Flexsteel Industries Inc (FLXS) 2010 Q1 法說會逐字稿

Good morning, my name is Darrell and I will be your conference operator today. At this time I would like to welcome everybody to the fiscal year 2010 and first quarter 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. At this time I would like to now introduce our presenter for the day, Timothy Hall, VP of Finance and Chief Financial Officer for Flexsteel. Mr. Hall, you may now begin.

Thank you, Darrell, and good morning, everyone, and welcome to our first-quarter operating results conference call. We appreciate your participation this morning. Joining me is Ron Klosterman, the President and Chief Executive Officer for Flexsteel.

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 expectations is contained in the Company's SEC filing, including the most recent 10-K filed on August 26, 2009 and the press release dated October 20, 2009 announcing our first-quarter results.

Any forward-looking statements are opinion as of now and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after today's call. I have a few comments before I turn the call over to Ron for his comments on operations and business outlook.

In our press release we announced that our net sales for the quarter were approximately $76 million compared to about $91 million for the prior year quarter, a decrease of approximately 17%. Our residential sales declined about 9.4% to approximately $56 million. Our commercial sales declined to about $20 million, a decrease of about 33%. Our gross margin showed marked improvement to 21.8% of net sales from 18.7 in the prior year quarter.

This improvement in gross margin percentage is primarily due to changes implemented during the prior fiscal year to better utilize our capacity and control costs. In addition, we benefited from a modest relief from prior year cost increases for materials and freight.

Our selling, general and administrative expenses declined approximately $2.7 million and declined as a percentage from $18.6 million to $18.3 million -- or increased, I'm sorry, approximately -- from $18.3 million to $18.6 million, a decrease in real dollars of $2.7 million. That decrease was due to lower variable expenses on the lower sales volume and a control of fixed expenses.

Our net income from the quarter was approximately $1.4 million or $0.21 a share compared to the net loss that we reported a year earlier of approximately $0.11 per share. Again, remember last year included approximately $1.3 million or $0.13 a share for facility consolidation costs.

On our balance sheet we continue to focus on major components to make sure our balance sheet remains strong. On a quarterly basis from June to September our accounts receivable increased about $1.6 million related to timing and volume is the major change there. We had an increase -- or a decrease in our inventory of approximately $1.8 million and we were able to decrease our accounts payable by $1.4 million and are in debt by $3 million during the quarter.

On a September-to-September basis we've decreased our accounts receivable $8.1 million and our inventories have decreased $11.8 million. We've used that to decrease our accounts payable by $3.7 million and our debt by $15.5 million. We will continue to focus and strengthen our balance sheet and we expect that our capital expenditures will be a modest $1.5 million for the balance of the fiscal year.

At this time I'd like to turn the call over to Ron Klosterman, our President and CEO. Ron?

Thank you, Tim, and good morning, everyone. I think I'd just like to comment a little bit further not so much on the comparisons for this September quarter versus a year ago, but more so on the transit we've seen over the last several quarters. Looking back now with the September quarter included, for our last three fiscal quarters, our shipments; our revenue line has been in the $74 million to $76 million range each of the last three quarters.

So although we're operating at a much lower level than we had in the previous three years and even as recently as the last September quarter, there seems to be some stability in the total amount of revenue that we're able to generate. And we're not seeing the very significant declines in revenue in any of our businesses from quarter to quarter from March to June to September.

Certainly some have trailed off a little bit more, others have actually improved slightly. But overall it seems as if maybe we have found a revenue level at this point in time and that should be somewhere in that mid $70 million range.

With that and with all of the changes that we made last fiscal year, beginning last year in the September quarter and on through the spring of the year where we made very significant adjustments in our manufacturing capacities, our headcounts, number of employees that we have, and other actions that we had taken to control expenses, reduce cost, etc., we've seen -- if I go back to the March of '09 quarter, we had a pretax loss of about $700,000 excluding the nonrecurring facility closing severance cost that we experienced.

So we're at a level of let's call it $74 million and, once again, without those facility closing costs, etc., we lost $0.07 per share. In the June quarter revenue was up only $1 million from March and yet we were able to turn that $700,000 pre-tax loss into about a $1 million pre-tax income number and $0.12 per share. So we felt like we were making some progress. And now and be September quarter, once again, a very modest top line increase from $74.5 million to about $76 million, with pre-tax income at $2.3 million or $0.21 per share.

Certainly these are not pre-tax income or per share numbers that we want to live with on an ongoing basis. But I think it's an indication of the positive impact that the tough decisions we made last year have made and hopefully, assuming we don't have any significant blips come along in our cost structure or any unforeseen areas of declines in revenue, we should be able to continue to look ahead and operate at breakeven or something north of breakeven as we go through these next quarters.

I think on -- I wouldn't necessarily say a downside, but we are at a point now that we have not seen significant increases in orders or revenues in any of our businesses. Some of them are up a little bit, but they're not up substantially. It seems like the overall mood and direction in a number of our businesses are that things have stabilized even though at a low level and we may have a few more quarters of that before we start to see some increases.

For our company that may mean and likely will mean that we could be into the beginning of our fiscal year 2011, our fiscal year ending in June 2010, before we see significant upticks in business. Most of the products we make are easily deferrable purchases. With consumer confidence continuing to be at slightly better but still historically low levels, with issues in the marketplace, with credit availability, etc., it may be a few more quarters before we start to see the upward trends that we'd like to have.

So we've taken actions, we think they were appropriate actions at the time. Our couple of recent quarters would indicate that we've been on the right track; we'll continue to work along those lines. We could have some challenges ahead of us; we've been fortunate more recently that our material costs have not seen significant increases.

There are always some rumblings in the marketplace about whether its commodity is tied to fuel, crude oil, steel, other items that there could be some pricing pressures that come forward. That would be very concerning because we probably do not have a lot of pricing ability to pass on cost increases to our customers at this point in time.

So we'll continue to work very hard to stay on top of the material cost side of the business. In addition, I'm very pleased with our selling, general and administrative expense progress. Although in a percentage it was up a few tenths more than a year ago, I think with the significant decline in volume that we've experienced we've certainly gotten the benefit of the variable part of selling, general and administrative, but also have taken good action to control the fixed cost portion of selling, general and administrative expenses and once again will continue to work to keep those in line.

As Tim commented on our balance sheet and we continue to strengthen it. Able to pay off some more borrowings and will continue to focus on cash. So I think in closing my comments, we're certainly not pleased with only having a $75 million quarter again and yet we are feeling pretty good about the bottom-line results that we have.

I think what we're reporting is probably not untypical of what an awful lot of companies are reporting, that their revenues are off or at a lower level and yet they've done a lot of cost control measures to enhance the bottom line to allow them to either be profitable or at least at breakeven or close to breakeven.

So I don't know that what we're doing is that much out of character with what many companies are doing, but we are pleased with where we're at today. And we're going to keep battling away over these next quarters and be well prepared when the uptick in business finally comes, whenever that may be.

So with that, Tim, I'll turn the call back over to you.

Thank you. Darrell, I think we're ready for questions now.

(Operator Instructions). And there appears to actually be no questions at this time, Mr. Hall?

Thank you, Darrell. Everyone, I'd like to thank you for your participation on the call today and your interest in Flexsteel Industries. We'll continue to work hard to earn your trust and to operate the business so that it's successful. We look forward to reporting positive items again for you next quarter and, again, thank you for your participation. Good day.

And that concludes today's conference call. You may now disconnect at this time.