Johnson Outdoors Inc (JOUT) 2007 Q1 法說會逐字稿

Hello everyone, and welcome to the Johnson Outdoors first quarter 2007 earnings conference call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer.

(OPERATOR INSTRUCTIONS). This call is being recorded. Your participation implies consent to our recording this call. If you not agree to these terms, simply drop-off the line. I would now like to turn the call over to Cynthia Georgeson, Vice President Worldwide Communication for Johnson Outdoors.

Good morning everyone, and thank you for joining us for our discussion of Johnson Outdoors results for the first quarter of fiscal year 2007. If for some reason you didn't receive a copy of the news release that was issued this morning, it is available on the Johnson Outdoors website at www.JohnsonOutdoors.com under Investor Relations.

Before I turn the call over to Helen, I need to remind you that this conference call may contain forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical fact are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Johnson Outdoors control. They could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. These risks and uncertainties include those listed in our media release from today and our filings with the Securities and Exchange Commission.

If you have further questions after the call, please give either Dave Johnson or myself a call at 262-631-6600. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Good morning everyone. Thank you for joining us. I will begin today's conversation with a few comments on the quarter and our individual businesses, and then Dave will go over the key financials. After that I will have some brief closing remarks, and we will open up the call for your questions.

Let me begin by reminding everyone, particularly those of you new to Johnson Outdoors, that first quarter results are not good indicators of the year's overall performance. These results reflect the warm weather seasonality of our markets. From October through December each year we are ramping up and building inventory for our primary selling season from January to June. And as a result, historically first quarter revenues are the lowest of any period.

The first quarter of 2007 was no different. Total Company net sales were $72 million, which was 1% behind last year, and net loss was $0.23 per diluted share. The expected slowdown of military sales continued. And excluding noncore military sales in both this and the prior year, revenues would have increased $1.5 million year-over-year.

Innovation is the main driver behind anticipated core business growth in the future. However, second and third quarter results are the true test of success for the year's new product. That is when we will see the all-important consumer response. Until then in my mind the jury is still out.

First quarter Watercraft sales compared unfavorably to the prior year. This was due primarily to a change in the pacings of orders from large national retailers. However, the orders for Old Town, Ocean and our Necky brands are currently about 50% ahead of last year at the same time.

I'm very excited by our 2007 new paddle sports lineup. And this is after spending a few days paddling many of the new boats out west at Barclay Sound. We were able to get a great variety of paddling experiences, and the boats performed really well. I do have a personal favorite, which is the Necky Eliza, which is the first sea touring kayak designed especially for women.

Moving on to diving, we're double tracking in this business. On the one hand we're building an infrastructure to drive efficiency and profitability, and on the other hand working to maintain brand equity and hold market position. I was concerned about business disruption due to the pace of restructuring, and mentioned last quarter that we would be slowing the restructuring efforts. It was the right decision. However, international dive markets are beginning to show signs of stabilizing. And we have our team focused on sales and marketing to take advantage of that opportunity. Restructuring is still moving forward. It is just moving forward at a slower pace, and will be completed in early 2008.

Operating losses were higher this quarter then last year due to large -- in a large part to some short-term issues from Marine Electronics. First, we experienced an unforeseen delay in shipments due to the temporary unavailability of product components. At the same time we were dealing with higher year-over-year commodity cost, and transitioning into a new larger distribution center, and implementing a major ERP systems upgrade. The domino effect of all this happening at once had an impact on labor efficiencies, and of course the margin.

We think these issues are behind us now. And shipment levels are back on track. Customer demand is strong, and orders are significantly higher than last year at this time.

Marine Electronics has become our strongest business unit due to our sustainable growth strategy, which has transformed this division into a global leader in marine electronics for small boats. I cannot emphasize enough the importance of strong market-leading core brands in this successful transformation.

Building from the strength of Minn Kota, we expanded into new categories, new distribution channels, and new geographic markets. We leveraged that Minn Kota to drive double-digit growth in Humminbird for the past two years. And our goal is to do the same with Cannon downriggers.

We're applying the same sustainable growth strategy to our other division. It is important to keep in mind that each of our businesses is at a different stage of transformation. Looking ahead, it is too early to predict the outcome of the season, let alone the year, but I feel good about where we are and the opportunity we have to increase sales and capture share going forward. We're committed to enhanced shareholder value and remain focused on driving sustainable, profitable growth of our base businesses, and working hard to identify the right acquisitions to expand our portfolio of brands and technologies.

I hope you'll join us on Thursday, March 1, at our annual shareholder meeting in Racine so we can update you on the progress we have made in advancing our vision for future growth.

Now I would like to turn things over to Dave Johnson, Vice President and CFO, to take you through the financials.

Helen gave a good overview of the drivers behind the results this quarter, and our press release summarized the key financials. Rather than repeat what you have already heard and seen, I want to talk about two areas that we are continuously focused on, because they have a lot to do with our success in delivering sustainable, profitable growth.

First, working capital. Our working capital is significantly higher when compared with last year, and there are good reasons for that. First, we have added new brands to the portfolio, and entered new product categories since last year, which have added about $5 million to the inventory. Also, higher commodity cost prompted forward buying of resins and some metals, so we are carrying some additional raw material inventory versus last year.

However, the biggest reason behind the unfavorable comparison is lower sales due to the delay in shipments in Marine Electronics, and the pacings of shipments in Watercraft, which Helen already discussed. As a result, Accounts Receivable are also down year-over-year.

Today orders are strong and ahead of last year at this time, and shipments are now pacing in line with expectations. Both are preliminary indicators that working capital levels could return to more normalized levels once the season kicks in. While I can't say that with any certainty, I can tell you we're watching it very closely.

Second quarter results will give us greater insight into how retailers see the season shaping up. We feel we will be able to manage working capital down accordingly from there.

The second area I want to touch on is our cash position. In the first quarter we paid down $17 million in debt, while also investing more in new products, and of course inventory. Another benefit of paying down debt is the fact that it will produce lower interest costs in future quarters, positively impacting earnings results later on.

Most importantly, maintaining financial flexibility enables us to execute our strategic growth plans to enhance shareholder value. We need to continue to invest in R&D and marketing to stay ahead of the competition in the marketplace. Historically new products have driven higher revenues at higher margins, which translates into profitable growth. We also need to be able to move quickly when opportunities come along. And every penny we give to lenders reduces the level of investment we can make today in growing the business for the future.

Net a strong cash position better ensures a strong competitive position in the marketplace for our brand long-term. And at this time we believe that investing in our brand is the best way to leverage our strong cash position to deliver greater shareholder value over time. Of course, we continue to consider and evaluate all options to drive value. And we're actively reaching out to the investment community to share our story more broadly.

Now let me turn things back over to Helen.

Adding to Dave's comments, we are very serious about our commitment to enhancing shareholder value. Since 2001 we have been focused on executing our vision for growth strategy. The five-year return on investment since then has outperformed key indexes like NASDAQ and the Russell 2000, as well as our peer group companies. Our annual meeting proxy, which you'll receive in the mail within the next week, and will also be available online, provides additional detail on these comparisons.

Now we will open up the call for questions.

(OPERATOR INSTRUCTIONS)

(OPERATOR INSTRUCTIONS). [Michael Sketcher]

Helen, I was wondering if you could give more detail exactly on what you're planning to do on enhanced shareholder value? I understand the acquisitions and the growth strategy, but is there anything else that you're focusing on, capital structure or anything like that?

Well, you said it right, which is our number one priority is to focus on driving the business and long-term profitable growth. We are communicating more to our investors. We are also giving more guidance, so that is primarily what we're doing. We feel very good about our strategy delivering shareholder value, just as it has in the past.

Just to add to that. As Helen said, our number one priority is growing the business in a profitable way, including acquisitions and organic growth. We are always looking at other options to do that. All options are on the table, and we're continuing to evaluate that.

Our Board does review our strategic plan, and they also feel very good about it.

But nothing in particular about the capital structure at this point?

Not at this point, but as we deliver the plan things could change. Like I said, we're always looking at it.

[Joseph Linn], [BBJ Capital].

I know some of the orders were just timing issues from quarter to quarter. But it looks like some may have been some impairments as well, such as costs of moving the warehouse and components being unavailable. Is there a breakout for what those costs were that perhaps were losses?

I can tell you the margins in the Marine Electronics Group were impacted by the product availability in them, and the move to the new DC, and the ERP upgrade. Commodities hurt that business by $400,000 to $500,000 roughly. And there was also margin decreased because of the DC and the ERP upgrade to our labor efficiencies. That was probably another $500,000 or so as well.

You know, it is really a lot due to the business disruption itself. It is one of our strongest businesses, and the key is that the orders are double what they were last year.

I guess, what does that mean for orders being double? Should I look at that -- the Watercraft -- or outdoor equipment should be $28 million, or how does that work for -- or $60 million in Marine Electronics?

No, basically it is just orders on the books. And there's no guarantee that all those will come through. But what we feel good about is that the sales that we lost in December are coming in in January. It doesn't necessarily reflect how we end the year, it is just we feel good about the next group of orders that we have to ship out.

Just to echo that, orders are an indicator. Orders aren't sales, but they are a good indicator, so that is why we feel good about the next quarter going into it.

I noticed CapEx was up. Were there any components that -- it seems like it has been up over the last four quarters. Any kind of initiatives going forward that that reflects?

Yes, it is mostly in the Marine Electronics Group. We are introducing a new lineup of trolling motor this year, the Terrova, which has gotten really good reception in the marketplace -- in the retail marketplace. And there is capital spending behind that. There's also some spending in our Humminbird line as well in new products, in the 900 Series.

All indications are those will be well received in the marketplace. There is also a bit of capital spending related to the flood in outdoor equipment, which was reflected in first quarter.

I guess in maybe talking about the first or year-to-date with the orders being up, is that a sense that sales are up -- would be up 5% or 10% apart from timing issues? Is that how I should think about it?

We can't really translate that per se. All I would say is that we are still comfortable with what we said in our last call, which was we're looking to match the sales growth that we had last year, which was about 4%.

Justin Orlando, Dolphin Management.

A couple of quick questions. Commodity costs, it sounds like you guys were forward on some commodity costs. Have you seen any -- are you getting any help, any tail wind on say resin cost, for instance, going forward here? Or what are you seeing in the market on that?

Yes, we do expect to see some benefits from the resin costs going into the season. And it was interesting because we did forward buy, and that is a component of the inventory increase in Watercraft. But we are seeing some softening on that. So we will see some benefits going forward.

Can you give me quickly what the share count is today?

Yes. Let me find here. 9.121 million.

Just really quickly, two more things. Are you seeing any opportunities on the acquisition front in the market today?

We can say that we are aggressively pursuing acquisitions, and we are looking into a lot of opportunities. But I can't really comment on any one area, but it is a high priority for us.

Lastly, can you tell us what kind of things you're doing on a concrete basis to reach out to the investor community today? Are we looking at picking up some analyst coverage perhaps? Are we going to go participate in a conference or two. Do you have plans in that regard? Could you help us out with that?

It has been a targeting and reaching out effort on investors who we think may be interested in our story at this point. We're going to continue that effort. And we'll also -- we don't have any plans necessarily to attend a conference yet, but we are going to consider that. And there could be some update on that in the next quarter.

Just back on the question of capital allocation that a couple of the other shareholders had. I just wanted to keep you updated on MDX -- one of the companies I consider to be one of your competitors -- updating -- actually increasing their dividends 20% in the last couple of days, yielding almost 2.5% at the moment. They are on a decent growth trajectory. I am talking about sort of mid single -- mid to high single digits on their EPS growth.

That is what is out there. It is something I want you guys to consider. Clearly your investors are asking that question. I reiterate that it is something that we think the Board ought to consider more closely in the near future here, as it looks like you've got a lot of dry powder in the Company today.

I understand the dilemma. We look at a variety of peer group companies and we're benchmarking that. All I can say is reiterate the fact that we really feel good about the plan that we're going to execute. And we think it is the best plan to deliver shareholder value. But like I said, we're looking at everything.

You know, if you look at the peer group that is closer into what we do, we are outperforming them.

Who should I look at from your prospective?

In our proxy you will see five companies that we have benchmarked against. And I don't have the companies off the top of my head, but it will be in the proxy.

That is a couple of snowmobiling companies on that list, right?

Yes. Arctic Cat may be on there. Brunswick, K2, I believe. I can't remember the other two, honestly. But they will be in the proxy. But honestly our finance team looks at a broader universe as well, even beyond the proxy.

You don't consider MPX yet to be a good comp?

The problem is if we just look at one company, there is -- it is difficult for us to just compare ourselves to one company, because there is no perfect company to compare ourselves to. I think they're a part of a greater peer group universe. And believe me, we track it all.

But you don't think they are in the best -- you think that MPX isn't as good comp as a snowmobiling company?

I think that you have to look at a composite of companies to really get good comparisons.

I show no further questions in the queue. I would now like to turn the call over for closing remarks.

I would like to thank everybody for taking the time. And the proxy will be out soon in the future. We've got our shareholder meeting coming up in March. Thank you.

This concludes the presentation. You may all now disconnect. Good day.