Flexsteel Industries Inc (FLXS) 2010 Q2 法說會逐字稿

Welcome to our second-quarter fiscal 2010 operating results conference call. At this time, I will now turn the call over to Mr. Tim Hall, Flexsteel's Vice President of Finance and Chief Financial Officer.

Thank you, Stephanie and good morning to everyone and welcome to our fiscal 2010 second-quarter operating results conference call. We appreciate you taking time this morning to join us. Joining me this morning is Mr. 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 expectations are contained in the Company's SEC filings, including the most recent 10-K that was filed on August 26, 2009 and the press release dated February 4, 2010 announcing our second-quarter operating results.

Any forward-looking statements are opinion as of now and we undertake no obligations to update or revise any forward-looking statements to reflect events or circumstances following today's call.

I will start with a few comments about our quarter and year-to-date operating results most contained in the press release that you received. Our net sales for the second quarter were $83.5 million compared to the prior year of $84.5 million, so basically a flat quarter with the prior year quarter. Our residential sales increased by 8% and our commercial seating sales decreased by approximately 21%.

On a sequential basis, from our September 2009 quarter to our December 2009 quarter, our sales increased by approximately 10%. On a six-month basis, our net sales have decreased approximately 9%, our residential sales have stayed relatively flat and our commercial seating is off approximately 27%.

We have shown nice improvement in our gross margin, primarily the result of the changes that we made for better capacity utilization and lower fixed manufacturing costs with the facility consolidation that we incurred in the prior fiscal year. We've also had some improvements in product mix and some lower ocean freight costs.

Our selling, general and administrative expenses have remained fairly constant between 18.2% and 18.4% period to period. Our net income for the quarter was $3 million or $0.45 a share and on a year-to-date basis, our net income stands at $0.66 per share or $4.3 million. And noted in the press release are the amounts that are included in the prior year for the pretax facility consolidation costs.

Our balance sheet remains strong and our operating income has improved and our working capital focus will continue. We have decreased our debt by about approximately $5 million during the quarter and we've paid the remaining $5 million subsequent to the end of the quarter. At this time, I will turn the call to Ron Klosterman, our President and Chief Executive Officer. Ron?

Thank you, Tim and good morning, everyone. To pick up a little bit on some of Tim's comments and what we've accomplished throughout calendar year 2009, although we are a fiscal year company and our fiscal year ends in June, as we began calendar year 2009, we were certainly battling significant decreases in our volume, lack of profitability, the need to adjust our facilities and do a great deal of consolidation both on physical facilities and also headcount.

We established a couple of internal goals at the beginning of 2009, which were to strengthen our balance sheet, including the reduction or elimination of our bank borrowings and to return our Company to profitability.

I would like to just give you a little update on some of the trends that we are seeing sequential quarters throughout calendar year 2009. For the March quarter, our volume revenue was about $73.6 million, went up $1 million from that in the June quarter and up an additional $1 million from June to September. So we were about $73.5 million, $74.5 million, $76 million and now in the December quarter, as Tim stated, we are about$83.5 million or a 10% increase from the September quarter.

On the profitability side, we recorded a loss of $1.9 million in March, which included significant amounts of write-down for consolidation of operation and inventory write-downs related to declines in business. In June, we turned the corner and had about $800,000 of profit. In September, that increased to $1.4 million and now in December to $3 million.

On a per-share basis, going back to last March, excluding the sort of extraordinary items that were in there, we had a $0.07 loss. That improved to a $0.12 gain per share in the June quarter and then to $0.21 in the September quarter and now $0.45 in the December quarter. So we are pleased with the trends that have happened throughout 2009 and we think it is a reflection of some of the strategies and changes that we put in place at the end of calendar year 2008 and early 2009.

Looking at our business at this point in time on the residential side of the business, we really think and we can only judge what the publicly owned furniture companies are doing, but we really think, on the residential side of our business, we are operating very much as a top-tier company. I think our performance results on the sales side with an increase that we had this quarter, along with the bottom-line results that we are showing would indicate that.

As we talk to our retailers in the residential businesses, it appears for many of them that the declines have sort of ended, things are bottoming out a little bit, order rates are stabilizing, but yet orders continue to be somewhat inconsistent. Our dealers are telling us that they will have a few weeks of really pretty solid business and then go a week to 10 days where things are pretty light. So we are encouraged by what we are seeing, but there is still some inconsistency there.

On the commercial side of our business, we really don't anticipate significant improvement in order rates in either the office or hospitality part of the business in the near term, that being the balance of 2010. It may well be into 2011 before we see significant improvements in those businesses. Certainly commercial real estate continues to be lagging. The hospitality business is still very light. Although once again doesn't appear to be getting much worse at this point in time. We don't think there is a lot of dollars allocated to budgets for refurbishing or new properties in the hospitality business.

I think the overall economic environment remains unstable and fairly fragile. In spite of the instability and the lack of overall growth in the national economy, we are hearing of some areas that are concerning to us. We are hearing that chemical cost increases are, or at least the potential for increases are floating about, scrap steel prices seem to be rising at this point in time and although we don't know what effect this might have on our material costs, should these things stay in place, it is likely to negatively impact us as we go forward. Hopefully with demand being fairly light, these increases will not take place.

And we also know that ocean freight rates are increasing. We have benefited from more favorable rates and levels over the recent months, but it seems to us if the ocean carriers are adjusting capacity to fit what the current demand is and therefore are requesting and receiving some freight increases at this time.

In conclusion, I would just say that last year was certainly a year of consolidation and downsizing for our Companies. It required that our team execute a lot of difficult steps and certainly all of our associates put forth a lot of additional efforts to help us through the difficult period that we had and although we see the future as somewhat uncertain at this time, it certainly is rewarding to see that the steps that we did take in 2009 and the first -- excuse me -- in 2008 and the first part of 2009 have resulted in Flexsteel having a stronger balance sheet and reestablishing a trend of profitability.

So we continue to be confident in our strategies and our ability of our team and associates to execute those as we go forward. Certainly pleased with the results that we had in this December quarter. So with that, Tim, I'll turn it back to you.

Stephanie, we are available to take questions.

(Operator Instructions) There are no questions at this time.

Stephanie, thank you. Everyone, thank you for joining us this morning on the call. We look forward to reporting to you at the end of our next quarter and again, thanks for taking time to be a part of our call this morning. Have a good day.

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