Flexsteel Industries Inc (FLXS) 2009 Q2 法說會逐字稿

Good morning. My name is Sarah and I will be the conference operator today. At this time I would like to welcome everyone to the second quarter and 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). Thank you. Mr. Hall, you may begin your conference.

Good morning, everyone, and welcome to our fiscal year 2009 second quarter and fiscal year to date operating results conference call. We appreciate your participation this morning. Joining me is Ron Klosterman, our President and Chief Executive Officer.

During today's call we may make forward-looking statements that are subject to risk and uncertainty. A discussion of the 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 that was filed on September 15, 2008, and the press release dated February 5, 2009, announcing our second quarter and year to date 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 statements to reflect events or circumstances after today's call.

I have a couple of comments about the press release before I turn the call over to Ron for his comments. First of all, I would like to highlight sales for the quarter and for the six-month period ended December 31. With today's current economic conditions that are out there, our sales were negatively impacted across the board in each one of the product categories that we report sales to you. For the six months we're down about 15% and listed in your press release is that residential net sales have decreased about 8%. Our recreational vehicle sales are off about 65% and our commercial sales are showing about a 2% decrease for the six-month period.

During the six-month period we've had about $1.8 million worth of facility consolidation charges. That includes approximately $500,000 during our second quarter. We had originally estimated that those costs would run between $2 million and $2.5 million. We are pleased that we have been able to bring those in near the lower end of that scale, and we believe we have got the substantial portion of those behind us and do not expect significant costs in those categories as we go through the balance of our fiscal year.

At this time I will turn the call over to Ron Klosterman, our President.

Thank you, Tim, and good morning. Tim gave you the highlights for the quarter, and I guess I would just like to expand upon that a little bit as to what we have been facing and how we have been responding here at Flexsteel. Certainly, we are all aware on a macro basis what a challenging and difficult year 2008 was. We saw a continued deterioration of the national and global economy as the year went along. And with Flexsteel providing products to various business segments, all of which are easily deferrable purchases, we were certainly significantly impacted by the national economic program. We are all aware of the financial crisis, the unemployment numbers, consumer confidence perhaps being at the lowest levels since they started tracking consumer confidence. And all of these affected our business, and I won't elaborate on the macro picture but focus a little bit more on Flexsteel.

In calendar year 2008 we certainly saw our revenues declined, and for the entire calendar year there were down about 12% but worsened as the year progressed. In the first six months of the year our revenue was down about 9%. In the second half, as reported in our press release, it's down about 15%. And also as indicated in our press release, in the fourth quarter of calendar year 2008, our second fiscal quarter, top-line revenue was down about 20%. Certainly, very challenging scenario to work through and one that continued, as I said, to deteriorate as the year progressed.

I do think we have responded decisively, aggressively and appropriately as the year went along. During the second half of the year we previously announced and completed the closing of two of our eight manufacturing plants. We also reduced capacity levels at several other plants. And on a corporate-wide basis, the number of employees that we have, although this is a very sad number, we were forced to and did respond to a reduction in total headcount for our corporation of 25% from the beginning of calendar year 2008 to the end of 2008. So I mentioned that as an indication of the decisive action that we have tried to take, as we've seen the economy go downhill.

We've also had significant reductions in other factory costs along with SG&A expenses in almost every category, and we have also minimized capital expenditures to conserve cash as the year has progressed.

Although we are not satisfied with our bottom line and our financial results in 2008, with these actions it does appear that we have held up better than many of our publicly owned competitors in the furniture and related industries.

I also want to mention that I'm very pleased with the efforts of all of our associates and proud of those people who have been here at Flexsteel for many years and continue to be the strength of our Company. Their contributions are especially appreciated in these very difficult times.

As we look ahead, the future is certainly uncertain. It really seems doubtful that Flexsteel has seen the last of our revenue declines. In the first five weeks of calendar year 2009 we've seen our residential order levels further declined from where they had been. On the RV side of our business, several of the original equipment manufacturers continue to work reduced hours with some plant closings for weeks at a time. All of this results in us having a very minimal order rates receiving to supply these OEMs.

And in addition to that, one of the areas that we've held up perhaps a little better in 2008 than in some of our residential or RV businesses has been our commercial business for both office furniture and hospitality. We anticipate that this business could further soften as businesses tighten their budgets and reduce their capital expenditures as they head into 2009 and perhaps beyond. So I think the top line will continue to be very challenging for us, and will continue so until we see some stability in the overall economic environment.

Our strategy is to continue to minimize our expenses, to maintain a strong balance sheet and to continue the conservative approach to business that we've had for a long time and will continue to execute as we work through the challenging quarters that lie ahead of us.

It will be difficult; there's no doubt about that. I think one of the things that makes this downturn so challenging is that the visibility just continues to be a shorter and shorter period of time as we go on. And although we will do everything we can to control all of the things that are within our control, certainly, the macroeconomic picture will play into this as we work through these next couple quarters.

We have a very solid team here at Flexsteel, and I'm very confident that we will battle through this and come out stronger at the other end of it. We just don't know how long this is going to take.

So with those brief remarks, I think we will open it up to questions that anyone may have for us.

(Operator instructions). John Deysher.

I was just curious about the first five weeks of '09. You said you experienced declines. Were they declines along the magnitude of the fourth quarter? In other words, are we seeing an acceleration of declines, or is there any falling off of the decline? In other words, what is the magnitude?

It's really at a level that we saw in the late part of 2008 and probably the latter part of November and December, but it will have a little bit more significant impact on our shipments in the March quarter as we work through our backlog. Our backlogs were a little healthier at the end of the September quarter than they were at the end of the December quarter, and therefore our revenues will go down.

Incoming orders were certainly not picking up at all, probably are a little bit lighter than they have been, certainly lighter than a year ago in the January month but a little bit lighter than even they were in November and early December.

Now, on the residential side, next week we will have the Las Vegas furniture market, and almost a little bit surprisingly we are expecting attendance to be reasonably solid for the market. We don't know how much order writing we will do and how much business we will generate, but we are a little bit optimistic that if the dealers are investing to make a trip to Las Vegas, they are coming to buy some furniture.

It might be that they are expecting benefit from the coming stimulus package, I would think.

Well, we would hope so. We'll see how all that works out.

On the cost side, the restructuring is done -- how much will that save you, again, over the next 12 months in terms of cost savings, the restructuring that you just completed?

I think, as I recall, it was somewhere between $2.5 million to $3 million on an annual basis. And most of those costs are behind us. There's probably a few trickling expenses that will come through yet in the next quarter, but certainly all the significant dollars are behind us.

Our original estimate is that on an annual basis it would save between $3.5 million and $4 million. I think those numbers are still valid estimates.

And you think you'll capture that amount over the next 12 months?

Yes. I think that's the range of stuff that should come back in our direction.

I was glad to see you profitable for the fourth quarter, so if you get that magnitude of savings going forward --

Those are really predicated on business conditions holding up pretty well. Obviously, if we have pressure in other areas because of reduced revenues, it may not show up all the way on the bottom line. But we certainly think that that's the magnitude of the cuts that we were implementing from those facility changes.

Right, and you think you'll realize those based on a steady-state-level of revenues?

Yes.

(Operator instructions). There are no further questions.

Thank you for joining us this morning. We look forward to giving you an update at the end of our March quarter, probably the latter half of April, and we certainly look forward to better times ahead, although it may be a few quarters before we see them. So thank you for your interest in Flexsteel. Have a good day.

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