Earnings call transcript: KP Tissue Q2 2025 beats revenue expectations

KP Tissue Inc. (KPT) reported its second-quarter earnings for fiscal year 2025, revealing a stronger-than-expected revenue performance. The company posted a revenue of CAD 536.1 million, surpassing the forecasted CAD 515.5 million. According to InvestingPro data, KPT maintains a GOOD financial health score and trades with notably low volatility, with a beta of 0.28. Despite this positive financial outcome, the stock price experienced a slight decline of 0.32%, closing at CAD 9.44, near its 52-week high.

Key Takeaways

• KP Tissue’s revenue for Q2 2025 exceeded expectations, growing by 5.2% year-over-year.
• Adjusted EBITDA saw an 11% increase, reflecting improved profitability.
• The stock price experienced a minor decline, possibly due to broader market conditions.
• The company continues to expand its product offerings and invest in production capabilities.
• Challenges remain in the Away From Home segment and potential tariff impacts.

Company Performance

KP Tissue demonstrated solid performance in Q2 2025, with significant revenue and EBITDA growth compared to the previous year. The company’s strategic focus on higher-margin premium products and market expansion contributed to its strong financial results. InvestingPro analysis reveals the company offers a substantial 7.63% dividend yield, making it an attractive option for income-focused investors. Despite a slight decline in the Away From Home segment, the consumer business showed robust growth, particularly in Canada. For deeper insights into KPT’s valuation and growth potential, access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: CAD 536.1 million (+5.2% YoY)
• Adjusted EBITDA: CAD 72.5 million (+11% YoY)
• Net Income: CAD 22.1 million (up from CAD 10.6 million in Q2 2024)
• Canada Revenue Growth: 7.4%
• U.S. Sales Growth: 2.4%

Earnings vs. Forecast

KP Tissue’s revenue surpassed the forecast of CAD 515.5 million, indicating a positive surprise in the company’s earnings. The significant revenue beat highlights the company’s effective strategies and market positioning.

Market Reaction

Despite the positive earnings report, KP Tissue’s stock price fell by 0.32% in the last trading session, closing at CAD 9.44. This minor decline could be attributed to profit-taking or market volatility, as the stock remains near its 52-week high.

Outlook & Guidance

Looking ahead, KP Tissue has set an Adjusted EBITDA guidance of CAD 75-80 million for Q3 2025. With a P/E ratio of 30.94 and trading at its Fair Value according to InvestingPro analysis, the company plans to continue expanding in the U.S. market and exploring new product adjacencies, with a potential project in PADD III under consideration. InvestingPro subscribers have access to 6 additional key insights about KPT’s future growth potential and market positioning.

Executive Commentary

CEO Dino Bianco emphasized the company’s growth strategy, stating, "We are expanding our business across our customer base in 2025 and beyond." He also highlighted the company’s focus on long-term market share gains, saying, "We will continue to drive long-term share gains across all our brands."

Risks and Challenges

• Softness in the Away From Home market could impact future revenue growth.
• Potential tariff impacts may affect cost structures and profitability.
• The reconfiguration of the Memphis facility involves operational risks.
• Market volatility and economic conditions could influence consumer demand.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs and the company’s strategy for the Away From Home market. Management clarified their approach to reconfiguring the Memphis facility and discussed possible mergers and acquisitions, as well as greenfield expansion opportunities.

Full transcript - KP Tissue Inc (KPT) Q2 2025:

Conference Operator: Good morning, and welcome to KP Tissue’s Second Quarter twenty twenty five Results Conference Call. Today’s call is being recorded for replay. All participants are currently in listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.

I will now turn the call over to Doris Gerbick, Director of Investor Relations. You may begin your conference.

Doris Gerbick, Director of Investor Relations, KP Tissue: Thank you, operator. Good morning, everyone, and thank you for joining us to review Cricket Products’ second quarter twenty twenty five financial results. With me this morning is Dino Bianco, the CEO of Tissue and Kruger Products and Michael Keys, the CFO of KP Tissue and Kruger Products. Today’s discussion will include certain forward looking statements. Actual results could differ materially from these forward looking statements due to known and unknown risks and uncertainties.

A list of risk factors can be found in our public filings. In addition, today’s discussion will include certain non GAAP financial measures. The reconciliation of these non GAAP financial measures to the most comparable GAAP measure can be found in our MD and A. The press release reporting our Q2 twenty twenty five results was published this morning and will be available on our website at kptissueinc.com. The financial statements and MD and A will also be posted on our website and on SEDAR plus The investor presentation to accompany today’s discussion can be found in the Investor Relations section of our website.

I will now turn the call over to our CEO, Dino Bianco. Dino?

Dino Bianco, CEO, Kruger Products: Thank you, Doris. Good morning, everyone, and thank you for joining us for our second quarter earnings call for fiscal twenty twenty five. We are pleased with our overall performance in the 2025 with adjusted EBITDA improving double digits year over year to $72,500,000 U. Revenue growth slowed down in Q2 twenty twenty five due to front loaded shipments made during the previous quarter to mitigate potential tariffs, along with softness in the away from home market. Nevertheless, U.

S. Sales have grown 12% after six months into 2025 and represent a key growth driver for Kruger Products. In early July, we announced an additional investment of 35,000,000 at our Memphis manufacturing facility to deploy a state of the art multipurpose converting line. This initiative is part of a broader strategy to drive efficiency and support our growing U. S.

Business. Now let’s take a look at our quarterly numbers on Slide six. Revenue growth of just over 5% in the 2025 was driven by higher sales volume in our consumer business, favorable selling prices across both consumer and away from home segments and a positive foreign exchange impact. These factors were partially offset by slightly lower away from home volume. Revenue in Canada grew 7.4% in the second quarter, while U.

S. Sales rose 2.4% year over year. In terms of profitability, adjusted EBITDA increased 11% year over year to exceed the $70,000,000 mark for the second consecutive quarter. The improvement can be attributed to higher sales volume, increased selling prices and lower manufacturing overhead costs. These factors were partially offset by a number of items, including higher pulp prices, an unfavorable mill performance at our Memphis site, which Michael will elaborate on in his financial section.

On Slide seven, average pulp prices in Canadian dollars have traded within a relatively narrow range during the past year, both for NBSK and BEK. And looking ahead, industry analysts expect pulp prices to continue trading in a narrow range in the near term. However, the economic environment does remain uncertain. Let’s move on to our operations on Slide eight. As previously mentioned, we are undertaking a number of initiatives at our Memphis facility to drive efficiency and capacity.

The first action was to shut down older unprofitable assets, including a paper machine and a facial line. And as mentioned earlier, we also announced a USD 35,000,000 investment to deploy a new multipurpose converting line for bathroom tissue and paper towels. Start up is scheduled for the 2026. And lastly, we consolidated our area warehouses into our Memphis facility to create a single large modern on-site warehouse. With these changes, Memphis will focus on higher margin premium products to support our U.

S. Growth. The results of these actions will begin to yield benefits in the back half of this year. For the overall network, production rates continued to exceed expectations in Q2 twenty twenty five. Let’s turn to Brand Support on Slide nine.

We intensified our Made in Canada positioning in Q2 twenty twenty five with new campaigns dedicated to our cashmere and Purex bathroom tissue brands combined with in store promotions. As a company with deep roots across the country, we are a natural fit for consumers seeking high quality products made by Canadians for Canadians. Consequently, our brands have continued to perform well during this period of market uncertainty. During the second quarter, we also developed equity building campaigns behind Scotties, Sponge Towels and Bonterra to increase consumer awareness. In addition, we sponsored the Canada’s Got Talent televised program for a second consecutive year through Scotties, the number one facial tissue brand in Canada.

Let’s turn to Slide 10. The data presented is taken from Nielsen and shows Kruger Products branded market share in Canada over a fifty two week period ended 06/14/2025. The figures reflect significant growth in the facial tissue category compared to the same period last year. For bathroom tissue, our share slightly declined year over year due to higher pricing that was taken last fall, while it remained relatively stable for paper towels. In summary, we continue to deliver strong performance in a highly competitive market, and we are seeing share growth in recent quarters.

Let’s look at the Away From Home segment on Slide 11. Sales volume decreased year over year in Q2 twenty twenty five, but was up on sequential basis. Despite a year over year decline in Away From Home revenue, we delivered nearly the same level of adjusted EBITDA as in Q2 twenty twenty four and achieved significantly higher sequential profitability driven by our new Sherbrooke paper machine, which allowed away from home to source paper internally. We also launched the Cashmere and Scotties brand into the away from home market in June with our new Kruger Pro repositioning, and we’ve had a positive response from end users and distribution partners. Away From Home operations continues to expand our OpEx methodology, driving ongoing improvements in output and productivity.

This, combined with internal paper usage, has improved our Away From Home network and cost base. Finally, we are closely monitoring potential signs of softness in the away from home market, which may be influenced by broader economic uncertainty. However, we do benefit from a well diversified customer and segment portfolio to help mitigate any potential risk from an economic slowdown. I will now turn the call over to Michael.

Michael Keys, CFO, KP Tissue and Kruger Products: Thank you, Dino, and good morning, everyone. Please turn to Slide 12 for a summary of our financial performance for the 2025. As mentioned by Dino, we generated an adjusted EBITDA of 70,000,000 on sales of CAD536.1 million in the quarter, a very solid improvement year over year. Net income also totaled CAD22.1 million in the second quarter compared to CAD10.6 million in the 2024. The year over year increase is due to FX gain difference of $23,800,000 and income tax recovery of 8,100,000.0 and an increased adjusted EBITDA of $7,200,000 These factors were partially offset by higher depreciation expense from the Sherbrooke expansion project and a onetime expense related to certain older assets at our Memphis facility.

In the quarterly segmented view on Slide 13, revenue from our Consumer business grew 6.5% year over year to 4 and $49,200,000 The increase was mainly due to higher sales volume in Canada, favorable selling prices and a positive FX impact on U. S. Dollar sales. In the Away From Home segment, revenue decreased 1.1% year over year to $86,900,000 in the second quarter. This decline was primarily caused by lower sales volume, partially offset by higher selling prices and a favorable FX impact.

Consumer adjusted EBITDA in the second quarter totaled $69,200,000 compared to $60,300,000 in Q2 twenty twenty four, with a margin of 15.4%, representing an improvement of one point over 2024. On a sequential basis, Consumer adjusted EBITDA decreased by 6,900,000 from Q1 twenty twenty five. For our Away From Home business, adjusted EBITDA amounted to $9,000,000 in the second quarter compared to $9,600,000 in Q2 twenty twenty four, which represents a margin above 10 points for both periods. On a sequential basis, AFH adjusted EBITDA grew $6,200,000 from Q1 twenty twenty five. The sequential increase is partially driven by the expected benefits of in sourcing our paper supply post the Sherbrooke LDC paper machine startup.

Moving on to Slide 14, we present our consolidated revenue for Q2 twenty twenty five, which improved 5.2% year over year to CAD536.1 million. The increase was mainly due to higher consumer sales volume, favorable selling prices and a positive FX impact. These were partially offset by slightly lower AFH sales volume. On a geographic basis, revenue in Canada rose $20,700,000 or 7.4% year over year, while U. S.

Revenue grew $5,600,000 or 2.4%. On Slide 15, we provide the details of our year over year profitability. Adjusted EBITDA increased 7,200,000 to $72,500,000 in the quarter, resulting in a margin of 13.5% compared to 12.8% for the same period last year. The following factors can explain the year over year growth, which is higher sales volume, increased selling prices and lower manufacturing overhead costs. And these items were partially offset by higher pulp prices, unfavorable mill performance at our Memphis facility, greater freight costs and an increase in SG and A expenses.

Now if we turn to Slide 16, where we compare Q2 revenue to Q1 twenty twenty five, revenue decreased by CAD10 million sequentially or 1.8%, primarily due to U. S. Sales volume and unfavorable FX impact. These factors were partially offset by an increase in selling prices. Geographically, revenue in Canada grew CAD13.2 million or 4.6%, while revenue in The U.

S. Declined by $23,200,000 or 8.9%. The lower U. S. Sales volume in Q2 reflects some inventory rebalancing by our customers following a buildup in Q1 as a proactive response to potential tariffs.

On Slide 17, adjusted EBITDA in the second quarter decreased sequentially by CAD3.3 million or 4.3% to CAD72.5 million due to higher manufacturing overhead costs, lower U. S. Sales volume, increased pulp prices and an unfavorable FX impact. These factors were partially offset by lower freight and warehousing costs, increased selling prices as well as a decrease in marketing and SG and A expenses. Adjusted EBITDA margin reached 13.5% in the second quarter compared to 13.9% in Q1 twenty twenty five.

Now turning to our balance sheet and financial position on Slide 18. Our cash position was $85,300,000 at the end of the second quarter compared to $141,800,000 at the end of the Q1 twenty twenty five. The decrease was primarily due to a movement of US29 million dollars to a restricted cash account as per one of our credit agreements. The long term debt at quarter end stood at $1,125,500,000 down $61,200,000 sequentially, while the net debt increased slightly by $14,300,000 Our leverage ratio remained stable at four times across all three reporting periods. And to conclude my section, we will review the capital expenditures on Slide 19.

CapEx for Q2 twenty twenty five amounted to $10,800,000 which included a small carryover amount for the Sherbrooke expansion project. We now expect 2025 CapEx to range between 70,000,000 and $90,000,000 for the year, and this includes some spending in the balance of the year related to the new Memphis converting line announced in July 2025. Thank you for joining us this morning, and I’ll now turn the call back to Dino.

Dino Bianco, CEO, Kruger Products: Thank you, Michael. Please refer to Slide 20, which highlights our 2030 sustainability targets. On June 4, we published our latest sustainability report, which tracks our progress towards these goals. This transparent reporting holds us accountable while allowing our key stakeholders to monitor our progress. We are proud of the progress we have made and encourage you to explore the full report on our corporate website.

Now please turn to Slide 21 for my closing comments. We are expanding our business across our customer base in 2025 and beyond. We have actions ready to manage our margins amid ongoing volatile economic conditions. We are investing in Memphis to drive efficiency and support growing U. S.

Sales. We will continue to drive long term share gains across all our brands. We are leveraging our Made in Canada positioning to elevate our brands among Canadian consumers within an uncertain market environment. Our Away From Home business will continue to benefit from internally sourced paper with sustained profitability expected to continue. And we are actively developing our organizational capabilities to strengthen our adaptability and our resilience.

Finally, let’s turn to our outlook for the 2025. We expect our performance to strengthen in Q3 twenty twenty five with adjusted EBITDA in the range of $75,000,000 to $80,000,000 We will now be happy to take your questions.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Hamir Patel of CIBC Capital Markets. Your line is now open.

Hamir Patel, Analyst, CIBC Capital Markets: Hi, good morning. Do you appreciate the overall dollar sales market share figures that you provide, but would you have any insights you could share into how your market share has been evolving specifically in Away From Home and what the upside there could be with the recent cashmere and Scotties launches?

Dino Bianco, CEO, Kruger Products: Yes. That data is less visible, obviously, just given that segment, Amir. We measure it just based on how we see the market grow and then how we see our growth and do that kind of ratio. And we continue to show strength, notwithstanding a little softer Q2. We continue to show strength that we know we have a strong customer base.

The branded business is an evolutionary opportunity for us and a natural fit given the investments we make in our brands on the consumer side. And obviously, some fortuitous timing, launching those brands at a time when there was a big focus on Made in Canada. And obviously, are well known, strong Canadian brands. So that’s also helped propel the interest in those brands in the away from home segment. So I don’t know that I could give you a share number specifically, Amir, other than we continue to grow at or better than market.

We are moving into the branded space. We are looking at innovation in other categories as well as to expand our portfolio. And then clearly, the opportunity for away from home is growing in The U. S. Market.

We are a small fairly small player, and that is part of our strategic plan to continue to invest and grow in that marketplace.

Hamir Patel, Analyst, CIBC Capital Markets: Okay. Appreciate the color. When you just referenced expanding into other areas, are there certain products in that away from home segment that you don’t produce that you’re considering producing?

Dino Bianco, CEO, Kruger Products: I mean, we’re always looking for adjacencies, not just in away from home And I think as we look to launch adjacencies, we would like to make sure that we launch adjacencies both in the consumer segment and the away from home segment. So these would be products that are near end. I’m not going to give any specifics. But we’re talking something that is within certainly our wheelhouse, something that we have a reason to believe that we can win and have a point of difference in the marketplace.

Hamir Patel, Analyst, CIBC Capital Markets: Okay. Fair enough. Are you able to give us any update on the potential PADD III project? And just given the evolving trade environment, should we assume that the next expansion whenever it is actioned would likely be south of the border?

Dino Bianco, CEO, Kruger Products: So first of all, that is a very active project. I would say there’s a lot of energy in our organization trying to bring that to closure to make a decision. Obviously, it’s a big investment. There’s a lot of work streams on that, including assets, location, customer base, etcetera, funding, a key one. So we’re very active on that.

It’s taking a little longer just given the uncertainty in the market. However, we are committed to come to resolution on that. I won’t give you a specific timing, but my hope is sooner versus later. As it relates to the trade environment, other than the economic uncertainty, we are going to make the decision based on long term where our growth opportunities are. Certainly, we have to understand the current trade environment, but these assets are there for fifty plus years.

We want to make sure we’re making the decision based on where the market growth opportunity is for us, and that will be a key factor in the decision.

Hamir Patel, Analyst, CIBC Capital Markets: Okay. Fair enough. That’s all I had. I’ll turn it over. Thanks.

Dino Bianco, CEO, Kruger Products: Thanks, Sameer.

Conference Operator: Your next question comes from Sean Steuart of TD Cowen. Please go ahead.

Sean Steuart, Analyst, TD Cowen: Thank you. Good morning. Dino, just a follow-up question on the Nextad project. Does the Memphis reconfiguration have any bearing on the site or timing decision for that project? Can you give us a sense of how that might feed into the decision making process for you guys?

Dino Bianco, CEO, Kruger Products: No, it would not. We needed to do the Memphis sites. Obviously, we wanted to get converting capability as soon as possible, and our Memphis site is a great site for us. Yes, it’s undergoing some transformation. And that was an ability for us to increase our converting firepower.

Our paper output was actually outpacing our converting, so this will now give us an opportunity to be more in balance and the ability to continue to grow. So that was done in isolation. Obviously, when we do announce if and when we do announce a new site, then there will be synergistic benefits across Memphis but also Sherbrooke that will make us more efficient from a geographic positioning, focus on product production. So that will help our network be more our CAD network be more efficient. But they are unrelated decisions other than, as I said earlier, a lot of our growth, despite a little bit of softness in Q2, our long term growth continues to be in The U.

S. So this will give us Memphis capability gives us immediate opportunity to capitalize on some of that.

Sean Steuart, Analyst, TD Cowen: Okay. Thank you for that. On the Away From Home piece, some good progress this quarter benefiting from the in sourcing after the Sherbrooke project. Can you just on that front, I mean how much of that in sourcing is fully captured in these results? I’m just trying to get a sense of contribution upside for that segment just related to the insourcing piece of it.

Dino Bianco, CEO, Kruger Products: Yes. Maybe before I can ask Mike to answer that. But I just want to highlight one thing because we talk about that new machine. And what the new machine allowed us to do is allowed us to kind of remove our net reset our network of paper production that allowed the right paper at the right location for the right business. So it wasn’t that AFH is taking all that Sherbrooke, the new Sherbrooke line.

It’s allowed us to reset our network and get the paper in the right place, which allowed AFH to now be substantially all internally sourced. As far as I’ll turn it over to Mike maybe to talk a little bit about how much of that’s reflected.

Michael Keys, CFO, KP Tissue and Kruger Products: Hey, Sean. So obviously, as the machine is turning up, the first use of that paper will be to offset any external purchases like Dino mentioned. But as the machine continues to go up its learning curve, which is projected to be over multiple years as previously discussed, that the additional gains will come from volume growth across various of our business areas. So it’s not necessarily going to be specific to away from home or U. S.

Or Canada, but it will be a mixed bag across all three of them. And that will happen over the next few years. So in terms of the AFH performance itself, I mean, we’ll see most likely continued improvements there, but maybe not as a drastic step up as what you saw from Q1 to Q2.

Sean Steuart, Analyst, TD Cowen: Got it. Okay. That’s all I have for now. Thanks very much.

Dino Bianco, CEO, Kruger Products: Thank you.

Conference Operator: Your next call comes from your next question comes from Zachary Evershed of National Bank Financial. Please go ahead.

Zachary Evershed, Analyst, National Bank Financial: With the latest tariff reductions in August, how is that going to affect your U. S. Operations? Thinking specifically about perhaps imported Brazilian pulp for The U. S.

Market.

Dino Bianco, CEO, Kruger Products: Yes. Zach, that’s a great question. Obviously, almost all tissue manufacturers have some sourcing from Brazil, some more than others. So this is something that will impact any tissue manufacturing in The United States. Some tissue manufacturers obviously have a much bigger footprint than we do.

So and you’ve seen some announcements from some of them around the need to price to cover this. I would say it’s a manageable number for us, just given the size of our business. I would also say that we are reflecting that in our pricing models for as long as it’s going to be there. So I don’t anticipate any material impact to our results because of it, either because it’s not large or we will and or because we will be pricing some of it in our models as long as it’s there.

Zachary Evershed, Analyst, National Bank Financial: That’s clear. Thanks. And then at the AGM, you did mention M and A is on the radar. Can we get an update on what you’re seeing out there and how that compares versus opportunities for Greenfield expansion?

Dino Bianco, CEO, Kruger Products: Yes. I mean, sure tissue, there’s not a lot left. Obviously, with the Clearwater and Royal sale, there could be some tack on opportunities. We’ll continue to look at that, but they would likely be small. As I mentioned earlier and as we announced late last year, we’re investigating a Greenfield site.

Even though they tend to be quite expensive capital cost. Greenfield allows you to have latest technology, allows you to geographically place it in the right location and set it up for future success. Obviously, you have to get your customer base. So we’re looking at a greenfield site, and we are looking at tack on M and A opportunities. But I would suspect those to be fewer than they’ve been in the past and likely of smaller magnitude.

So if something works, we will definitely look at it. Obviously, we in addition to that, we got to just manage our cash and capital allocation. So all those things will have to come together for us to want to take on M and A.

Zachary Evershed, Analyst, National Bank Financial: Got you. Thanks. And just one last one for me. On the front loaded shipments that affected the quarter, would you be able to quantify that in any way? Or did you see any abnormal behaviors this quarter that might affect Q3?

Dino Bianco, CEO, Kruger Products: I don’t think we’re going to quote a number, but I would say that we as you look at the quarter, the three months in the quarter, we saw the biggest impact in our April month, and then it started to recover so that we exited the quarter in June with a very good run rate. So even though the quarter looks soft, if you do the run rate in June, that would just tell me we’re through that now. And one of the confidences we have in calling our Q3 guidance is because we’re seeing that recovery coming. So we do believe that was temporary. I’m not going to quote a number on exactly what it was, but you can tell the difference in our EBITDA delivery and our U.

S. Performance in Q1 versus Q2 and probably figure out some sort of midpoint there that might give you some comfort.

Zachary Evershed, Analyst, National Bank Financial: Fair enough. Thank you very much. I’ll turn it over.

Conference Operator: There are no further questions at this time. I will now turn the call back over to Dino Bianco. Please continue.

Dino Bianco, CEO, Kruger Products: Great. Thank you all for joining us on the call today. We look forward to speaking with you again following the release of our third quarter results for 2025. I want to thank you all, and have a great day.

Conference Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.

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