Global Industrial Co (GIC) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter of 2007 Systemax earnings conference call. My name is Eric and I'll be your coordinator for today. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to our host for today's call, Ms. Ingrid Katz. Please proceed.

Thank you, Operator. Welcome to the Systemax Second Quarter 2007 Conference Call. I'm here today with Richard Leeds, Chairman and Chief Executive Officer, Gilbert Fiorentino, Chief Executive Office of Tiger Direct, Inc. and General Manager of our computer, computer supplies and consumer electronics division and Larry Reinhold, Executive 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 and is copyrighted by Systemax, Inc. I'll now turn the call over to Richard Leeds, Chairman and Chief Executive Officer.

Thank you, Ingrid. I am pleased to note that we recorded sales of $647 million for the second quarter of 2007, an 18% increase over the second quarter of 2006. Sales of technology products, computers, computer supplies and consumer electronics grew by 19% and sales of industrial products grew by 12%. Gross margin was 15.3% compared to 14.1% in the year ago period. The increase in gross margin was primarily the result of decreased competitive pricing pressures in the technology product segment and improved gross product margin in the industrial product segment, compared to the prior year.

Our operating income for the second quarter improved to $20.1 million, compared to $10.6 million in 2006. Net income for the quarter was $13.8 million, compared to $7.1 million in the second quarter of 2006. Earnings per diluted share was $0.37 in 2007 versus $0.19 per diluted share in 2006. Our net income in the second quarter of $0.37 per diluted share was the same as in the first quarter of 2007. This is particular impressive results considering the normal seasonal decline in quarterly sales we experience in the quarter and was primarily the result of improved gross margins in the second quarter.

In the first six months of 2007 we have now recorded $1.3 billion in sales, an 18% increase over 2006 and $27.7 million in net income, a 12% increase over 2006. Total North American sales increased 15% to $431 million with technology product sales up 15% and industrial product sales up 14%. Sales in Europe increased 26%, reaching $216 million in U.S. dollars for the quarter. Excluding favorable exchange rates, sales in Europe grew 17% in the quarter. And now Gilbert Fiorentino, the CEO of Tiger Direct will discuss highlights of the technology products group.

Thanks, Richard. Technology products continue to grow strong this year through Q2 throughout North America and Europe. Sales increased in North America by 15% and in Europe sales grew 26% or 17% excluding favorable exchange rate effects. Overall, sales growth was driven by our thriving internet and business-to-business sales divisions. Our product expansion strategy to compete in the areas of flat panel TVs, electronics and other consumer electronics equipment have been paying off by helping us drive more customers through our channels, including increased opportunities to build customer value.

We're also very pleased with our performance and improvements in selling margin, which resulted in an increase in gross profit of 29% in North America over the prior year, largely attributable to the continued management of pricing.

In Europe, we saw strong sales driven by growth in both business-to-business sales and internet sales, as strategies we have implemented continue to show substantial returns. Back in North American, TigerDirect.com continues to be recognized for excellence in its online business. In June, Internet Retailer ranked TigerDirect.com as the 24th largest online retailer in North America, which makes us one of the top e-commerce destinations in the world. Hitwise, a leading industry ranking service for websites continues to rank TigerDirect.com in the top 10 of most heavily trafficked sites in the computer sales category.

In the second quarter, traffic to our websites continue to grow as we saw a 14% increase in visits over the second quarter of 2006. During the second quarter, our website underwent significant changes designed to improve the user experience for our customers and also to improve our sales margins and traffic. We're highly encouraged by the results so far from the changes to our item information pages, as well as to our checkout pages. And now I will turn the call over to Larry Reinhold, our CFO.

Thank you, Gilbert. The Company's financial position showed continued strength in the second quarter of 2007. At the end of the second quarter, our working capital was $231 million, up from $229 million December of '06. This result includes the effect of nearly $37 million related to the special dividend which was declared in Q1 and paid in the second quarter. Our current ratio at the end of the second quarter was 1.8 to 1, the same as at the end of 2006. Cash balances were about $82 million on June 30th, down $5 million from $87 million at the end of 2006. Cash flow from operations in the second quarter was $27 million and for the first six months of 2007 was $45 million. At June, our inventory was about $249 million, up 7% from $233 million at December 31 and reflective of our growth in sales.

At June 30th we had no debt outstanding on our revolving credit facility, principally the result of the timing of receipts and disbursements in Europe where we have historically had net borrowings. Our total availability under our credit facility at June 30th was approximately $108 million, giving us a total of over $190 million cash and available credit as of June 30th.

For the second quarter of 2007 our SG&A expenses were $79.2 million, compared to $66.8 million in the second quarter of 2006. We continue to effectively manage our SG&A expense in the quarter, as SG&A as a percent of sales was 12.2%, the same as in the second quarter of last year.

In the second quarter, net income was approximately $13.8 million or $0.37 per diluted share, compared to $7.1 million or $0.19 per diluted share in the second quarter of last year. The effective tax rate in the second quarter was 36.1%, up slightly from 35.5% in 2006, as a result of higher income in jurisdictions with higher tax rates. And now I'm going to turn the call back to Richard Leeds.

Okay. Thanks, Larry. Thank you for listening to our second quarter conference call. I would like to now open the call for questions. Operator?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Ernest Corbella. Please proceed.

Yes. I've been a long time shareholder and I attend your annual meetings and I am encouraged by what you've done and am very, very pleased with your results. I would like to see if it's possible for you to address the short position in the stock. I note that the last report as of the 15th of July the share position was $5.6 or $5.8 million, I believe. And I was wondering if we could, as a company, implement some program, whether it be a buy-back or a regular dividend that would tend to discourage short sellers? I mean, it appears that there are some very well healed hedge funds who are out there and are looking to break the stock back to $7.00, which obviously I don't believe is a possibility. But they really impact, not only the shareholder value for the public shareholders, but they also impact whatever opportunities may exist for the Company if you wanted to use your stock as a currency to make an acquisition. So, I guess I'm only asking is it possible for the Company to consider some form of buy-back?

Okay. Well, our feeling is the best thing that we can do about [choice] is continue to perform and work really hard so that we have very good results. The Board regularly discusses dividends, M&A and other strategic uses of our cash to enhance shareholder value. And so we're going to remain focused on operating the Company the best we can and growing it the best we can and growing earnings the best we can, as well as looking at what we're going to do [dealing] with the cash. So, I hope that answers your question.

It does. It's just that and I'm not being argumentative, but I would like to point out that there's a long history of very successful companies with good earnings and continued growth who still suffer as a result of the attacks by the hedge funds who are rather ruthless and will just continue to short no matter what you did. I think it's evident with today's trading that there was some concern that you may produce good results and so it appeared watching the trading today that there was a large volume of what appears to be [naked] shorts. Again, I don't mean to be argumentative, but.

I'm not arguing with you. I'm agreeing with you that the best way that we could combat for the shorts is by continuing [inaudible]. I mean, that's really what we believe in.

Okay.

Long term for the Company and long term for our investors. That is the best thing that we could possibly do.

I don't disagree with that, but I would urge that a buy-back of some $25 million or $30 million, which the Company could well afford, not only would it affect the shorts but it would be reduce the number of share outstanding and therefore increase the earnings per share. I accept what you say and you don't need to --

As I said, the Board looks at that almost at every meeting, [inaudible] say, but the Board looks at it quite often.

Okay. Thank you very much and again, compliments on the performance.

Alright. Thank you.

We have no more audio questions in queue at this time. I would like to hand the call over for closing remarks.

Well, thank you everybody for listening to our call and we look forward to reporting our results for next quarter and I would like to thank our employees for working extremely hard this past quarter on delivering these results. We're very proud of them. Thank you.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect and have a good day.