Glatfelter, the specialty materials company, might not be a household name, but it has quietly been undergoing a transformation. The recent Q1 2024 earnings transcript reveals a hidden gem, a potential catalyst that other analysts seem to have missed: Glatfelter is poised for a significant surge in its European Airlaid business.

While the transcript focuses on the challenges Glatfelter's Airlaid segment faced in Europe due to prolonged market weakness, a deeper dive reveals an optimistic undercurrent. CEO Thomas Fahnemann hints at a carefully orchestrated strategy to combat the challenging European market, a strategy that hinges on the successful launch of new innovative products.

""We have made some really good progress with new products and new customers... We are kind of at the edge right now that we are kind of really making supplying customers with the first shipments and all this, and we will see actually better results than in the second half of this year, but probably in '25." - Thomas Fahnemann, CEO of Glatfelter"

This subtle, almost throwaway line, holds immense significance. It signals a potential turning point for Glatfelter's European Airlaid business, a shift from volume decline to volume growth, driven by innovative, high-margin products.

The transcript lacks specific details about these new applications, adding an element of mystery and potential to the story. However, Fahnemann's excitement about these "absolutely new applications" that "provide enough profitability" is palpable. He specifically emphasizes the differentiation these new products offer from cheaper Asian and Turkish substrates, suggesting a move towards higher-value, specialized offerings.

Glatfelter's European Volume Growth: A Tale of Two Segments

The following chart compares the volume growth trends of Glatfelter's Composite Fibers and Airlaid segments in Europe, highlighting the contrasting trajectories.

Airlaid Turnaround Potential

Here's where the hypothesis comes in. Assuming that Glatfelter's new Airlaid applications gain traction in Europe, the company could see a significant turnaround in its Airlaid segment's performance. Let's look at the numbers:

If the new products successfully offset the European market weakness, Glatfelter could potentially recoup a significant portion of the $8 million EBITDA loss.

Furthermore, Fahnemann indicates that these new applications will deliver their full impact in 2025 and 2026. This suggests a sustained, multi-year growth trajectory, potentially driving Airlaid EBITDA above historical levels.

Glatfelter's strategic shift towards innovation and customer diversification in the Airlaid segment is reminiscent of its successful turnaround in the Spunlace segment. Through operational improvements and a renewed focus on its Sontara branded products, Spunlace EBITDA has improved by $9 million over the last year.

This track record of successful turnarounds, coupled with Fahnemann's optimism about the new Airlaid applications, paints a promising picture for Glatfelter's future.

While the proposed merger with Berry Global's HHNF business understandably dominates the headlines, the underlying story of Glatfelter's internal transformation shouldn't be overlooked. The potential surge in European Airlaid, fueled by innovation and a strategic shift, could be the catalyst that propels Glatfelter from underdog to industry leader, even before the merger comes to fruition.

"Fun Fact: Glatfelter's history dates back to 1864, predating the invention of the telephone and the automobile. The company started as a single paper mill in Pennsylvania and has since evolved into a global specialty materials company. This legacy of adaptation and innovation bodes well for Glatfelter's ability to navigate the challenges and seize the opportunities of the future."