Global Industrial Co (GIC) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to Systemax fourth-quarter and full-year 2011 earnings teleconference call. During the presentation, all participants will be in a listen-only mode. Afterward, you will be invited to participate in the question and answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, February 28, 2012.

At this time I would like to turn the call over to Mr. Jeff Matika of Brainerd Communicators.

Thank you, Operator. Welcome, everyone, to the Systemax fourth-quarter and full-year 2011 earnings conference call. I'm here today with Richard Leeds, Chairman and Chief Executive Officer of Systemax, and Larry Reinhold, Executive Vice President and Chief Financial Officer.

Today's 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.

I will now turn the call over to Mr. Richard Leeds.

Good afternoon, and thank you for joining us for today's fourth-quarter and full-year 2011 earnings call. Overall, our balanced focus on both the top and bottom line is delivering results as we saw improvements in gross margin, operating margin and EPS for the quarter and the full year. Performance in the quarter was highlighted by our business-to-business operations, which delivered very strong results as we continue to benefit from prudent investments in our sales force and our focus on building managed accounts.

Within our B2B results, the strongest performance was delivered by our industrial products segment, which generated another quarter of exceptional sales growth of over 27%. This reflects our expanded product line offerings, improvements in all our core categories, and great execution. Our North American technology B2B business also had strong sales growth over the prior year, as we capitalized on our broader sales presence. Additionally, the European B2B technology business delivered sales growth on a local currency basis as we benefit from solid top line results from our UK, Holland and Ireland operations. Overall we consider our European results to be impressive, specifically given the current macroeconomic situation in southern Europe.

Turning to our consumer channels, revenue performance in the quarter was disappointing but not entirely unexpected given our decision to focus on higher profitability, and not fully engage in free freight and other promotional price activities during the holiday selling season. Sales of our products through television shopping networks, which are included in our consumer channel sales, were down significantly, and were the largest single factor contributing to the consumer sales decline during the quarter.

We were also in the process of restructuring our private label product program in North American Technology, which is being modeled after our highly successful Industrial Products private label business. This restructuring is not yet complete, and our Q4 results reflect that. With that said, we believe this change will allow us to significantly broaden our private label product offering and substantially improve the profitability of this business in the long run.

Looking at our consumer product categories for the quarter, computers performed very well, particularly tablets which grew over 400%, as well as our desktop and laptop offerings. Sales of flat-panel televisions during the fourth quarter were down significantly and were the largest single category decline. This reflects difficult comps from the year-ago period when we recorded strong double-digit growth, as well as continued industry weakness in television sales.

In our North American brick-and-mortar retail stores, revenue was off slightly in the quarter. However, for the full year we had solid same-store sales performance that we believe outpaced the industry. We have successfully rolled out Retail 2.0-powered mobility centers in 29 of our stores. During 2012, we plan on building a prototype store-of-the-future concept that is currently under development. We anticipate that our store-of-the-future will expand on our established retail strengths, including Retail 2.0, mobility, and our optimal store size.

During the quarter, we drove a 70 basis point improvement in gross margin as we held product margins, moderated freight costs and benefited from our logistics cost reduction initiatives. Operating margin was up slightly for the quarter, resulting from our strong B2B channel result in both North America and Europe. Which was partially offset by our North American Technology performance.

Additionally, with the appointments of David Sprosty and Tim Dale as Chief Executives of our North American and European Technology Products Groups, and the promotion of Bob Dooley to President of Global Industrial, we have significantly strengthened our management team. Dave, Tim and Bob provide us with experienced and proven professionals to manage our three largest businesses.

By splitting the technology leadership role, we will be better positioned to meet the unique needs of these markets and support our future growth. Our new leadership structure also enables me to spend more of my time on our technology businesses. And work closely with David and Tim on the operational and strategic initiatives in both North America and Europe. We are confident we have the right plan and the right management team to improve our performance in the long run.

Thanks. And with that, I will pass the call to Larry.

Thank you, Richard. Our fourth quarter consolidated sales were $979 million, down 3% compared to the fourth quarter of last year. Full-year consolidated sales were $3.7 billion, up nearly 3%. On a constant currency basis, consolidated sales for the quarter were down 2% and for the full year were up 1%. Results for the quarter and year were driven by strong growth in our B2B operations, including our Industrial Products group, our North America and Europe B2B Technology business. This strong growth in B2B was offset by weakness in our consumer channel sales.

Turning to our channels, our fourth-quarter B2B channel sales grew 9% compared to last year. Our fourth-quarter consumer channel sales declined 13%. Full-year B2B channel sales grew 12% compared to last year. And consumer channel sales declined 7%. On a geographical basis, our fourth-quarter North American sales were $698 million, a decrease of 4% compared to last year, and accounted for 71% of our total sales.

Our fourth-quarter European sales were $282 million, essentially flat compared to last year. And accounted for 29% of total sales. Full-year North American sales grew 2% to $2.6 billion compared to last year. And European sales grew 5% to $1.1 billion.

Turning to our business units and our Technology Products. Our Technology Products group's fourth-quarter worldwide sales were down 5% to $895 million, and up 1% to $3.4 billion compared to last year. Technology Products' fourth-quarter operating income was $17.7 million or $18.3 million, excluding one-time charges. And $68 million for the full year, or $62.4 million excluding one-time gains.

Our European Technology business had modest fourth-quarter sales growth on a local currency basis, driven by the UK, Holland and Ireland markets. While our other European markets were soft, primarily as a result of the economic environment throughout Europe. Overall, we had a strong bottom line performance in the quarter, driven by the UK and France operations as we benefited from opportunistic product purchases and efficiencies from our larger operating footprint.

Our North American Technology B2B operations saw a mid-single-digit revenue increase in the quarter. We continued to benefit from IT upgrade trends and the investments in sales agents we made earlier in the year, as agents worked through the typical ramp-up period in building their account books. Going forward we remain focused on converting Web sales into managed accounts and prudently investing in our sales force.

Conversely, fourth-quarter results for the North American Consumer operations were soft, reflecting the competitive environment, freight promotional trends, the launch of our new private label business, and reduced sales in our television shopping channel. We ended the year with 42 retail stores, unchanged from third quarter. We are preparing for our grand opening of our second store in Puerto Rico next month and we remain active in the evaluation of potential new store locations.

In our Industrial Products business, fourth-quarter sales increased 27% to $83 million compared to last year. Full-year sales grew 28% to $320 million. Fourth-quarter operating income grew 39% and 45% for the full year compared to last year. We further expanded various product lines and ended the fourth quarter with 485,000 total industrial SKUs, up nearly double the amount last year and up 10% sequentially.

We continue to benefit from the scalability of our e-commerce infrastructure and make additional investments to support our growth. In that regard we will open a new outbound call center in the western US late in the first quarter of this year. And are enhancing our logistics footprint to accommodate our growth.

Consolidated gross margin for the quarter grew to 14.3%, a 70 basis point improvement from last year. Gross margin for the full year grew to 14.4%, an 80 basis point improvement from last year. Consolidated operating margin for the quarter was up slightly at 2.1%, and for the full year grew 30 basis points to 2.2%. Excluding one-time items, consolidated operating margin for the year was essentially flat. Fourth-quarter SG&A expense was 12.1% of sales versus 11.4% last year. Full-year SG&A expense was 12.4% of sales versus 11.6% last year.

Special charges during the quarter were $0.6 million on a pretax basis, or $0.01 per share after-tax, and consisted primarily of legal and professional fees related to a previously disclosed investigation and settlement with a former executive. Special net gains for the full year were $5.6 million on a pretax basis, or $0.10 per share after-tax.

The effective tax rate for the fourth quarter was 25.4%. For the full year the effective tax rate was 30.9% compared to 35.6% last year. The lower effective tax rate this year reflects the Company having higher pretax income in France compared to last year. The pretax income in France is partially offset by the use of net operating loss carryforwards that had a full valuation allowance applies.

Earnings per diluted share totaled $0.40 for the quarter, up 18% compared to last year. And were $1.47 for the full year, up 30%. As of December 31, our balance sheet included $355 million of working capital, an increase of $54 million from last year, and $97 million in cash, an increase of $5 million from last year, reflecting our continuing efforts to proactively manage our balance sheet. The current ratio at December 31 was 1.9 to 1, and total debt was less than $10 million.

With that, we would like to open the call to questions, Operator.

(Operator Instructions)

Anthony Lebiedzinski from Sidoti & Company.

The first question is on the weakness in the television shopping networks. The weakness, I assume, was in the flat-panel TVs? And if so, can you talk about the trends that you saw during the quarter? And have you seen any changes so far in the first quarter?

Anthony, it is Richard. When you look at the TV shopping channels, you have to remember that there's only a few players in there, and they are very large customers that we deal with. We are somewhat subject to what they want to air, whether they want to air electronics or jewelry. In the quarter they made the decision to air less electronics. That is their decision and we are somewhat at the whim of their decisions. So I hope that answers what took place.

Has that trend continued so far in this quarter over here?

We are working continuously to get their volume up with them. We believe that the selling of electronics on TV is a good channel for us, and it's a good channel for them, and ultimately a good channel for their customers. So we are working on that very feverishly to get that volume back up.

Okay. And I just wanted to get a better sense of the magnitude of the free shipping promotions. You mentioned that you did not fully engage in the free freight and the promotional pricing during the season. If you could just give us a little bit more color as to how you approached promotions the fourth quarter of 2011 compared to fourth quarter of 2010?

Some of our competitors got very promotional on free shipping. One of our competitors lost almost $1 billion on freight in the fourth quarter alone. And went out and it really affected their earnings by that, as well as by being promotional on price. We were competitive with free freight in the quarter. We didn't go all chips in for the entire quarter. We were somewhat surgical in it. And decided, as we said in our press release and previously, we decided to be judicial about where we are going to be promotional on freight and price. And try to protect our bottom line.

Okay. And the mobility centers, where do you see that trending over the course of the year? I think you said it was 29 at the end of Q4.

Yes. They are still new and we think they have a lot of potential to go up. They are basically new in the stores, new to our customers. And as our customers learned that we have the mobility centers in the stores, and we get better at selling to our customers these products, we think that has a real opportunity for us.

All right, thank you.

This ends our Q&A session. I will turn it back to Management for closing remarks.

Thank you, everybody, and we look forward to reporting our first-quarter results. Take care.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.