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071030 Deutsche Bank Report - Glatfelter's 3Q in 100 Words

Deutsche Bank - Equity Research

Glatfelter {Ticker: GLT.N, Closing Price: USD 15.20, Target Price: USD 20.00, Recommendation: Buy}.

Nice quarter, but less than first blush. GAAP EPS = $0.17. Pointing to $0.42 net of special items, but this was helped by tax benefits and an insurance recovery. We think the "real" number is roughly $0.28. DB @ $0.24 & FC @ $0.22. Comps: 2Q07 = $(0.02), 3Q06 = $0.23. Profit improvement initiatives at Chillicothe are starting to pay- off.

Specialty Papers. EBIT= $14.7MM, +$17.0MM q/q & +$4.6MM y/y. Q/Q comp is distorted by the annual 2Q outages. Y/Y gain muted by $5.7MM in higher raw materials & energy costs, as well as weaker mix. The y/y benefits: price = $3.6MM, vol's +5.6% y/y, and productivity gains at Chillicothe & Spring Grove.

Composite Fibers . EBIT= $8.2MM, +$1.4MM q/q & +$3.1MM y/y. $1.4MM of EBIT = energy tax credit & insurance recovery related to '05 event. Price = $1.0MM y/y benefit (constant currency). Vol's flat y/y.

Other issues. (1) $5.3MM tax benefit from reduction in German tax rate from 25% to 15%, (2) Fox River environmental reserve boosted by $12.3MM, (3) Just $2.5MM in timberlands sold in 3Q, but $67-70MM on deck in 4Q, (4) Capex = $30MM in '07, $50-55MM in '08.

Change in view? Cautiously encouraged. Chillicothe accretion goal starting to be realized - +$0.12 in 3Q, compared to -$0.08 in 1H.

Still on track for +$0.45-0.50 in '08. Maintain BUY. No change to forward estimates: 4Q = $0.26 and '08 = $1.00. DB hosting visit to Chillicothe & management mtgs next Tuesday in OH.