’t require significant incremental investment beyond the $40 million range we see in 2015 and beyond.

Okay, thank you.

Our next question comes from Mario Gabelli with GAMCO Investors. Please go ahead.

Hi. Mario. Hi everyone. I missed part of the call, but I think I sit at too many conference calls, but I always want to listen to yours. Kevin and Nancy, can you talk a little bit about what I call intelligent. You had a negative swing. Do you have a value on your balance sheet and where do I find that value around the status of this asset called Kaleo, if I’m pronouncing -- how do you pronounce it?

Yes, Kaleo and that is --- they used to be called Intelliject. So it is one and the same. Kevin, you want to answer that?

Yeah. The valuation we have in our balance sheet is I believe $39 million at yearend. You can see a description of it on page 59 of our K.

The one I didn’t have. All right, so any --- is there a mark-to-market based on last money in or it is basically just a valuation based on book earnings and EBITDA? How do you market?

We basically do a number of cash flow projections and we discount those cash flow projections and then come to an estimated value for the company.

What percentage of the company do you own?

Just under 20%.

20%, yeah.

All right, so you’re not consolidating for any reason, are you? No.

No.

No.

And you’re just taking as a line item and there was a negative swing in Q4. All of a sudden if I look at your stock selling, it’s getting reasonably good investment here, but I gather you carried it under the other assets line in your balance sheet?

Yeah. This is not considered in our ongoing operation and it’s just, it’s an ...

No, I got it. So that’s there. So secondly, just on the pension cost, you talked about the negative swing in 2015 like a lot of companies with the discount rate, etc. What was the cash into pensions in 2014 and what do you expect it to be in 2015?

The cash in was roughly $2 million in 2014 and …

About the same?

Yeah, about the same in 2015.

All right. So it’s a P&L hit. Is that hit incrementally smooth it out by quarter? Is it in the Q1?

I would say it’s across the year.

Yeah. It’s across the year.

That’s what I figured. And when you look at the receivables of $14 million, that just reflects the increase on the balance sheet year to year, that just reflects the higher revenues in the Q4 or is there any other issues?

No other issues there.

No.

All right. So that -- I’m looking at trying to develop a cash model for you. And there are a lot of little other dynamics and I’m sure the other analysts will ask them and I’ll come back. I’ve got the big picture. Thanks for the update and always like the amount of data you give. Take care.

Thanks for listening in, Mario. Appreciate it.

[Operator Instructions] There are no further questions at this time. I’d like to turn the floor back over to Nancy Taylor for closing comments.

Thank you, Danielle. Thanks everyone for joining in today, and we appreciate your continued interest in Tredegar. So have a good evening.