CECO Environmental Corp (CECO) 2010 Q4 法說會逐字稿

Good morning, my name is Patrick, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Met-Pro fourth-quarter and fiscal year-end results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions) Thank you.

I would now like to turn the call over to the Manager of Creative Services, Kevin Bittle, to begin the conference.

Good morning, and welcome to Met-Pro Corporation's earnings conference call for the fourth-quarter and fiscal-year ended January 31, 2011.

My name is Kevin Bittle, and I'm with the Company's Creative Services department.With me on our call this morning are Ray De Hont, our Chairman, Chief Executive Officer, and President; and Gary Morgan, our Senior Vice President of Finance and Chief Financial Officer.

Before we begin, I'd like to remind you that any statements made today with regard to our future expectations may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Please refer to our annual report for the fiscal-year ended January 31, 2010, that was filed with the SEC, for important factors that, among others, could cause our actual results to differ from any results that might be projected, forecasted, or estimated in any of our forward-looking statements.

With that, I will now turn the call over to Ray.

Ray?

Thank you, Kevin.

Good morning, everyone, and welcome again from Harleysville, Pennsylvania.

Earlier this morning we released our financial results for the fourth-quarter and fiscal-year ended January 31, 2011.

I hope all of you have had the opportunity to review them.

In a moment, Gary Morgan will provide more specific comments on the quarter's financial results, but first I'd like to offer my perspective on our performance.

The fourth quarter was a strong finish to a year of renewed growth and improved profitability.

Both net sales and net income growth accelerated in the quarter, up 20% and 37%, respectively, when compared with the fourth quarter of last year.

That's the best quarterly top-line growth achieved this year, and the fourth straight quarter where net income and earnings per share were up significantly compared with the year-ago quarter.

As has been the case all year, we also achieved solid results in all our key metrics, including new-order bookings, gross margins, and operating margins.

The top-line growth was driven by a 28% increase in our Product Recovery/ Pollution Control Technologies revenues, and a 23% increase in our Fluid Handling Technologies revenues.

These are our two biggest segments, and it was encouraging for them to finish the fiscal year on such a high note.

Gross margins continue to run at historic highs, thanks to our various productivity and cost initiatives, as well as the leverage achieved through better capacity utilization.

New-order bookings for the fourth quarter were up 15% compared to the fourth quarter of fiscal 2010.

Notable in the quarter were separate $500,000 and $900,000 Met-Pro environmental air solutions business unit orders for thermal oxidizers.

After being hit hard by the economic recession, there are signs that our Product Recovery/ Pollution Control Technologies' customers are gaining in confidence, and beginning to once again invest in their businesses.

In the quarter, we successfully integrated Bio-Reaction Industries LLC into the Met-Pro organization.

BRI is a pioneer in environmentally friendly air pollution control systems, utilizing state-of-the-art biological technology to eliminate volatile organic compounds, hazardous air pollutants, and odors.

It is expected that this acquisition will be accretive to earnings in the current fiscal year ending January 31, 2012.

Quotation activity is keeping pace with both improved bookings and revenue growth.

Success across all three of these important metrics suggest our growth strategy, including currently investing in additional sales staff to drive future sales growth, is gaining traction.

Met-Pro's Business Development Managers, including recent additions in South America and Asia, are uncovering new growth opportunities both domestically and internationally.

Our dedication to better understanding and anticipating the needs of our markets is opening new doors to opportunities where our wide breadth of products and solutions can help customers reduce costs, improve efficiency, and meet the demands of increasingly stringent environmental regulations.

On January 5 of this year, our Board of Directors declared a $0.066 per share dividend, payable today, March 17, 2011, to shareholders of record at the close of business on March 3, 2011.

This is the 36th consecutive year Met-Pro has paid either a cash or stock dividend.

As anticipated, the recovery in our markets has been very measured in this space, and in certain areas, such as large projects, the recovery continues to be choppy.

All in all, however, the fourth quarter was a solid quarter, demonstrating the ability of Met-Pro's well-regarded brands to compete domestically, as well as globally.

I would now like to ask Gary Morgan to review our recent financial performance in more detail.

After which, I will provide some concluding remarks before we take your questions.

Gary?

Thank you, Ray.

Met-Pro reported fiscal-year 2011 fourth-quarter net sales of $23.8 million, up 20% from last year's fourth quarter.

Net sales in our Product Recovery and Pollution Control Technologies reporting segment for the fourth quarter were $11.5 million, up 28% from the fourth quarter a year ago, primarily due to an increase in sales for all business units within this segment.

Net sales in our Fluid Handling Technologies reporting segment were $7.4 million, up 23% compared with the fourth quarter a year ago.

Sales in the quarter included the initial shipments of the record pump order booked earlier in fiscal 2011.

Fluid Handling Technologies operating margins in the quarter were a strong 23.7%, compared with 20.1% for the fourth quarter of last year.

All of our pump lines are doing extremely well, as this segment's revenue was up 12.1%, and operating margins were up 21.6% for the full fiscal year.

Net sales in our Filtration and Purification Technologies segment were $2.4 million, up 7% compared with the fourth quarter of last year, as demand increased for our Keystone Filter business unit products.

Net sales in our Mefiag Filtration Technologies reporting segment were down 2.7% during the fourth quarter.

However, we are very proud of the progress towards recovery being made at Mefiag, considering the extent to which the business was impacted by the global recession.

For the fourth quarter, we reported a gross margin of 36.4%, up from 33.2% in the fourth quarter of last year.

This enabled us to achieve a 36.3% gross margin overall for the fiscal year, one of the highest annual gross margins in the Company's history.

Combined selling, general, and administrative expenses for the quarter were $6.3 million, up 29.5% from the $4.8 million a year ago.

Selling expenses increased to 13.1% of net sales due to higher payroll and related benefit expenses; as Ray mentioned, we have added resources to drive growth.

Selling expenses also reflect higher sales commissions, which fluctuate quarter-to-quarter depending upon the channel through which products are shipped.

General and administrative expenses were up due to bonus accruals this year, with the year-over-year increase somewhat distorted because we actually recorded a bonus credit in last year's fourth quarter.

For the quarter, the operating margin was 10% of net sales, compared with 8.8% of net sales in the same quarter of last year.

And for the full year, the operating margins came in at 10.1%, compared with last year's operating margins of 8.1%.

For the quarter, we reported net income of $1.8 million, or $0.12 per diluted share, representing increases of 37% and 33%, respectively, from a year ago.

Met-Pro's balance sheet remains strong, with cash on hand at January 31, 2011, of $32.9 million, or $2.23 per diluted share, up $1.5 million since the end of last fiscal year.

In the quarter, Bio-Reaction Industries' operations posted costs of approximately $128,000 with minimal sales.

We expect their operations to start generating revenue during the first half of the current fiscal year, and to be accretive for the full year.

For the fiscal-year 2011, net sales were $88.9 million, up 10.1% from last year in an economy still recovering.

The gross margin percentage for the year was a record high 36.3%, up from 34.2% last year.

Total selling, general, and administrative expenses for the fiscal year were $23.3 million, up 11.7% from the $20.9 million last year.

Net income for the year was $6.1 million, up an encouraging 38.2% from the $4.4 million for last year, while our earnings per share was up 40% to $0.42 per diluted share, compared with $0.30 per diluted share in fiscal 2010.

In summing up the quarter and fiscal year, net sales, earnings, and cash flow performance all reflect steady growth and improved operating efficiencies.

We are entering fiscal-year 2012 in a position of strength, thanks to these positive financial results.

Thank you, and I would now like to turn the call back to Ray.

Ray?

Thank you, Gary.

Just a few concluding thoughts before we open the call to your questions.

Over the past several years, we have endured restrained spending across our various markets.

During the fourth quarter, however, there were signs that the resultant log jam was finally breaking loose, which is encouraging.

Clearly, this prolonged period of spending deferral has created latent demand for our products and services.

In addition, there is new legislation forthcoming that will reduce the acceptable levels of ethylene that can be discharged into the environment, which will create further opportunities for us, as a significant portion of the equipment and technologies currently utilized in the field cannot meet these higher standards.

Inevitably, the release of pent-up demand, and the imposition of stricter regulations will precipitate a more vibrant market environment.

Despite the challenges, the fourth quarter represented another period of significant progress for Met-Pro, as we strengthened our organization, and more aggressively and proactively pursued a variety of very exciting growth opportunities.

We remain confident that over the long term, Met-Pro Corporation is well-positioned to capitalize on the very powerful trends toward global environmental stewardship, energy efficiency, and process improvement.

I'd like to thank the many loyal, dedicated, and talented employees who have contributed to our success, as well as thank our shareholders for their continued support.

I'd also like to thank all of you for your participation in today's call.

I'll now turn the call back to Kevin Bittle.

Thank you, Ray.

At this time, we would welcome any questions you may have.

I would like to ask our operator, Patrick, to provide instructions for this portion of the call.

(Operator Instructions).

We'll pause for just a second to compile the Q&A roster.And our first question comes from the line of William Bremer from Maxim Group.

Good morning, gentlemen.

Good morning, William.

Good morning, William.

Ray, I'm glad you spoke about the stricter regulations and standards that are coming.

Can you give us an idea of when they are going into place and when you believe you'll start seeing some additional sales from these?

Well, the specific date depends on when the federal government and some of the even local governments actually enact these new standards.

And the standards, by the way, are both on the air side as well as the water side, so it covers both sides of our business.

But we see some of it happening later this year, and one of the things, even though they haven't been enacted yet, Bill, is that customers many times take the proactive approach and start to try to get ahead of the game, rather than waiting for everything to hit all at once.

And I think we'll see some of that earlier in the year, as we move along.

But you have out there, you have the Boiler MACT, you have the cement, you have the particulate-type regulations and so forth.

On the water side, there's things with the phosphorus and the nitrogen and those type of restrictions and new standards.

So there's a lot going on there, but I think we'll see some of it before they're actually enforced.

Okay.

Great.

And can you provide us with the backlog at the end of the year?

Gary, what's the backlog number?

The backlog number at the end of the year was about $18.1 million, William.

And how does that compare to last year?

It's a 3.6% increase from the prior year -- 3.9% increase from the prior year.

Now, remember, William, we're not typically a backlog-driven business.

We have a lot of daily business.

If you look at this year, actually, as I mentioned in my opening remarks, the one area of the business that's been choppy has been the large projects, and I've said this in other calls where we have a lot of strong pipeline of large projects out there.

But our daily business this year was very strong.

So the day-to-day, the parts business, the service business, the small pump business, the chemicals and so forth, when you look at that, that's where a large portion of our growth came from.

Okay.

Here's a housekeeping question for you, Gary.

The selling and the general administrative expenses, a little bit higher than I was forecasting.

Due to Ray's comments and the additional personnel in the sales side, is that the new run rate that we should be using into fiscal 2012?

Well, on the -- we came in at $3.1 million in the fourth quarter on the selling side, and that was really related to a few factors.

One was additional salespeople that we have hired to expand the growth of the Company, the sales side of the Company.

And the other area was also revenue -- expenses related to buyer reaction, and on top of that we had an unusual represented commissions during the fourth quarter.

As a result of that, I would probably make the run rate going forward somewhere in the area of $2.9 million to $3 million on the selling side, because some of those expenses are not going to continue into the first and second quarter.

Okay.

On the G&A side, we came in at $3.2 million in the fourth quarter, and what happened in the fourth quarter this year, we had management incentive bonuses that were paid out this year, and in the prior year we had a credit for management incentive bonuses, so I would reduce that by about $400,000, which would make the run rate somewhere in the area of about $2.8 million, that would be more consistent with the prior quarter's -- the third and second quarter this year.

Okay.

Very nice.

I agree.

On the tax side, we came in at 29.2%.

What should we be using for fiscal 2012.

In January, the government approved a research and development tax credit, that came in I think January 10, in that area, and we were able to have a tax credit -- R&D, research and development, tax credit of $143,000, which lowered our effective tax rate from 34% down to an annual effective tax rate of 32.7%.

Going forward, I would recommend that we use a run rate of 34% due to a couple state tax issues that we might run into next year.

Right.

Okay.

All right.

Gentlemen, nice quarter.

Oh, one last question.

Can you give us an idea on pricing right now in terms of the bookings, how is pricing in the marketplace?

Are you feeling competitively pressured or are you able to still achieve the pricing that you've been having as of late?

All during the past year, there's been competitive pressure, William.

We're still seeing some of that.

We are keeping an eye on the commodity pricing also, as far as where that's going.

Recently in the last couple of weeks, it started to roll back a little bit, but we constantly focus on that, we constantly look at how do we differentiate our businesses.

So I think we're in a good position as far as competitiveness on pricing ,and there's opportunities out there on some of the larger products, which we've been talking about for quite a while, to where when they drop that's going to help us significantly.

Thank you.

You're welcome.

Thank you.

(Operator Instructions).

And at this time, I would like to turn the call back over to Ray De Hont for closing remarks.

Thank you, Patrick.

Once again, thank you for joining us this morning.

We hope we have been able to provide you with a useful update on Met-Pro's progress and performance, but if you should have any further questions, please feel free to contact either me or Gary.

Have a great day everyone.

And this conclude today's conference call.

You may now disconnect.