Flexsteel Industries Inc (FLXS) 2009 Q1 法說會逐字稿

Good morning. My name is Clara and I will be your conference operator today. At this time, I would like to welcome everyone to the first-quarter fiscal year 2009 operating 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)

Now, I would like to turn the call over to Mr. Tim Hall, Vice President of Finance and Chief Financial Officer for Flexsteel Industries. Sir, you may begin your call.

Thank you, Clara, and good morning, everyone, and welcome to our fiscal year 2009 first-quarter operating results conference call. We appreciate you participating this morning.

Joining me this morning is Ron Klosterman, our Chief Executive Officer and President of Flexsteel. We are calling this morning from our showroom in High Point, North Carolina.

During the call today, we may make forward-looking statements that are subject to risk and uncertainty. A discussion of those factors that could cause actual results to differ materially from management's expectation is contained in the Company's SEC filings, including our most recent 10-K filed on September 15, 2008, and the press release dated October 20, 2008 announcing our first-quarter 2009 operating results. Any forward-looking statements are opinion as of now, and we undertake no obligation to update or revise any of the forward-looking information and statements to reflect events or circumstances after today's call.

I would like to make just a few comments, before I turn the call over to Ron, from the press release from yesterday. Our sales for the quarter were approximately $91.4 million, a decrease of about 9.4%. We reported a net loss of approximately $700,000 or $0.11 per share, compared to an $0.18 per-share earnings in the prior-year quarter.

During the quarter, we recorded a pretax charge of approximately $1.4 million related to facility consolidations that we announced during September. Excluding those charges, our net income for the current quarter was approximately $100,000, or $0.02 per share.

Breaking down our sales, our residential net sales were approximately $62 million, substantially flat with the prior-year quarter. Our commercial seating sales were up slightly to $23.5 million, about a 4% increase I guess. The recreational vehicle seating part of our business is where we have struggled most dramatically as that industry suffers as well -- our sales of $5.9 million, a decrease of 62%.

Our gross margin for the quarter was impacted negatively by the under-absorption of fixed costs as our sales fell, especially in the vehicle seating area, and we had some higher material costs as well. Our selling, general and administrative expenses were 18.3% versus 17.4% in the prior-year quarter -- again, the absorption of our fixed selling costs on the lower volume and a slight increase in bad debt expense.

During the quarter, we had cash provided by operations of approximately $2.2 million. A little information about what we've been trying to do with our working capital and our investment in primarily inventories and receivables -- compared to our June balances, our receivables are down about $2.7 million and our inventories are down about $1.8 million, $1.9 million. Looking at those numbers versus a year ago, our inventories are down about -- excuse me, our receivables are down about $6.5 million, and our inventory is down about $3.1 million. We've used this decrease to reduce our debts, and from our September quarter balance sheet a year ago, our debt is down $8.1 million, and from our June quarter, so June 30, 2008, we are down about $3.5 million.

We continue to be stingy with our capital improvements, investing about $150,000 during the quarter. We are estimating that the fiscal year total will be about $2.5 million. As we add some delivery equipment during the second quarter of this fiscal year, we will be the predominant add there. Our depreciation projection for the year is about flat, slightly down to about $4.2 million for fiscal year 2009.

At this time, I will turn the call over to Ron Klosterman for his comments. Ron?

Thank you, Tim, and good morning, everyone.

Well, this certainly has been a very challenging quarter, great volatility in the market place between all of the issues going in and the financial end of things, the impact of the slower housing, etc., all of these things play a significant role in our businesses. Almost every product we make is an easily deferrable purchase. Although we are never pleased with having topline revenue being flat and a couple of our businesses, to be quite honest, we're not greatly disappointed in either our residential or our commercial business at this point in time. Especially as we look at some of our competition in those areas, we feel reasonably good about having relatively flat top lines at this time compared to year ago, and in fact in the home furnishings industry probably performing better than much of our competition.

The recreational vehicle business has been a real challenge for us. It has been throughout calendar year 2009 -- excuse me, 2008 -- as we saw declines already beginning in the early part of the year as the retail volume of recreational vehicles started the year the first couple of months being down in the 10% to teens areas, growing to the 20% and 30% range as we went through the late winter/early spring months and really being substantially impacted during these last three months, or at least the last three months reported, with I think industry saying that retail sales for the month of August were off over 60%. With this, the original equipment manufacturers that we supply significantly cut back on their production, many of them taking extended shutdowns in the middle of the summer, around the Fourth of July, some of them again in August and even into early September, and also further plant consolidations by some of our key customers, all of which gave us a much slower order backlog to fill during the quarter. As a result, our corporate $9 million decline in topline revenue is very close to what we saw our decline in the RV business with a little decline in residential and a little increase in commercial, somewhat offsetting each other in dollars.

With what is going on in the marketplace and especially the RV business, we announced, in early September/mid-September, two plant closings, one being a facility in Indiana that was 100% dedicated to recreational vehicle, and the other one in Pennsylvania, a long-time plant that we had for residential furniture that we are going to consolidate that production into other facilities and continue to use a portion of the Lancaster facility for our warehouse and distribution center to allow us to continue to provide good service to our dealers in the Northeast and the mid-Atlantic states.

We have a substantial part of that cost behind us but there will be some additional costs certainly in the December quarter, and also probably a smaller amount as we move into the first half of 2009. But we believe that, with the closing of those two facilities, we will more closely align our production capacity with what we anticipate order levels being as we look ahead over the next couple of years. In addition to that, we will take out some fixed costs that will benefit both our gross margin line, from a factory perspective, and also some relief on the SG&A side as we consolidate some administrative functions.

So we think we're doing and making the right moves at this point in time. It's probably likely to be a very challenging business moving forward. Certainly being at High Point, North Carolina, the international home furnishings market now for the last couple of days, many of our retailers are finding business to be challenging, along with consumer confidence being unstable. In some cases, they are also beginning to battle consumer credit being unavailable as customers do come in the door. Hopefully, some of these things will level out as we get through the end of the year, get the elections behind us, and the financial markets stabilized a little bit.

The RV business looks like it will be a challenge for a longer period of time going forward. We do believe and are confident in the RV business. We like the business over the years and we're going to like it going forward. We're not real pleased with it right now, but with our relationship with all of the top ten original equipment manufacturers, we can continue to be a significant seating supplier to the industry, although probably not at the levels that we had seen in the record years that they had in 2005 and 2006.

Lastly, in our commercial business, our commercial office business remains stable. It's going to be down slightly. We do not anticipate significant growth there in the next couple of quarters, but we feel, once again, very good about our customer base and the product line that we have there.

On the hospitality side of the commercial business, we have had very nice and steady backlogs, although we are starting to see some slowdown of new projects that are being considered, and not at all surprising in that one would anticipate, with the slowdown in the economy, we will hit a period of time where business travel, casual travel will drop off a little bit. With that, normally the hospitality industry will either delay or may delay new projects, may defer restoration of existing properties. With that, the number of opportunities that we will have to place product will be somewhat less. So our challenge there will be to gain market share from some of our competitors and allow us to maintain our volume levels that we have been enjoying over the last couple of years in that business.

So overall, a challenging environment that we are working in -- we are certainly not pleased with having to report a loss for the quarter, although we were pleased from the standpoint that, in a very difficult market and in having a couple of our factories that were significantly underutilized without the facility closing costs, we did have a very modest operating income this quarter, and hope to build on that and plan on building on that as we get into the 2009 quarters and then the 2010 fiscal year, which for us will begin next July.

So with that, we will open the call up for questions, if you have any.

(Operator Instructions). John Deysher.

Good morning. A couple of questions -- one, on the expected annual pretax cost savings of $3.5 million to $4 million from the restructuring, when do you expect to capture those, over which future quarters?

We would anticipate that those will start to come back to us as we get a little bit into the third quarter and in the fourth quarter of the current fiscal year. Then obviously we will have all of those as we move into fiscal year 2010.

Okay, so your Q3, that would be the March quarter and the June quarter?

March and June quarter, they will start to develop for us.

Okay, nothing in the current quarter?

Nothing in the current quarter. Both of those facilities are still producing product and running production through the first part of November, and then we will have some people still on staff as we move inventories and equipment out of the buildings, etc., so there might be a very small amount but probably not much in the December quarter.

Right. I think you announced this already, but what's the headcount reduction going to be as a result of those closures?

I think, in total, with active employees at the time that we made the announcement, it was in the area of 250 people total.

250, okay. That includes -- okay, so that's the net number.

Yes, that's hourly production associates and supervision, administrative, et cetera.

Right, okay, good. I guess the other question is you talk about some of your customers being under stress. I'm wondering. Are any of your competitors under stress? Do you see any competitors perhaps going out of business, either on the RV or the residential side?

A little harder to address on the RV side because most of our -- well, almost all of our seating competitors in RV are privately-owned, if you will, sort of family-type businesses. So other than once in the while speculation or rumors, there's not too much information as to how they are doing. One would anticipate that, if our volume is down this significantly, that many of them are feeling the same thing, but what that means to their financial well-being, it's hard for us to comment on.

On the residential part of the business, we certainly know how some of the public companies are doing. Through the industry and the trade, we know how a few of the private companies are doing. There have been certainly some that are under stress. For instance, in the residential business, there was a long-standing competitor of ours, a private company, that filed bankruptcy and went out of business, although they've recently been restructured and some other individuals are taking over the brand and the operations. So one would anticipate that there could be a few more of those out there.

Interesting. Could you share with us who that private company was?

It was Norwalk, based out of Ohio.

All right, okay, good. Then, you are at the show right now; I guess it's the start of the show.

Yes, it is.

What -- are you seeing any kind of enthusiasm, or what has the reception been amongst the buyers from your time there so far?

Well, I think, overall, first of all, we are finding that, through the first couple days here, traffic is about the same as it was a year ago. At least for us, all of our dealers are important to us, of course, but certainly our significant, larger retailers are here and they are looking at product. Some of them talk about the slowdown and so they are probably a little bit more tempered in their enthusiasm to buy product right now, but they are certainly coming to look at new product, to know what's going to be available to them.

With this market here, we really never know the results of how well we've priced our product until four to six weeks after market, because many of the buyers come and look here but they don't actually order here. That happens when we go back to the field and meet with them at their individual locations.

Okay, so you will have a better feel in four to six weeks? Is that correct?

That's correct.

Okay, thank you.

(Operator Instructions). There are no more questions in queue at this time, sir.

All right, thank you. Well, we thank all of you for joining us this morning. Once again, we look forward to speaking with you again at the end of the next quarter. Hopefully, we will see a stabilization in some of the businesses, especially the RV business, and look forward to some upturn as we move past the end of the calendar year and into 2009. So, thank you for your commitment to Flexsteel and we will talk to you again.

This concludes today's conference call. You may now disconnect.