GLT - Glatfelter: Must Prove It Can Execute On Its Turnaround Plan

2023-03-27 01:48:22 ET

Summary

• Glatfelter has a long way to go before it confirms to the market it has the ability to execute its turnaround plan.
• There has been a slight improvement in revenue, but the bottom line is under enormous pressure, and the company must succeed there if it wants to win investors' confidence.
• I don't think we'll have much clarity on the future potential of the company until it has a few more quarters under its belt.
• Other than a potential swing trade, I think it's best to stay away from the stock for now.

Glatfelter Corporation ( GLT ) continues to struggle, and it still is in the very early stages of implementing its turnaround plan and strategy, and even though there was a little improvement on the revenue side in the last quarter, its bottom line and associated metrics remain dismal, and I see nothing to suggest that's going to change in the near future.

Its share price fell off the cliff in early 2022, and hasn't been able to find any sustainable and consistent growth that would point to a rebound in its performance and share price.

There's a lot of potential in the sense of there being many disparate pieces to the business, that if successfully brought together and improved upon, could be a potential, significant catalyst for the company, but that's far from being proven yet, and I think it'll take at least a year or more before we see whether or not the company has the ability to execute on its turnaround strategy.

In this article we'll look at its latest numbers, the turnaround strategy, profitability challenges, and why the company is likely to struggle going forward.

Some of the numbers

Revenue in the fourth quarter of 2022 was $373.9 million, compared to revenue of $334.5 million in the fourth quarter of 2021.

Gross profit in the reporting period was $41.4 million, compared to gross profit of $31.6 million in the fourth quarter of 2021.

EBITDA in the fourth quarter of 2022 was $19.2 million, compared to EBITDA of -$(3.4) million in the fourth quarter of 2021.

Net loss in the fourth quarter of 2022 was -$(34.3) million, or -$(0.77) per diluted share, compared to a net loss of -$(10.4) million, or -$(0.23) per share in the fourth quarter of 2021.

At the end of calendar 2022, GLT had cash and cash equivalents of $110.7 million, compared to cash and cash equivalents of $138.4 million at the end of calendar 2021.

The company held total long-term debt of $844.2 million at the end of calendar 2022, compared to total long-term debt of $775.9 million at the end of calendar 2021.

While the company is showing progress on the revenue side of things, it's still struggling to generate a consistent and sustainable profit, and that's probably going to continue on for some time.

Growth and Profitability

Growth

Revenue growth year-over-year was 37.49 percent, compared to the sector median of 11.03 percent.

EBITDA growth year-over-year was 6.42 percent, compared to the sector median of 3.45 percent.

Working capital growth year-over-year was 20.23 percent, compared to the sector median of 2.54 percent.

It needs to be taken into consideration in the growth metrics that they are coming from a much lower baseline than its peers.

Profitability

In almost every profitability metric GLT significantly underperforms the sector median. Keep in mind that all of the numbers below are on a TTM basis.

The important net income margin was -13.02 percent, compared to the sector median of 7.59 percent.

Return on equity was -45.10 percent, compared to the sector median of 11.61 percent.

Return on capital was 1.14 percent, compared to the sector median of 6.89 percent.

Return on assets was -11.79 percent, compared to the sector median of 5.40 percent.

Cash from operations was -$(40.82) million, compared to the sector median of $388.27 million.

As confirmed in the metrics above, the company is vastly underperforming the industry on the bottom line. It's turnaround efforts are not only far from over, but they're really at the very early stages, and the company has yet to prove it can execute on its plan and strategy.

Turnaround strategy

For those that haven't followed GLT, here's a look at the six major initiatives the company is focusing on to turn it around.

The first, portfolio optimization; second, margin improvement; third, fixed cost reduction; fourth, cash liberation; fifth, operational effectiveness; and six, returning Spunlace to profitability.

Other than its Spunlace brand, the remainder of the turnaround focus could have aligned with most companies finding themselves in a similar position as GLT.

That's okay because it's not wise, in my opinion, to attempt to reinvent the wheel in regard to improving operational performance. All companies face the same challenges and have to find ways to improve upon them.

The reason I'm bringing it up is because it's all about execution, assuming the strategy is sound, and as mentioned earlier, the company is far from proving it can successfully implement its strategy.

When reading through the earnings report and management commentary, it's readily apparent the company remains a mess. There are so many variables involved it's close to impossible to figure out how to put the pieces of the business together in a coherent manner, in order to understand where the company is at during this period of time.

Just because its share price has dropped doesn't necessarily make it a stock to take a position in.

Conclusion

The share price of GLT has traded at approximately the $19.00 per share level as a ceiling since November 2019, and after failing to break out through January 2022, it plunged to its 52-week low of $2.08 per share on October 10, 2022, and has been trading in a range of about $2.60 per share to about $4.70 per share since then.

While there seems to be some initial, but very moderate success in the early stages of its turnaround plan and strategy, I'm going to have to see a lot more improvement in the top and bottom lines before I am convinced it's worth taking a position in.

On the other hand, for those that are traders, and swing traders in particular, based upon its past price movement, it could be worth taking a position in when it drops below the $3.00 per share mark, and better if it falls below $2.80 per share.

The reason for pointing that out is the stock has been trading in a similar pattern over the last several years after correcting, it if it continues to do so, should provide some decent chances at generating profits for those getting in at an attractive entry point.

For long-term investors, there are just too many things that could go wrong to justify taking a position in GLT, especially with the wide variety of pieces of the business that could easily underperform in the quarters, and possibly years ahead.

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