Park Ohio Holdings Corp (PKOH) 2003 Q2 法說會逐字稿

Good morning and thank you for standing by. All participants will be able to listen only until the question-and-answer session of the conference. We will be able only to take a limited amount of questions today. This conference is being recorded. If anyone has any objections, you may disconnect at this time. I would like to introduce your conference speaker, Mr. Robert (indiscernible), Secretary and General Counsel of Park-Ohio Holdings.

Thank you. Good morning, ladies and gentlemen. Before we begin the conference call, I would like to remind you that we will be discussing some issues that are historical and some issues that are forward-looking. When we talk about future results or events, there are a variety of factors that can materially change our actual results from those projected. You can find a list of the relevant factors in our earnings press release, as well as in our 2002 10-K. During the conference call, we will discuss the company's EBITDA. EBITDA is not a measure performance under generally accepted accounting principles and is considered a non-GAAP financial measure as defined by the SEC. We present EBITDA because management believes EBITDA could be useful to investors and as an indication of the company's ability to incur and service debt and because EBITDA is a measure used under our revolving credit facility to determine whether we may incur additional debt on (indiscernible) facility. For reconciliation from income before income taxes to EBITDA, please refer to our current report on form 8-K furnished to the SEC on July 31, 2003. At this time, I'll turn the conference call over to our Chief Financial Officer, Richard Elliott.

Good morning. I will provide an overview of financial results for the second quarter of 2003 and for the first half of the year.

Starting with performance for Q2 2003, comparing it to the same quarter results for 2002, beginning with net sales. The ILS segment recorded net sales of $96, 525,000 in the second quarter of this year, as compared to $103,985,000 in the second quarter of last year, a drop of $7,460,000, or 7.2 percent. The aluminum products segment recorded sales of 23,931,000, compared to the second quarter of last year at 30,028,000, a reduction of 6,097,000, or 20.3 percent. The manufactured products segment recorded sales of 39,460,000, compared to last year's 32,612,000, a growth of 6,848,000, or 21 percent. On a consolidated basis, the company recorded net sales of 159,916,000, compared to last year's same quarter 166,625,000, a reduction of 6.7 million, or 4 percent. Consolidated gross profit for the second quarter of this year is 25,847,000, compared to last year's 24,380,000, an increase of 1,467,000, or 6 percent. Gross margins, therefore, in the second quarter were 16.2 percent, as compared to consolidated gross margin same quarter last year of 14.6 percent.

Operating income -- the ILS segment recorded 6,237,000, compared to last year's 4,904,000, an increase of 1,333,000 with an operating income percentage of sales of 6.5 percent compared to last year's 4.7 percent. The aluminum products group recorded operating income of 3,223,000 in this quarter, compared to the same quarter last year 1,631,000, an increase of 1,591,000. The operating income percentage for this quarter was 13.5 percent, compared to last year's 5.4 percent.

The manufactured products segment recorded operating income in the second quarter of 2,598,000, compared to last year's 612,000, an increase of 1,986,000, providing operating income percentage of 6.6 percent, compared to last year's 1.9 percent. And on a consolidated basis for Park-Ohio as a whole, operating income of 10,227,000, compared to last year's 6,047,000, an increase of 4,180,000 and operating income percentage of 6.4 percent, compared to last year's 3.6 percent.

Now performance for the first half of 2003 compared to the same period in 2002. Net sales -- ILS recorded net sales of 188,877,000, compared to last year's first half 199,742,000, a reduction of 10,865,000, or 5.4 percent. The aluminum products segment recorded 47,973,000 sales, as compared to last year's 56,503,000, a reduction of 8,530,000, or 15.1 percent. The manufactured products segment recorded six-month sales of 77,917,000, compared to last year's 64,223,000, an increase of 13,694,000, or 21.3 percent. On a consolidated basis for Park-Ohio as a whole, the first six months of this year, we recorded 314,767,000, compared to last year's 320,468,000, a reduction of 5,701,000, or 1.8 percent. Consolidated gross profit. This year, we recorded 50,257,000, compared to last year's 46,078,000, an increase of 4,179,000, or 9.1 percent. That provided a gross margin percentage in the first six months of this year of -- the spreadsheet failed me here -- of 16.0 percent.

Looking at operating income, the ILS segment recorded operating income of 12,085,000, compared to last year's first six months 10,366,000, an increase of 1,719,000, providing an operating income percentage this year of 6.4 percent, compared to last year's 5.2 percent. Aluminum products segment recorded operating income of 6,800,000, compared to last year's 3,751,000, an increase of 3,049,000 for an operating income percentage of 14.2 percent, compared to last year's first half 6.6 percent. The manufactured products segment recorded net sales -- I'm sorry -- operating income of 3,746,000, compared to the first six months of last year, 1,168,000, an increase of 2,578,000, or an operating income percentage of 4.8 percent compared to last year's 1.8 percent. On a consolidated basis for Park-Ohio as a whole, we recorded operating income of 19,558,000, compared to the first six months of last year, 12,868,000, which is an increase of 6,690,000, or an operating income percentage of 12.2 percent, compared to last year's 7.7 percent. That wraps up the financial overview. I will turn it over now to our Chairman, Ed Crawford.

Good morning. I thought I would address the year-to-date numbers as we begin to go into the homestretch for '03. If you look at the six months sales, six month year-to-date year-over-year, the sales were down some $5.7 million. However, which I think is most important, the operating income was up $6.7 million. I think this is a very clear signal that we have the revenue leverage with us, that the company has completed the restructuring of all of the units. I think this bodes well for us going forward in '03 and '04 and beyond. A couple of brief comments these individual units. ILS is down some $10 million, again, but the operating income is up, the percentage is up. We're in the final stages of again reducing the number of warehouses model of the business. Clearly when you can boost revenue and increase the operating income, you put yourself in an excellent position to get you any benefit from additional sales in the last half of this year or clearly in '04.

Upward (ph) segments comments -- the semiconductor (ph) industry, which we have a large investment in, is basically still not where we would like it to be, but we're optimistic going forward that we will be able to capitalize on any increase in sales in the semiconductor industry. As far as ILS is concerned, our trucking is up, which is very good and we think it can get better in a major (ph) invested in that segment. Generally, the reduced sales are not necessarily a reflection of the economy, but we continue to begin and go through our selection process relative to customers with an eye towards increasing the margins. So we look to be in a very, very strong position in the future with ILS. (indiscernible) warehouse, we have strong management, we have great customers (indiscernible) our revenue. So ILS going forward, we feel very positive about the prospects for the company long-term in that particular sector.

Aluminum continues to perform very well. Again, the sales are down for the six months, but the profitability (ph) is up. We're in the final stages of the revenue viewpoint consolidating and closing facilities that we feel, short term, are not going to play an important role in the company. But these are facilities that are very good units, but we want to redeploys those assets and we will stay in a consolidated mentality until we get some serious pickup in opportunities. And there are some great future (ph) prospects that we feel good about aluminum long-term. Manufactured products, that unit was up in seriously (ph) sales and the important story here is the tremendous success we're having with our induction group and the combination of (indiscernible). Generally speaking, I feel that we're on target for this year and we are anxiously waiting any additional revenue and we're pretty well positioned. And as I hesitated earlier in my comments -- we're really on the positive side of what I call the revenue leverage opportunity for the company.

I want to talk briefly, mention briefly the announcement of our new $165 million senior revolving credit facility. As most of you are aware, we are about a year ahead of schedule, relative to having to refinance the company, particularly at a four-year level. But we have felt for some time the last six months that the market opportunity per-share for us was quite an extensive process. But we're very pleased that we have a new major part of the bank group -- Banc One -- who was the lead arranger. And again, towards ECorp. (ph) here in Cleveland, who has been a supporter of the company for many, many years. We welcome and thank them for their continued interest in supporting the company. We feel that we have per the agreement, availability today and somewhere between $35 and $40 million and we intend to -- obviously, we paid off the Hunter Bank Group, so we have found cash available and we continue to think in terms of any increase in revenue or have to support that working capital if it ramps up quickly, particularly on the logistics side.

We're ready to go on the other side. We are still concentrating in paying down the bank debt, so we have put ourselves exactly where we really wanted to be for the next four years. This is something that is always on our minds, but clearly, we're able now to concentrate on operating the business and taking advantage of any opportunities that we have as the economy recovers. The company at this point will be willing to take any questions.

(Caller Instructions). Sarah Thompson, Lehman Brothers.

Good morning, guys. I have a question about your revolver. It's a $165 million facility, correct? And you said you have 35-40 available. Could you just tell me how much is outstanding? Did it go up from the end of June?

It's up slightly since the end of June, but just a couple of million. The availability is the sense it is an asset-based loan, the availability is the comparison to the underlying borrowing base. And we have some post closed (ph) documentation that we need to follow up, but the 35-40 million is essentially the availability, yes.

At one point, most of your increase in working capital came, so I guess there was a little bit in the first quarter and a little bit in this quarter. I'm just curious how you see this playing out for the year, and I realize to some degree because of what the general economy looks like. But as you're looking at your numbers right now, do you see being cash-flow positive from operations, or is working capital going to use the balance of that cash?

We will be cash positive.

You will be cash positive. Okay, thank you.

(Caller Instructions). At this some, we're showing no further questions.

Thank you very much, ladies and gentlemen. We look forward to seeing you at the end of the third quarter. Have a nice day.

(CONFERENCE CALL CONCLUDED)