艾利丹尼森 (AVY) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to The Paxar Corporation's first quarter conference call. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the call, please press the * then zero key on your touch tone telephone. If anyone should disconnect and need to rejoin, please dial 1-888-467-1742.

And as a reminder, ladies and gentlemen, this conference is being recorded. I'd now like to introduce your host for today's conference, of . Please go ahead, ma'am.

Thank you so much. Good morning everyone, and welcome to the first quarter conference call for Paxar Corporation. You should have all received a copy of the press release this morning. If you did not, please call at at 212-445-8459, and we will send one out to you and confirm your name on either our fax or e-mail list. Now I'd like to introduce Mr. Bob Powers, Vice President Of Investor Relations. Bob?

Thank you . Good morning and welcome to Paxar's first quarter 2002 conference call. On the line from management will be Paul Griswold, President and Chief Executive Officer, and Jack Plaxe, Senior Vice President and Chief Financial Officer. This morning before the market opened, Paxar reported first quarter 2002 results.

Management will now provide additional commentary on those results, as well as a look to the future. At the conclusion of that commentary, any questions you have may be addressed to management. Please be advised that certain statements about the future outlook related to Paxar Corporation involve a number of factors effecting the company's businesses and operations that could cause actual future results to differ materially from those contemplated by forward looking statements.

Those factors include general economic conditions and the performance of the company's operations within it's prevailing business markets around the world, as well as other factors set forth in Paxar's annual report. For further explanation, participants are asked to refer to the final paragraph of Paxar's earnings release.

Additionally, Paxar will hold it's annual meeting of shareholders on Tuesday, April 30th at 9:30 AM at The Hotel Intercontinental New York, 111 East 48th Street, New York City. And we invite you to attend. Paul Griswold now begin our management presentation. Paul?

Thank you Bob. Welcome everyone for joining us this morning for our first quarter call. What we'll do today is I'll ask Jack Plaxe, our CFO, to take us through the financial summary of the business. I'll go into a more detailed description of some of the performance aspects.

Talk about some key initiatives, and provide some background on how we see the second quarter in the balance of the year. And we'll open the call up to questions. So with that, Jack?

Thank you Paul. Good morning everyone. I'll start my income statement remarks by talking about the consolidated results, then I'll comment on the results by our geographic segments. Sales were $153 million dollars in this years first quarter, as compared to $155 million last year. All of the change is attributable to foreign exchange, as both the Euro and the British Pound had lower values relative to the U.S. dollar in 2002 as compared to 2001.

We came in slightly below the sales range given as guidance due to weak orders and shipments in February. Incoming orders strengthened in early March, and continue to be strong up to the present. Earnings were at the high end of the 17 cents to 20 cents per share range that we gave as guidance. Net income was $7.5 million dollars, and diluted earnings per share was 19 cents.

The comparable numbers for 2001, which exclude good will , were $8.5 million dollars for net income, and 20 cents for earnings per share. Gross margin improved to 38.8 percent this year, from 37.9 percent last year. SGNA increased as a percent of sales, and by $1.7 million dollars in absolute terms. More than one million of the increase represents costs related to our reshaping and rebranding programs, which Paul will elaborate upon in his remarks.

Operating income was $12.6 million dollars, or 8.3 percent of sales. Last year we had $13.9 million dollars in the first quarter, nine percent of sales. The tax rate was 26 percent in both periods. Now I'll turn to the results for our three segments, North America, Asia Pacific and Europe. North America's sales were $80 million dollars, a six percent decline from $85 million dollars .

Operating income of $5.9 million dollars, down from $7.8 million dollars in 2001. Asia Pacific continues to benefit from the migration of apparel manufacturing to countries in that region. Sales increased 17 percent, from $25 million dollars to $32 million dollars, and operating income increased from $5.3 million dollars to $6.6 million dollars. Europe's sales were $40 million dollars, a six percent decline from just under $43 million dollars in the prior year.

Operating income, however, increased from three million to $3.6 million dollars as a result of improved gross margin and lower SGNA. As noted in the press release, our projections for the second quarter indicates that we expect sales in the range of $63 to $68 million dollars, and earnings per share in the range of 26 to 29 cents.

Also, we're maintaining our guidance for the year with sales in the range of $645 million dollars to $665 million dollars, and earnings per share in the range of 97 cents to $1.05. Cash flow from operations in the quarter was three million dollars, the same as a year ago. Depreciation was $6.4 million in the quarter. Last year we had $9.7 million dollars of depreciation and amortization in the first quarter.

expenditures were $3.5 million dollars this year, that's $3.5. They were $4.8 in the first quarter last year. We did not repurchase any shares during the quarter. Cumulatively, we've repurchased 11.5 million shares at a cost of $113 million dollars. We have $37 million dollars of board approved repurchase authorization remaining. The balance sheet continues to be strong.

We had $36 million dollars in cash at March 31st, up slightly from the beginning of the year, and our debt to total capital ratio was 37 percent, the same as at year end. That completes my remarks.

Thank you Jack. Let me try to provide a little bit more background on the operating performance without repeating, you know, Jack's words and numbers as we run through the first quarter performance. I mean, overall, we came in about where we expected to be on the top , certainly with the guidance of 155160 I would have preferred to see us in that range or better.

Jack explained some of the foreign exchange behaviors, but what it comes down to is the very unpredictable market that we're in. I mean, we continue to see a highly volatile local marketplace as we all know in the retail sector in particular continues to be difficult to judge. As I talk about our business the last call, I talked about, you know, three, you know, overriding vectors or, or trends that kind of shape how we operate, and the environment that we operate in.

First, the globalizing effect of customers going off labor benefit, and new spending opportunities. The second is the consolidation that we're all seeing take place amongst our customers. The third, which is really the results of the first two, is how complicated the supply chain is becoming. And if I could share with everyone one of the challenges we feel that very well positioned for.

But it's gonna be something that we're managing going forward, is the migration of business off shore, both from The United States into some of the markets like The Caribbean, Mexico, The Far East. As well as the European equivalents going into The Middle East, Africa, The Sub-Continent and Eastern Europe. Those migrating patterns are becoming shorter and quicker, if I can describe it that way.

In other words, programs that a year ago were 15 million programs every three months, are becoming three, five million unit programs every six weeks. That plays into our hand pretty well as we've developed a footprint around the world, operating in over 70 countries. And, as I describe it, with more than 350 feet on the street around the world.

So the complexity that's developing in the space actually plays very, very well into our capabilities. That being said, it makes the predicting and the forecasting process all the more difficult. So, yeah, we are at the end of the quarter seeing a pick up in our order rates, as Jack described. We saw that early in April. And that gives us the confidence that we're speaking with as we talk about the second quarter.

And we have no reason not to hold our year forecast at this point because we have, again, a number of initiatives that we feel are gonna be in place and delivering results as we enter the second half. As I look at the segments as Jack talked about, the North America, off six percent in sales, it's hard to separate that from the pick up that we're seeing in Asia. Asia was up almost 17 percent in the same period.

And as these programs move back and forth, there's a, an off-setting effect. We just need to balance our assets and our investments accordingly. And we're doing that. Europe, as the other segment, pretty much where we expected them to be, impacted by the Euro in the first quarter versus prior year. Pleased to report that their operating margin's up, and we're starting to see the benefits of the restructuring that we took in the mid part of last year.

So, we are in a place that we feel comfortable with moving into the second quarter. And that's probably the best way to describe the operating performance and the geographic . As far as the reshaping and the progress there, and I know that's something we spent a great deal of time on, and I wanna share that with the listeners on the call.

The CRM, or Client Relationships Selling Model, that we initiated and piloted during the last part of '01, we've put in place, in fact we had a significant gathering in April this year, where we brought together our global management team the North American sales organization and went through a pretty rigorous four day training schedule and session where we started to drill the methodology throughout the organization, and it is beginning to set in.

I'm pleased to say that traction is taking place. The first quarter performance of these ARM accounts are essentially, or slightly up from a year ago. Given the environment that's about what I expected, but we also expect to see traction moving forward in the second half of the year. I think the high spot in the reshaping initiative is about, again, where I expect it to be, is the operations reorganization that we put in place in North America.

We saw nearly a full hundred basis point improvement in gross margin in our numbers. North America clearly putting the methodology in place. I described our particular methodology being practical process improvement, which is something that was launched in North America, and we're gonna be sharing with our other operations during the course of the next 18 months.

Practical process improvement basically focuses on service, cost, quality and safety. And it's a very specific customized program that we'll work into our organizations. And very honestly, really very well received. And it was something I was probably more concerned about as I thought about the reshaping initiative, then our CRM initiative, which is a more text book team selling initiative.

So I do expect to see continued improvement in the very, very key margin areas that we're focusing on as the year goes forward. And probably as much as anything, on service. I mean, as I've said to our organization over the past number of months, three years from today, or sooner certainly if possible, we need to become the easiest company to do business with in our space. If we're not, being global doesn't make a great deal of difference to our customers.

We have to be as seamless, standardized organization that executes in a very local fashion to support our customers around the world. Being big and small is the challenge, and it's something many companies work at, very difficult to achieve. And I think we've got a very good running start at it. So, I mean, this is the challenge from the operations side and the reshaping initiative, again, which we feel reasonably good about.

And confident that we'll see progress going forward in the balance of the year. What I would like to talk about the new product side of the business, because with everything else going on, I certainly don't want to de-emphasize, or not give appropriate airtime to the new product and innovation initiatives. Over the course of this year, starting with the first quarter, we've got 22 new releases coming out.

And without going into specific detail, each one in a way focused on expanding core or existing product offerings. In most cases focused on fashion, and customer's unique requirements, either in the retail space or the apparel manufacturing space. In store and distribution centers. The whole area of software integration is becoming more and more ingrained and mainstream in our business.

A specific initiative coming out, and I'm very comfortable talking about it is near it's launch date, is a new ultra pass finder that we're launching that essentially replaces our patented, unique single unit that provides for scanning an application, of price marking and control features in the marketplace. That'll be an early third quarter launch, and we're gonna do it in two phases. So I'm very, very pleased to see that coming out.

That's approximately a ten million annual revenue kind of thing, just to give people a scale or a sense of size. The other aspect of our innovation and new product launches I mentioned at our last call was a pro-branding initiative that's really an in-store price marking tool for our retailers. I'm very pleased to announce that we've expanded that initiative to 12 retailers, major players in our space, and we're really starting to see the benefits.

And, again, dimensionalizing this, this is a four to five million dollar initiative per retail state. So this is a key opportunity. And it's a different way of presenting our products and services, it's very, very important. Again, folded into our reshaping and rebranding initiative. And then finally, the updated Lock Print technology that we have had out for a few years, which is a sublimation technology, we've come out with a Lock Print II, which enables two side printing.

And it's clearly an advantage for the denim and basic segments that are a key part of our growth going forward, so all in all, our innovation new product initiatives are focused on providing an ability for our customers to differentiate themselves and our ability to help them simplify both their in store and their DC and warehouse operations, which are the that you hear all the way around when you talk to our customers base, so very, very pleased with that.

What I'd, I'd also like to do is talk about our going forward plans, and if there was a, if I could only speak about one topic on the call, I'd dedicate it to where we are going forward the second quarter and the future. A lot of what we've talked about, the re-shaping, the performance in the first quarter, are really sets ups for all the change that we've undertaken over the last year and early this year.

And that's really the message of the morning. It's the way we're gonna build the company going forward. The challenging marketplace and I said that on a global basis , our customers are changing, and Paxar's changing. And rather than spending our resources trying to predict and forecast, we've diligently prepared ourselves to move into the key spaces for our customers to provide measurable value added solutions and services in every part of our business.

And I think that that's absolutely key. That doesn't take the attention away from protecting our balance sheet. We're gonna be disciplined. We're gonna continue to look at acquisitions, a very key part of our strategy. But we're gonna do so spanning our geography space and our technological platforms and suites. And so balance sheet, financial capability, and foundation is always gonna be there.

We're gonna continue to grow the margins. I talked about the reshaping initiative, specifically our process improvements. We're seeing the benefits, and we see a lot more coming at us in the future. I think there's a lot of opportunity. And again, a key metric for management or the key metric for management, top line growth and economic profit or return on capital employed is a key bench mark. And we're measuring every step we take about capital efficiency. We've focused our resources on the customer. We're focused on operating efficiencies. We've continued to integrate, drive new products, and we'll continue to evaluate acquisition. In the earnings release, I made a remark about our Mexican acquisition, .

This as well as the ones completed in the fourth quarter of last year, we completed trade, were a combination of geographic steps, technological steps, and actually a capital avoidance. You heard Jack talk about 3.5 million in the first quarter. Now, during the first quarter we have been redeploying assets acquired during the acquisition process.

And it's enabling us to expand our Asian markets. We saw very strong financial performance there. It's gonna enable us to expand elsewhere in emerging markets and will position us to support our customers as they continue to globalize, very, very key point. We change. We're gonna continue to manage it. It's gonna be a priority for us. It's about building an organization focused on creating shareholder value.

I think that's the sum of a lot of what we've talked about. We're gonna demonstrate measurable benefits to our customers every time. And we're gonna build and continue to grow a world class organization. And those are our strengths, our customer base, our operating footprint, and the people that make it happen. I think that, for those of you that had a chance to look at our annual report, that was the goal of the annual report.

The annual report is a sales tool and a message to our internal associates as well as our customers, not to ignore the investment community, but certainly it is a message about change. It's a message about repositioning and reshaping. The Atlanta meeting I referred to was a point where we rebranded our company, moving from Paxar, the power of identification, to Paxar, concept to check out, we make your sales work.

And that's what it's all about. So without going further into it, what I'd like to do is open the call up to questions. I'm sure I've opened up some ideas that people would like more clarification on.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the 1 key on your touch tone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. If you are using a speaker phone, please lift the handset before asking a question. Once again, if you have a question, please press the 1 key.

Our first question comes from .

Thanks, you guys did a nice job on the gross margin base, so I was wondering SG&A expenses, is that more of a function of the top line being a little bit, I guess, maybe less than you thought it was gonna come in, and do you have a way to go there? Additionally, in your comments on redeploying assets that it sounds like have come with acquisitions, does that mean your budget for this year will be somewhat less than maybe what you were thinking at the beginning of the year? Thanks.

, it's Jack.

Hi, Jack.

With regard to SG&A, certainly as a percent of sales, yes, it was a little bit higher because sales came in lower than expected. In terms of the absolute dollars as we mentioned, fully $1 million plus of the increase in this year over last year was attributed to the reshaping and rebranding initiative.

How ongoing is that million dollars would you say, Jack?

We're not going to see anything like that in the later quarters of this year, second to fourth. There'll be some continued expenditures with regard to the rebranding but they won't be anywhere near that. I mean, $500,000 would be a lot of money on a quarterly basis going forward, Rob, and probably will be somewhat less than that.

Okay.

Let me just add, to give you a sense of metric here. Last year in a routine, more normalized situation, we had budgeted between $700,000 and $800,000 a year for advertising promotion.

Uh huh.

We're probably gonna be at about $1.5, $1.6 million this year of in the first quarter. hoth: Okay.

So, I mean it's nothing out of control. It was in fact planned for and I think your point about the top line. Not the top line correct , we're managing the in absolute dollars. We have picked up some SG&A spending with the acquisitions.

Okay.

But, it's on my list, as they say, so.

Sure.

And with regard to capital expenditures, Rob. On a prior conference call, I think we gave guidance for the year of in the range of $20 million to $24 million with $3.5 million in the first quarter.

Right.

But it's unlikely that we'll be anywhere near the top end of that range. So, yes, it would be reasonable to expect that we would be no more than $20 million for the year.

Okay. On a previous call you had talked about, I think it was an . Can you bring us to up to date on how that's coming along?

Rob, good question and I guess I don't put it out there in front of people because it's something that I think every company is going through in some fashion short .

Sure.

We have moved ahead, we're in the second year of the process with the Oracle product. We've rolled out through North America, three locations in the south. In fact, the most recent three installations have gone as expected, increasingly well. The key now is to start delivering the business benefits that we set out to. You know, first you get the technology in place, you get the business process working, and then the business benefits come. I'm very much involved in this for a variety of reasons, not to mention it's a key element to becoming the easiest company to do business with. And I'd say we're where we need to be right now. My hope is, and expectation, that as we continue to roll out the program and the technology, that we pick up the pace. But it's no surprises basically. That's about the best way to describe it.

Alright, and last, I don't mean to take up too much. Can you just, it seems like North America, I guess if you look at it in the quarter was down, sort of $5 million roughly and the Asia Pacific market was up $7 million. Is that kind of what you can see. I mean, there's obviously economic situations going but more than that, is there, is that sort of what we should kind of picture going forward as we watch your company and maybe, there's a little bit of runoff here, but obviously you're picking it up.

And obviously Mexico and Caribbean have something to do in on the growth end. Do we see the pickup more on the Asia Pacific, a little bit faster than the runoff here on whole dollar terms versus percentages?

It's another interesting or good question, interesting way to think about the business. When I think about the growth going forward from a strategic standpoint, Rob, and I'd say this is part of the call this morning. We talk about base business, we talk about acquisition revenue and we talk about growth or share take.

Right.

If you think of those three slices, North America is really gonna be more about the acquisition revenue, managing the base business migration, and selective share take as we bring new products and technologies. But practically speaking, if things continue the patterns that have been set up, Europe is gonna be migrating outside of the continent and the UK. The UK probably closer to the U.S. model today, and the U.S. is going to be migrating to the Caribbean, to the Far East, .

That's what we hear from our customers. Now, the customers, as I speak to the senior people in our space, they're also kind of playing watching WTO, watching NAFTA, watching different trade regs. We need to be prepared to support their growth in these new markets. But, you know, am I gonna say, you're gonna see more growth in Asia than North America, on a percent? Absolutely. I mean, it's, you're working from different numbers.

Right. But on whole dollar terms, that actually happened this quarter and I suspect it's happening, you know, more times than not, where you're seeing, you know, that swing in Asia, higher than even, you know, obviously North America's running flat, it's flat. But, you know what I'm trying to say. griswold: Oh yeah. Well, the game here for us is to more than offset. In other words, as North America moves down, we have to pick up net more in the Caribbean, Mexico, Asia markets. And we're seeing that. And that's a very key, that's what I was referring to when I talked about smaller, more frequent programs and the complexity that's picking up. This has become a different game over the past eighteen months and we feel pretty good about what's going on.

Do you get higher margin business with those shorter runs, let's call it, because of the urgency and the, I guess, the turnaround on those orders, so to speak.

When possible, but not always.

Okay.

In other words, it's about margin management and protection. And we do that through labor efficiencies and material savings, because we're under a lot of pressure.

Okay. Thanks guys.

okay.

Thank you. Once again, if you have a question, please press the one key on your touch tone telephone. Our next question comes from of .

Actually for Arnie. A question from a gross margin perspective. What was the utilization across your business in the quarter, so what the change was?

The capacity utilization?

Yeah.

We run between 65 and 70 percent of practical capacity, not getting into definitions there. I mean, we're, that's typically where we operate because of the surge requirements in our business. Things come in quickly, not necessarily forecast in advance. We don't run much stock as you might. So, I mean that's how our model was built, as far as a 70 percent nominal capacity utilization.

And was any of the improvement in gross margin due to increased utilization?

Primarily material productivity and waste.

Okay.

Those were the categories, because, believe me, when I saw the ninety basis points, we that one very quickly.

Okay. So no question on where that came from?

No, no, it's, I mean, in fact, to repeat it, we have to know where it came from.

So, it is sustainable and repeatable?

Yes sir.

Okay. Some of the acquisition. What sort of contribution was that? Now, it was not a lot of time in the quarter, but what was the contribution of that in the quarter?

Oh, the contribution, in fact, I just went into that last week because we acquired that early February, we really didn't get in and start to integrate the business until mid-February. We saw between $600,000 and $700,000 of bookings come in. That's not a good number to read from, though, because we bought the as much a capacity or equipment capability.

We look at our business, if you think about the migration that Robert talked about. With that North American manufacturing assets, we've got assets in Mexico, , Nebraska and North Carolina. We look at that as one capacity. And so we're gonna be using that to take advantage and service our customers. So, is more capacity, flexibility as much as incremental revenue. But, it's about where we need us to be or expected it to be.

We need to pick up the pace, though, and really use it as a driver to market our capabilities.

Okay, and you mentioned acquisition was key to the strategy, especially for North America. Anything time table wise that we could expect?

Well, I mean, acquisitions, unfortunately, don't come on a schedule. I mean, everyone would understand that. At any given time, we're looking at a few, and again, to be consistent, they're either geographic steps or technological steps. I'd like to tell you that we're focused on some technology that we'll be enabling for us in North America, and I'd say that that's, you know, these are not $50 million things, these are kind of things and certainly, in the next six months.

Okay. Any executions for starting the share repurchase again ?

We still have an authorization available. We're, I mean, it's on the list. I mean, productivity, cross improvements, new products acquisition, share repurchase is kind of my recipe in rank order. We feel there's, there should be better opportunities to continue to improve our productivity and innovation initiatives. But it's watched very carefully.

Okay, thank you.

Thank you. Once again, if you have a question, please press the 1 key on your touch tone telephone. It appears there are no further questions at this time. I'd like to turn the program back to you.

Well, again, thank you to everyone for joining us on our first quarter call and I appreciate the opportunity to update everyone on the range of things going on. We're actually, you know, rather pleased with where we are at this point in the year. I'd love to be able to predict with more precision how the year is gonna play out, but as I mentioned, we feel confident that we've done the right things.

We've positioned ourselves properly and we're prepared to deal with the future. And, I mean, that's about as much as I could say. So, with that, I'll turn the call off.

Okay, thanks very much for joining us.

Ladies and gentlemen. Thank you for participating in today's conference call.

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