Global Industrial Co (GIC) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 3 2004 Systemax earnings conference call. My name is Kelly, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star, followed by zero, and a coordinator will be happy to assist you. I would now like to turn the presentation over to today's moderator, Ms. Donna Genrich. Please proceed.

Thank you, operator. Welcome to the Systemax third quarter conference call. I am here today with Rich Leeds, Chairman and Chief Executive Officer, and Steve Goldschein, Senior Vice President and Chief Financial Officer.

This discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors including those described under the caption "Forward-looking Statements" in the Company's annual report on Form 10-K. This call is the property of and is copyrighted by Systemax, Inc.

Now for the news. Third quarter net sales increased 13.6% to 460.3 million compared to 405 million in the same period a year ago. Diluted earnings per share were 8 cents per share compared to 5 cents last year. Before restructuring and other charges, earnings per diluted share this year were 10 cents compared to 3 cents per diluted share in the same period last year.

For the nine months, net sales increased 12.8% to 1.38 billion compared to 1.22 billion last year. Diluted earnings per share were 16 cents, compared to 15 cents a year ago.

Rich will now go over some of the highlights, then Steve will go into the financial details. Now I will turn the call over to Rich.

Thank you, Donna. The third quarter proved to be a good quarter for both computer and industrial products in North America, with both achieving strong sales gains. Consolidated sales grew in North America by 15.7%, compared to the same quarter last year, and 9.4% better than the second quarter of 2004.

Internet sales continue to be the key element of the growth and the success of North American computer product operations. European sales grew by 9.9%, compared to the same period last year. Movements in foreign exchange rates account for substantially all of the increase. We continue to see weak market conditions in many of the European markets we serve.

We have substantially completed the re-organization of our computer business in North America and are beginning to see the benefits of the changes we have made. Operating income increased in North America by 74.7% compared to last year's third quarter.

I would now like to turn the call over to Steve for a review of the financials.

Thank you, Rich. Gross profit for the third quarter was 73.2 million, or 15.9% of sales, compared to 67.1 million, or 16.6% of sales last year, in the third quarter. The reduction in gross profit resulted from a change in product mix and competitive market conditions.

Selling General and Administrative expenses for the third quarter increased by 1.6 million, or 2.4%, to 66.4 million, compared to 64.8 million in the same period last year,substantially all of which resulted from the adverse effects of exchange rates on our European costs.

As a percentage of sales, SG&A decreased to 14.4% from 16%. If we look back to 2001, SG&A stood at more than 18% of net sales. This demonstrates that the strong increases in sales, especially Internet sales, can be achieved without the addition of staff and overhead.

Continued growth in our Internet sales, especially at TigerDirect, allows us to leverage our total advertising spending, as well as lower order processing costs.

In the third quarter of 2004, we had 121.1 million in consolidated Internet sales, or 26.3% of our total revenue, and an increase of 22.7% over last year's third quarter Internet sales. During the third quarter of 2004, we also incurred $1 million of additional restructuring charges in the United States and in Europe in connection with facility exit costs and workforce reduction.

We have included in our press release a reconciliation of GAAP income to net income excluding certain charges. Management believes that the presentation of this financial information provides a useful method to compare with prior periods. Basically, we have removed the restructuring and other charges incurred during the 2-, 3-, and 9-months periods presented from the financial statements.

Turning now to our balance sheet. Our inventory increased approximately 12 million from the end of the second quarter, and 4 million from the end of last year. The increase is in anticipation of normally stronger sales levels in the fourth quarter. Our cash balances have increased 18.6 million during the nine months ended September 30th. There have been no domestic short-term borrowings now for more than two years, and European short-term borrowings have been used to finance local working capital needs. We believe our available credit lines are adequate for present needs.

An important point to note is our net book value per share now stands at 6.39 per share -- $6.39 per share, roughly 8% premium over our current share price on the New York Stock Exchange.

As to the remainder of 2004, and as we enter what has historically been our strongest quarter, we are optimistic that the fourth quarter will be a strong quarter. With elections behind us, we look forward to a more robust and steadily performing economy, especially here in the U.S.

The story in Europe remains mixed. Certain of our prime markets continue to grow while others are static or slowing.

Okay. Thanks, Steve. To wrap up, we are very encouraged by the growth of our e-commerce and consumer business. Sales continue to grow steadily. A highlight of the last three months is the strengthen of our industrial business. Increased sales and improved margins have been achieved -- have been achieved as a result of the combined efforts of all our employees.

Our cost reduction initiatives and improved information systems will help us attain improved results during the balance of the year and in the future.

Finally, we continue to attract interest and new customers to our profit center software’s Profitability Software Suite, which includes sales force, automation, order processing, customer service and other applications.

I believe we have positioned Systemax to serve the needs of our customers and our shareholders in the future.

Thanks for listening; this concludes our formal discussion, and we'll be glad to take questions at this time.

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch tone telephone. If your question has been answered or you wish to withdraw your question, please press star, followed by two. Questions will be taken in the order received. Please press star, one, to begin. We'll hold for just a moment while we collect your questions. Once again ladies and gentlemen, that is star, one, if you would like to ask a question.

Your first question comes from Mitchell Paulson of Paulson Financial. Please proceed.

Hi, how are you doing, Rich?

How are you doing, Mitch?

Okay, yeah. Question for you: (inaudible) asked me yesterday about Triangle. Is there any dollar amount to put on those on the software portion of that contract, or do you want to give us a little more detail about that contract and the financial part?

I would rather that we didn't give out specific numbers on specific customers and contracts. But, you know, as PCS moves forward we are really gathering, really a lot of good interest in the product and have a nice pipeline of interested parties looking at the product. The product is turning out beyond our expectations of -- I mean, for the quality of the product itself, the functionality, and I think, that it's really going to be, at the end of the day, something that is unique in the marketplace. From a functionality standpoint.

Well I've said that from the beginning, I said to you guys, you guys have something that could be lightning in the bottle, I said to you, and basically, and the only problem I had was that I hope nobody was underestimating it, because what I know from people I know in the software business they thought it was a great product line. The only thing I am trying to see is, what percentages have we are achieving, I mean, are you looking out a little bit and seeing it's taking hold finally, because this is a new -- let’s put it this way. It's a new little trick of the trade right now. Everybody wants to go that route. See what I am saying?

Yeah.

And, I think that you, we have a lot of potential here.

We all believe we have a lot of potential there because it's a great product. So I mean, it's --

So, for the financials, you can't really get a grasp on that yet or are you still --

Well, you know, I just don't want to go and talk about the size of each individual contract. I don't think that would be appropriate for either for us or for the customer. So you know, I'd really be hesitant to do that, but as I said we have a lot of confidence in the products.

The only thing I had a question is, how big is Triangle? I'm not familiar with the corporation, so I don't know how big is the company? I mean, is it a good size company, do we deal with a -- or are we dealing with a small, let's say, 50-man outfit? I don't know. I know nothing about Triangle. I was away for a couple months, by the way, and I just got back yesterday.

Okay, if you want to call Steve or I, you know, off this line.

Oh, okay, no problem. Because, you know, everything seems to be falling into place right now. And I like all the work and sweat that you guys did last year, and I think this is, like I said, lightning in a bottle that you have potential with here.

I think so and you are right, a lot of things are beginning to fall into place for us.

Yeah, okay, that's great. One other thing, is there anything else, I heard you say that we were looking good going forward, and do you think it's starting to pick up overseas, or are you seeing anything positive over there?

There is still, you know, some market conditions over there that are affecting us. I mean, Germany's economy is well known to be in the doldrums, and in Europe, when Europe – in Europe, when Germany gets sick, the rest of Europe catches it very quickly.

So you know, that is really a lot of the issues that we are dealing with there, is Germany having a very poor economy and it’s flowing out to the rest of the countries. Having said that, you know, I'm not accepting of that as an excuse internally, and we are doing whatever it takes to turn around things in Europe for ourselves.

Right. E-commerce has done great, and I've seen that since we've been talking in the beginning of last year. I said to you that that’s the route to take, and it looks like it's finally biting. So it’s showing right now on the sheet.

We’ve got great websites and our customers are voting with their dollars on that.

Without a doubt. I mean, everybody saw that coming, and if you didn't get that from the last 10 years, you got nothing. Okay guys, thanks a lot.

Thank you.

Thank you. Your next question comes from Mr. Myer Fabious of Cyber.

Hi, I am an individual investor. I was just curious, with the restructuring of the CEO compensation, does that have any bearing on your long-term strategy?

I don't understand. Be more specific. We're not sure what you're talking about.

There was an 8-K filed and unless I misunderstood it, it looked like there was some compensation adjustments? Did --

No, we entered into a long-term contract with the gentleman who runs the Tiger (ph) division, and we just disclosed the contract. That was all new actually. So it wasn't a re-do of anything, it's just a new contract and a long-term commitment by him and us.

Oh, okay. Because it really had a lot of conditions on it related to the sale of the company, and exit strategy for the company, and I was just wondering if this person -- (Multiple speakers) its value or just to continue to run the company.

When a key individual gets a contract and it's important, there are a lot of important terms and things he worries about, and one of them is always if there's a change in control, and that is pretty standard in a contract like that. There is no intention of the Company or nothing in the offering that talks about changes of control right now.

Okay. It wasn't something that he expected as an imminent condition, he just wanted to protect himself, is that when it happened?

Well when you sign up for 10 years you want to cover all the things that can happen in that period.

That's a long time.

That's a long time, that's right.

Okay, thank you.

You're welcome. Thank you.

Once again ladies and gentlemen, to ask a question, please press star, one, on your touch tone telephone.

Okay. This is Richard. I'd like to thank everybody for listening to our third quarter call, and we look forward to chatting with you at the end of next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.