Standex International Corp (SXI) 2004 Q1 法說會逐字稿

Okay. Ladies and gentlemen, thank you for standing by and welcome to the Standex International first-quarter earnings release teleconference. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions given at that time. If you should require assistance during the call, please press * then 0 and an operator will assist you. As a reminder, this teleconference is being recorded. I would now like to turn the conference over to the President and Chief Executive Officer, Mr. Roger Fix. Please go ahead, Sir.

Good morning, and welcome to the Standex quarterly results conference call. With me this morning is Christian Storch, our Chief Financial Officer. I'd like to start the conference this morning by reading the Safe Harbor Statement. Some comments made during this conference call may be based upon management's current expectations, estimates, and/or projections about Standex's markets and industries. These statements are forward-looking statements which are not guarantees of future performance, and involve certain risks, uncertainties, and assumptions that are difficult to predictor. Therefore actual outcomes and results may differ from what is expressed or forecasted. One of the factors that could cause actual results to differ are uncertainties and competitive pressures, or marketing of new products, changes in general domestic and international conditions and market demand. Failure to achieve the company's acquisition, disposition, and restructuring goals in the anticipated time frames, and significant changes in domestic and international fiscal policies or tax legislation.

Earlier this morning we issued a press release which summarized Standex's financial performance for the first-quarter of our fiscal year 2004. I'd like to review those results with you. Christian will then provide some additional financial data. At the conclusion of the call we'll answer questions.

During the first-quarter, we saw a continuation of the positive trend in bookings and sales that began during the prior quarter of last year. As a result, Standex started off fiscal 2004 with a very solid performance in the first-quarter. Sales were up 7% on comparable basis, and net income from continuing operations was up 16%, versus the first-quarter of last year. Specifically, for the first-quarter we're reporting sales of 150.9 million, compared to 145.5 million for the prior year quarter. Excluding a 4.4 million of additional sales recorded last year in the first-quarter, as a result of our decision to conform the accounting year of our European operations through the rest of the corporation, sales in the prior year were 141.1 million. As a result, on comparable basis, sales for the first-quarter this year were up 7% versus the prior year.

Net income from continuing operations for the first-quarter was 5.3 million or 43 cents per diluted share, an increase of 16% from prior year net income of 4.6 million, or 38 cents per diluted share. A number of divisions within our Food Service and Industrial Groups showed good improvement in sales and operating income over the prior year quarter. The top line growth and double-digit increases in net income and earnings per share, achieved by Standex in the first-quarter, was a result of strong organic sales growth in several divisions, the benefit of acquisitions made last year, and the impact of our restructuring and realignment programs. The most significant improvement in year-over-year first-quarter performance was delivered by our Food Service equipment group where sales increased 12%, to 42.5 million, from just over 38 million a year earlier. All the sales growth was organic, and was attributable to market share gains and some improvement in market conditions. MasterBilt, BKI and USECO each achieved double-digit top line growth, leading several other businesses in this group, but also recorded increased sales.

Operating income for the group was 57%, to 5 million from 3.2 million, while operating profit margins increased to 12% from 8%, as compared to the same quarter in the prior year. All of the businesses in the group reported improved profitability for the quarter, with the improved-profit performance at USECO clearly resulting from the restructuring activities we completed during the past year. Overall, bookings remained strong, as a backlog for this group, at the end of the quarter, was up slightly, even after strong shipments during the quarter.

The first-quarter sales in the Industrial Group increased 2% to 87.7 million, from 85.9 million for the prior year first-quarter. Operating income for the group decreased 17%, 8.6 million, as compared to 10.3 million in the prior year quarter. The reduction in operating income for this group is due primarily to higher metal prices that impacted profits at the Standex Air Distribution Group. The strongest revenue gains in the Industrial Group were achieved by the Standex and grading [ph] division, which benefited from increased organic sales and from the acquisition of our I R International, in Richmond, Virginia, and Dornbusch in Sao Paulo, Brazil. We're pleased with the performance of both I R and Dornbusch, as they completed their first full quarter under Standex ownership.

Other divisions that demonstrated strong sales performance included Custom Place [ph], which reported a 10% increasing in revenues, after dealing with significantly depressed markets over the past two years. Sales in the Electronics Group and Air Distribution Group held strong for the quarter as well. The overall backlog for the Industrial Group was up over 15% at the end of the quarter, as compared to prior year.

The Consumer group reported a 4% decline in revenue for the first-quarter, with sales of 20.8 million, compared to 21.5 million for the prior year quarter. However, despite the small decrease in revenues, operating income for the group increased 200% to 412 thousand versus 204 thousand the prior year. The positive news about the Consumer Group is that they have successfully implemented cost-reduction measures and rationalized these businesses to the point that they are able to generate profits at the lower sales volume we are currently experiencing.

Subsequent to the close of our first-quarter, we announced the tentative decision to close the Commercial Printing Business as part of our Standex Publishing Division. The excess capacity that exists in the the U.S. printing industry, coupled with the significant consolidations of printing companies that occurred over the past several years, makes it uneconomical for small printing operations, like the one at Standard Pub to provide competitive printing services. By sourcing the printing needs of Standard Publishing from other third-party printers, we can reduce costs, avoid the need for additional capital investments in the printing operation, and most importantly, focus management attention on growing and developing the publishing business by leveraging the strong brand recognition inherited that Standard Publishing has long-established in the religious publications market.

In addition to rationalizing the consumer businesses we're looking selectively to invest and grow these businesses where we see opportunities. For example, in the Berean Bookstore division, we opened a new store in September, and plan to open a second store in the spring, in the greater Chicago lands area.

Two recent significant milestones achieved in our realignment process were the announcement of the closure of the German Roehlen Technology business which occurred during the first-quarter, and the subsequent announcement regarding the closure of the Commercial Printing business at Standard Publishing. Both of these actions are consistent with our announced restructuring and realignment strategy to close, or divest the businesses that are either too small to compete effectively, or hold little opportunity for future growth and profitability. We expect to complete the closure of the German Roehlen Technology business by the end of second-quarter and to complete the closure of the printing operation by the end of the third quarter of this fiscal year.

As a result of our decision to close the German Roehlen Technology business, we took a pretax charge of just over $1 million, which is included under discontinued operations on our income statement for the first-quarter. We expect that the savings resulting from the closure of this business will yield a payback on this charge of just over 1 year.

During the quarter, we also incurred a restructuring charge of 3 cents per share, as compared to a restructuring charge of 4 cents in the prior year quarter. During the quarter, the Company completed the sale of a facility and took an impairment charge, resulting in a net after-tax expense of 68 thousand. Our press release issued today and posted to our web site includes a reconciliation of year-over-year net income and earnings per share, which illustrates the impact of discontinued operations and special charges for the quarter. Since we announced our recession program 1 year ago, we have sold 4 facilities and related assets, realizing $12 million in cash proceeds. With these proceedings and the gains in operating profit achieved by selling under performing businesses, we have more than offset all of our restructuring expenses incurred to date. We are pleased to result that the restructure and realignment program remains on schedule, and is meeting expectations we have established at its onset. Christian will now provide more detail on the financial data discussed, and key balance sheet issues.

Thank you Roger, and good morning all. A couple of comments on balance sheet. During the quarter, we continue to successfully reduce on our working capital requirements. Network and capital decreased by $1.7 million or 1.3% on higher revenues, as working capital returns, and continues to improve. Networking capital, at the end of September, to 131.3 million. Operating cash flow for the quarter allowed us to reduce our net debt position, total debt less cash is how we define net debt, by $2.1 million during the quarter. Net debt at the end of the quarter was 96.3 million. Our leverage ratio, which we measure as our net debt to total capital ratio, was 37% at the end of the quarter, compared to 38% at June 30th.

On the operating performance, overall, the gross profit margin for the quarter was 32.1%, compared with 32.6% for the same period in the prior year. The decline continues to reflect the substitution of lower margin sales in the Food Service and Industrial Groups for higher margin sales in the Consumer Group. The operating margins for the segments were -- Food Service Group, 11.7%, compares to 8.3% the same period of the prior year. Consumer Group 2%, compared to .9% in the prior year, and the Industrial Group 9.8%, versus 12% and the prior year.

Some non-operating financials. The effective income tax rate from continued operations for the quarter was 36.9%, compared with 38% in the prior years first-quarter. Interest expense was $1.5 million or $360 thousand below prior year's level, as we continue to benefit from low interest rates on our variable rate debt, and lower average volume levels. We continued to invest cautiously in our business during the first-quarter, and spent $1.4 million below a last years first-quarter level of 2.3. We continued to project four-year CapEx levels at between $9 and 10 million. Depreciation for the quarter was 3.3 million, just slightly below prior year levels of 3.4. This concludes my remarks and I turn the conference back to Roger.

We'd now like to entertain questions and our moderator will help us with that.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press the *, then the 1 on your touchtone phone. You will hear a tone indicating that you've been placed in queue, and you may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up your handset before pressing the number. Once again, ladies and gentlemen if you have a question or a comment, please press the *, then the one on your touch-tone phone. The first line will open as the line of Michael Gartner at Wedge Capital Management. Please go ahead.

Yes, good morning fellows.

Good morning, Michael.

Good morning, Michael.

First I want to say I really commend you on all these aggressive actions you're taking, and don't take your food off the gas. Just keep going. It's great. Let me ask you, Roger, just in a rough sense, if you were to characterize where you are in all of these consolidations and closings, etcetera. In percentage terms, having started at zero and having a vision of what's 100%, would you say you are 40% of the way through? 70%? Can you just give me a general sense?

We're over halfway. We're probably in the 60, 65% range. We have a couple of other relatively significant actions we would like to take, but the announcements that we made here this last week regarding printing and the crate feld [ph] operation. We're really 2 significant milestones. So, we're roughly in the two-thirds area.

Okay. Thanks. A technical question about is, and that is, any disposition gains that you might realize with -- would that type of thing be lumped into the restructuring line, as opposed to going into any operating income at the segment level?

Disposition gain?

In other words, if you sold the facility, maybe, you recognize some gain on the real estate or the depreciated machinery, or something like that. Would that net out against your restructuring expense? Or?

[inaudible]. If the disposition relates to a discontinued operation, then it would be netted in the discontinued operations line. If the disposition relates to a restructuring case, or is not related to either restructuring or a discontinued operation, it would show up as a separate line on our PNO, we call it other expenses.

Okay.

Our expenses product operating income.

Okay.

But, separate from restructuring.

Okay. So. But, certainly would not be distributed to the segment operating results?

Correct.

Okay.

If you're saying for the operating income segment data is purely from operations.

Okay. Just two more questions. This Steel price impact? It would seem to me that you'd probably have, at ceiling [ph] steel price is, don't change radically, and I know that is an assumption. It would seem like you'd have a couple of more quarters before you would have cycled that through. Is that a fair statement?

Very perceptive, Michael. Actually, we think about one more quarter will see most of that cycle through.

Okay.

And steel prices have held fairly constant, they are down slightly, but not maturely at this point, from levels that we began to see in the first-quarter a year ago.

Are there any structural changes happening, in terms of the grades of steel that you require? Or any arrangements that you can make that would change things going forward? Or do think you will continue to be about as expose in the future as you have been to commodity price links.

The Air Distributions products business has been very aggressive in looking at both domestic and foreign sources. They've been buying, for example, from India for several years and candidly, those prices prior to the action by the government, were significantly lower than domestic. Obviously, with the tariffs, they've all followed the prices up, and so we're seeing some benefit from going abroad but, again significantly higher prices that we saw, say a year ago. We will continue that strategy, looking aggressively, really around the world for best prices. One of the things that we are doing currently is looking at consigned inventory programs, with some of our suppliers so that we can again improve working capital utilization and we'll be working on both the working capital side as well as the cost side going forward.

Thanks Roger. And then just one last question. Christian, on that lower tax rate, is that -- do you expect -- that's your estimate for the year? 36 9? What has cause that change?

36 5 to 37. In that range.

Any particular reason why? Is?

Going forward?

Yes.

As, you know, earnings are -- if we listed the permanent differences, when income levels are lower then permanent differences become a larger piece, which drives your effective tax rate down.

Okay.

We believe that will continue through the year at to 136.5 to 37%.

Okay. Thanks very much.

Thanks

Thanks, Michael.

Once again, ladies and gentlemen, if you do have a question or a comment, please press the *, then the 1 on your touch-tone phone. And we have nobody else queuing up at this time. Please continue with your presentation.

Well, if there are no other questions, we thank everybody for their attendance, we look forward to speaking to you at the end of our second quarter. Thank you.

Thank you.

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