Operating profit at our Industrial/Environmental Filtration segment grew $3.5 million, or 48%, from the first quarter of 2011. Approximately 70% of this increase was from our domestic and foreign natural gas business due to both higher sales and operating margin. The 8.8% operating margin in our Industrial/Environmental Filtration segment in the first quarter increased 2.3 percentage points from last year including a 1.1 percentage point improvement in gross margin percentage and a 1.2 percentage point reduction in selling and administrative costs as a percentage of sales.
Net sales at our Packaging segment declined $6.4 million, or 29%, from the first quarter of 2011.
This reduction was primarily driven by lower confection packaging sales, smokeless tobacco packaging sales and lower sales in other markets due to inventory and production scheduling adjustments. The reduction in confection sales was primarily due to the loss of packaging business for a product from a large customer, and lower smokeless tobacco packaging sales were primarily due to one of our major customers qualifying a second source supplier according to their corporate policy. The $2.5 million reduction in operating profit and the 10.8 percentage point reduction in operating margin were primarily the result of lower sales. Impacting the year-over-year Packaging segment operating profit comparison was a $0.5 million patent sale in the first quarter of 2011 which did not repeat in this year’s first quarter and a $0.2 million bad debt expense recognized in the first quarter of 2012 pursuant to the Kodak bankruptcy.Sales and operating profit fell short of our internal expectations in the first quarter. We believe some of these sales issues are transitory, and we are aggressively pursuing several significant sales opportunities in our pipeline for the remainder of the year. Accordingly, we are not significantly reducing our full year expectations for our Packaging segment for 2012.
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