P&F Industries Inc (PFIN) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the P&F Industries' quarterly conference call. At this time all participants are in a listen only mode. Following management's prepared remarks we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded today, Monday March 29, 2004. I would now like to turn the conference over to Ms. Jody Burfening. Please go ahead, ma'am.

Thank you operator. Good morning and welcome to P&F Industries' fourth-quarter earnings conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer, and Joseph Molino, Chief Financial Officer. Before we get started let me remind you that any forward-looking statements made during this call including those related to the company's performance for the 2004 fiscal year, are based upon the company's historical performance and on current plans, estimates and expectations.

These are subject to various risks and uncertainties, including but not limited to, the impact of competition, product demand and pricing. Risks could cause the company's actual results for the 2004 fiscal year and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. Forward-looking statements only as of the date in which they are made and the company undertakes no obligation to update publicly or revise any forward-looking statements whether as a result of new information, further developments or otherwise. With that, I would now like to turn the call over to Richard. Richard please go ahead.

Thank you, Jody, and thank you all for joining us this morning on our conference call. In the fourth quarter of 2003 P&F's overall revenues reached 5.5 percent to $21.5 million with revenue increases at Countrywide Hardware, Green Manufacturing and Embassy Industries more than offsetting the slight revenue decrease at Florida Pneumatic. Net income for the fourth-quarter increased 38 percent to $793,133 or 23 cents per share on a diluted basis. Before I take you through a more detailed look at the operations for each of our core business units, I would like to review with you what each one of our units does. Florida Pneumatic Manufacturing Corporation is primarily engaged in importing and manufacturing of approximately 50 types of pneumatic hand tools. Our Countrywide division imports and manufactures hardware products for items such as doors, windows and fences as well as other general hardware products.

As a reminder, Countrywide is comprised of both our Nationwide Industries and Franklin Manufacturing Division. Green Manufacturing is engaged primarily in the manufacture, development and sale of custom-designed, welded hydraulic cylinders used in heavy industrial and mobile equipment. Green also manufactures a line of access equipment for the petrochemical industry and a line of posthole digging equipment for the agricultural industry. Finally, Embassy Industries manufactures and sells baseboard heating products as well as radiant heating products and gas fired boilers used primarily in the northern tier of the United States.

Now our review the quarterly performances at each of our business units. Firstly at Florida Pneumatic, their revenues accounted for 53 percent of our overall revenues for the fourth-quarter. For the fourth-quarter of last year, Florida Pneumatic's revenues decreased 1.1 percent due primarily to decreases in sales at a major customer as well as decreased sales at our automotive channel in our Berkley Tool division. The decrease was partially offset by increased retail, promotional and industrial sales. However, gross profit margin at Florida Pneumatic increased from 30.1 to 31.5 percent due to a more favorable product mix, improved manufacturing productivity which more than offset a stronger Japanese yen that increased the cost of our imported product.

In our Q3 conference call, we announced that Florida Pneumatic would lose its third largest customer in January of this year. Although this loss did not become effective until the end of last year, Florida Pneumatic began to experience a slowdown in orders from this customer during the fourth-quarter of last year. In addition, in late 2003, an automotive customer returned a significant amount of product due to an undersold promotion. As mentioned in our earnings press release, we are developing new opportunities for growth at Florida Pneumatic and we will continue to focus on reducing costs to compensate for the loss of this major customer.

While no single new account is expected to replace this business that we lost, we are excited about the level of new products and programs in the works with many different customers. We have developed new patented tools for both the retail and industrial channels, and the prototype shows that target customers were extremely well received. In addition we're working on an initiative to supply products for a tool rental program for another major customer. Countrywide accounted for 19 percent of the revenues for the fourth-quarter. Countrywide's fourth-quarter revenue rose 16.4 percent due primarily to continually increased sales to new as well as existing fencing accounts.

However gross profit margin at Countrywide decreased 4.4 percentage points as a more profitable product mix at Nationwide was more than offset by a significant margin decrease at our Franklin Manufacturing division. Franklin's fourth-quarter 2002 margin benefited from a positive inventory adjustment as well as a strong product mix, whereas the fourth-quarter of this past year was impacted by increased freight and duty expenses. We experienced unprecedented growth in our fencing product line in the fourth-quarter of 2003, as we continued to benefit from Southeast housing boom combined with the latent demand resulting from the poor Spring 2003 weather which extended our selling season well into the fourth-quarter.

We also implemented joint purchasing programs between Florida and Nationwide during the last quarter to help contain costs going forward. Our Green Manufacturing subsidiary accounted for approximately 14 percent of revenues for the fourth-quarter and its fourth-quarter revenues rose 16.3 percent due to the addition of several new customers as well as an improvement in the general industry conditions. Gross profit at Green decreased 3.3 percentage points for the quarter as imported cylinders, which absorb very little factory overhead, became a larger portion of the product mix.

Similarly the access product line had a poor product mix which decreased margin. Green continues to focus on a development of small inexpensive cylinders at a manufacturer exclusively for us in China. Unfortunately our success in cylinders last year was mitigated by a weak year in our access product line. Petrochemical firms, which constitute the largest portion of our access (indiscernible) customer base curtailed capital projects due to the war in Iraq and unstable oil prices. In an effort to improve this situation Green is working with manufacturers of complementary product to develop further cross-selling opportunities.

And lastly, Embassy Industries accounted for approximately 14 percent of sales for the quarter and its revenues increased 8.9 percent due primarily to sustained growth in boiler and radiant product sales and to an overall improvement in economic conditions in the areas served by our heating product. Gross profit margin at Embassy increased nearly two percentage points due primarily to an improvement in product mix and to a lesser extent better overhead absorption from increased activity.

We are very excited at Embassy about the continued strong sales of our new boiler products, as well as our new Falcon line of commercial heating product. Our plans are to continue to enhance these product lines and we believe we are poised to take advantage of the product and market development undertaken in the commercial heating arena in the last 12 months. Now I would like to turn the call over to Joe Molino who will review our financial performance for the quarter and year ended December 31, 2003.

Thank you Richard. As Richard discussed specifics for the quarter already, I will try to focus on the year to date trend and other details. Revenues for the 12 months ended December 31, 2003, increased 11.9 percent to 86.4 million compared to 77.2 million for the year earlier period. Net income for the 12 months ended December 31, 2003, was $3,362,949 or 94 cents per share on a diluted basis. The comparison for the 12 months -- the comparison to the 12 months of 2002 is effected by the 3.2 million after-tax write-down of the goodwill associated with the Green acquisition that was made retroactive to January 1, 2002.

Including this onetime charge, net income for the 12 months ended December 31, 2002, was $2,862,851 or 80 cents per share on a diluted basis. For the 12 months ended December 31, 2003, revenues at Florida Pneumatic increased 6.3 percent from 42.5 million to $45.1 million. This increase was due primarily to strong promotions by two major retailers and increased penetration in the automotive aftermarket that was partially offset by price concessions at a significant customer, lower industrial revenues and a base volume decrease. For the year, gross profit margins for Florida Pneumatic decreased from 35.3 percent to 33.9 percent due primarily to the lower margin promotional sales noted, the impact of price concessions also noted and the weakness of the U.S. dollar in relation to be Japanese yen.

This was partially offset by productivity improvements and cost reductions from suppliers. For the 12 months ended December 31, 2003, revenues at Countrywide Hardware increased 44 percent to 13.3 million to 19.2 million due primarily to the inclusion of Nationwide for the entire year in 2003, as opposed to only eight months in 2002. In addition to the benefit of the four extra months at Nationwide, the fencing division experienced over 50 percent growth for the year. This was somewhat mitigated by a weak year at Franklin as a significant customer declared bankruptcy in the first quarter of 2003 and another decreased orders due to slow demand.

Gross margins at Countrywide increased 32.8 percent to 34.5 percent for the year, again due to the higher margin Nationwide business being a larger portion of total sales. For the 12 months ended December 31, 2003, revenues at Green increased from 2.3 percent -- excuse me, increased by 2.3 percent to 12.1 million to 12.4 million. The primary reason for the increase was the company's entry into a new market for log splitters. This significant additional revenue was partially offset by an approximately 60 percent decrease in sales for the wrecker market including the phasing out of a major customer in the first quarter of 2002 and decreased sales for the access market driven by weakness in the capital goods demand.

Gross margins at Green decreased from 10.0 percent to 9.8 percent as the product mix shifted to sales of imported products that have lower overall margins. We're still generally encouraged by the progress at Green as sales to the log splitter market continue their strong growth and our view that the downturn in the access division is only temporary. We also had a record year in plant productivity at Green. For the 12 months ended December 31, 2003, revenues at Embassy increased 4.1 percent from 9.3 million to 9.7 million due primarily to increased boiler and radiant sales in the second half of 2003, (indiscernible) continued market penetration with these newer product lines and also increased baseboard sales resulting from strong housing starts in the Northwest.

In addition, in 2002 several large customers reorganized their distribution method which allowed inventory levels to fall to exceptionally low levels. These levels were returned to normal in 2003. This effected all product lines in this segment. Gross profit at Embassy increased from 31.1 percent to 31.2 percent. The increase in the gross profit percentage was due primarily to improved overhead absorption and labor efficiency for baseboard products partially offset by lower radiant margins resulting from the weakening of the U.S. dollar versus the euro.

Consolidated SG&A expenses for the 12 months ended December 31, 2003, increased 10.2 percent from 18.2 million to 20.0 million due primarily to increased costs associated with the 11.9 percent increase in revenues, increases in marketing support and expenses related to promotional sales of Florida Pneumatic and to a lesser extent increased compensation tied to higher profitability and increases related to additional reporting and control requirement. These increases were partially offset by substantial decreases in all segments from cost-cutting efforts. As a percentage of revenues, SG&A decreased from 23.6 percent to 23.2 percent. Interest expense for the 12 months decreased from $741,311 to $726,690.

This decrease was due primarily to lower interest rates from the company's borrowings under both revolving credit and term loan facilities as well as on our refinanced mortgage. Other items affecting cash flow were depreciation and amortization which were $1,702,816 from $553,019 for the 12 months respectively. For the quarter, these amounts were $394,826 and $127,305, respectively. Finally, capital expenditures for the 12 months were $979,323. For the quarter they were $179,315. Now I would like to turn the call back over to Richard. Richard.

Thank you, Joe. Now I would like to take a moment just to discuss what we expect for each of our subsidiaries in the first quarter of 2004. We expect overall results for the first quarter to be weaker than last year's comparable period due primarily to Florida Pneumatic's expected revenue decrease as well as due to the stronger yen. Revenue at Florida Pneumatic is expected to decrease between 10 and 15 percent as lower promotional sales and the phase-out of a major customer, I discussed earlier, should negatively impact our results. Revenue at Countrywide is expected to increase up to 5 percent with continued growth in the fencing productline, more than offsetting weakness at Florida -- at Franklin, excuse me, due to the absence of the repeat of the prior year's unusually large inventory stocking order from one of our customers.

Revenue at Green is expected to be flat as weak access sales mitigate continued improvement in cylinder revenues and revenue at Embassy is expected to be up 5 to 10 percent as boilers, radiant products and new commercial heating products continue to experience increases in sales. We expect gross profit for the first quarter to be between 28 to 29 percent as a decrease in Florida Pneumatic sales will hurt absorption and the stronger yen will increase the cost of imported product. Our selling, general and administrative expenses should be flat in comparison to 2003 and our interest expense should decrease as average borrowings decrease. Those positive cash flows should reduce both the acquisition line and our revolver.

Overall, we anticipate profits will decrease between 50 percent to 70 percent for the quarter only. Officially at the end of 2003, we expressed an extraordinary increase in the cost of most types of steel and products predominately comprised of steel. Although the impact for the first quarter of 2004 is not expected to be material, financial results for the remainder of this year may be adversely affected if we are not able to compensate for this cost increase by finding alternative sources for placing along these increases to our customers. However I would like to stress through all these reports that I'm giving you and all the numbers, that looking forward, our outlook for the year is better than the first quarter would indicate as the remaining quarters of this year will be more in line with the comparable 2003 period as our marketing and development activities materialize.

The challenge we will face in the first quarter will be working on price for revenue usually generated by the major customer lost by Florida Pneumatic, however, all of our other divisions are poised to hold their own and Florida Pneumatic will work as I mentioned to you on gaining back revenues through new products and programs and on implementing cost cutting measures. And our outlook, of course for the year, is still very positive. Thank you all for participating today and I would now like to answer any questions you may have for the company.

(OPERATOR INSTRUCTIONS). There are no questions and the queue. Are there any closing remarks at this time?

I'm happy to hear that we did such a very good job with everybody here today, so everybody understands our year and our first quarter and we look forward to speaking to you again with our first quarter results in a couple of months. Thank you all for calling and have a nice day.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines at this time.