Tredegar Corp (TG) 2004 Q1 法說會逐字稿

Good morning and welcome to the Tredegar Corporations First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If you require assistance during the conference, please press "*" "0" on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to introduce Mitzi Reynolds, Tredegar's Director of Investor Relations, who is your host for today's conference. Ms. Reynolds you may begin your conference.

Thank you. Good morning and welcome to our conference call. I'm joined today by several of our Senior Managers including Norm Scher, President and Chief Executive Officer, Doug Monk, Chief Operating Officer, Tom Cochran, President of Tredegar's Film Products, Al Butler, President of Bonnell Aluminum Extrusions, who joins us from Newman, Georgia, Tom Stribling, President of Therics who joins us from Princeton, New Jersey, Andrew Edwards, CFO and Treasurer.

Here's the agenda for today's call. I'll give a brief review of yesterday's earnings release, Norm Scher will follow with some general comments and then we'll open it up for questions.

Before proceeding, we offer the following cautionary statements. The comments we make today in responses to your questions may contain forward-looking statements. Information concerning factors that could cause actual results to differ materially from those contained in such forward-looking statements is included in our annual report on Form 10-K for the year ended December 31st, 2003, which is on file with the SEC.

In an effort to provide useful information to investors, our comments today also include non-GAAP financial measures. For details on these measures including why we employ them and a reconciliation to comparable GAAP measures, please refer to our earnings release and the Form 8-K that has been furnished to the SEC, both of which are available on our website at tredegar.com.

I'll begin with the summary of quarterly earnings of our business segments. For those of you who have our press release in front of you, I'm referring to the table on page one.

Fourth quarter income from continuing operations under GAAP was $2.4 million or 6 cents per share versus 4.9 million or 12 cents in 2003. This year's first year results include net after tax charge of 7 million or 18 cents per share related primarily to the plant shut down of the aluminum extrusion plant in Aurora, Ontario. This charge was partially offset by a net after-tax gain on the sale of securities totaling 4 million or 10 cents per share. Last year's results including net after-tax charge of 748,000 or 2 cents per share related primarily to an adjustment for depreciation of Therics. From this point on unless otherwise noted, the comments we're making in today's call refer to results from continuing operations.

First quarter net income for manufacturing operation was 7 million or 18 cents per share down from 7.8 million or 20 cents in 2003. First quarter sales of 195.9 million up from a 182 million in 2003. In film products, net sales increased 3% to 95.9 million. Operating profit from ongoing operations was 10 million versus 13.9 million in 2003. Results for the 2003 quarter included sales of certain domestic backsheet to P&G that were discontinued at the end of the year ago quarter.

In Aluminum Extrusions, first quarter net sales rose 13% to 95.2 million. Operating profit from ongoing operations was 3.7 million up from 1.2 million in 2003. Volume was up 7%. Finally, our Therics subsidiary had an after-tax loss from ongoing operations of 1.6 million or 4 cents per share versus a loss of 2.1 million or 6 cents last year. I'll now turn it over to our CEO, Norm Scher. Norm.

Thanks Mitzi and good morning everyone. I appreciate your listening in. Not much has changed since our conference call in January. Our films business once again had profit in $10 million range. Nonetheless, we remain upbeat about our films business and expect meaningful increases over current profit levels by late 2004 or early 2005. Our challenge is to overcome the loss of the large portion of our domestic backsheet business. We've invested substantial capital in recent years to support global opportunities for new apertured, elastic and specialty films. Results have not come in as fast as we had originally hoped, particularly in view of higher costs related to these opportunities but they are very encouraging, nonetheless.

During our last quarter's conference call, there was request for more details about our capital expenditures film products. In my remaining comments, I'll try and address that request. Tom Cochran will be glad to answer any additional questions you may have. In 2003, capital expenditures in film products totaled $57 million. And we expect to stand at least another $40 million this year, roughly 50 million of the capital being spent in 2003 and 2004 and that is 97 million. So, 50 million of 97 million is for strategic projects and supports of variety of new product and global expansion efforts. If successful, these strategic projects are expected to generate annualized incremental sales of about $65 million. And the risk associated with these expenditures has been mitigated by the fact that about 20 million is for customer specific projects that include take-or-pay type arrangements.

We believe that we're getting closer to realizing a pay off on our invested capital. The rollout of our new feminine fad topsheet for P&G's European markets continues to go quite well and we're making additional investments to support this profit. In addition to this new topsheet, we've successfully introduced other new feminine hygiene topsheets and diaper laminates to several global customers. And sales of new specialty packaging and protective films are also growing. When you put it all together, this gives us the platform for meaningful growth, over current profit levels by the end of this year or early in next year.

Moving to aluminum extrusions, we will mildly encouraged by an uptick in first quarter volumes and profits. It's important to remember that this business continues to be challenged by overcapacity in a difficult competitive environment.

Early this month, we announced the closing of our plant in Aurora, Ontario and the consolidation of our Canadian operation. As part of the consolidation, we plan to spend about $8 million to upgrade a press and enlarge that facility in Pickering, Ontario. Upon completion, this effort should reduce operating cost by about $2 million in the year. Al Butler is on the line. Al joined us in February as new President at Bonnell. He brings a strong blend of operational, financial, and marketing experience to our team, and I look forward to working with him as he gets this business on the right track. Al will take your questions in few minutes and Doug Monk is here to support him.

For those of you who don't already know, Doug is retiring on May 1, so this will be his last conference call. We will all miss him. So, Al use Doug while you got him because from now on you'll very much be on your own.

I'll close by reminding you all that we are continuing the monitor progress of Therics very closely. We recently received our third FDA clearance, which enabled us to launch our initial line of bone void filler product and our sales force is preparing for a national roll out. Tom Stribling is on the line to answer any questions you may have about our technology and efforts to commercialize.

Before opening up for questions, I'd like to close by reminding everyone that there our effort to control and reduce cost are constant and continuing. Thank you for listening in today and we look forward to answering your questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press "star" "one" on your touchtone telephone. If your question has been answered or you wish to remove yourself from queue, please press "star" "two". If you're using a speakerphone, please lift the handset before asking your question. Again, if you have a question at this time, please press "star" "one" on your touchtone telephone. One moment, please, for the first quarter.

Again, if you would like a ask question, please press "star" "one" on your telephone keypad. Your first question is from Timothy Hayes of BB&T Capital Markets.

Hi, Tim. How are you?

Very good. Thank you. Good morning.

Good morning.

Question on total CapEx expected for '04. What is your expectation for that? And that will be made in the capital for each of the plastic film and aluminum extrusion business?

All right. Drew, why don't you give those numbers?

CapEx projected for film should be at least $40 million in 2004, and in aluminum, our projection is around $15 million. So in total, we're looking at $55 million.

I asked about maintenance.

Tom, go ahead.

Tim, this is Tom Cochran. At least from films perspective, again we put some information in the release about how the 97 million from 2003, 2004 is being invested. And we found it by the 50 million that is for the strategic revenue-enhancing projects. I can tell you a little bit about the 47 million that remained that number. More than half of that is being used for cost reduction project or for partial spending on project that we expect to generate revenues in the future. Less than half of that 47 million is used for support and comp annuity investments, and some of these also generate some cost savings.

As it relates to aluminum, Tim, roughly the maintenance CapEx is about depreciation which is about 10 million a year, and that difference of 15, that might have contained a $5 million relates to the CapEx associated with the Aurora plant shutdown to move in large spreads to (inaudible) facility.

That answered your quarter, Tim?

Thank you.

You're welcome.

Again, if you would like to ask a question, please press "star" "one" on your touchtone telephone keypad. Your next question is a follow-up from Timothy Hayes of BB&T Capital Markets of BB&T Capital Markets.

Okay. Tim.

I got another one on Therics. You said that you got the third product approval that, if I recall, few months, maybe four or five months ago, you only had two. So this is a -- I mean, increase of one in the last couple of months?

Yeah, let me let Tom Stribling describe -- I think mainly the word approval is not the technical word; it's clearance in this case. So Tom, why don't you take us through that?

Okay. I'll be glad to. The first approval that last year was on Pure Ridge (ph) which is a dental implant product for the oral maxillofacial surgery markets and we don't plan to market that drug actively -- that product actively will possibly license to that. The other two approvals are clear -- sorry, covered a line of products developed using our Terraform (ph) manufacturing technology and by -- I'm trying to figure exact word to use this. The clearance covers more than one device, and we developed a line of devices, different shapes and sizes of orthopedic implants from these two approvals that have all been launched as of the end of March and that encompass about 9 different products. And they're all orthobiologic products used as bone graft implants.

Okay.

And incidentally Tom, if I'm wrong you tell me but as an inducement, if you can come to our annual meeting Tim, I think Tom is going to be there and the products that have been cleared will be on display and pretty easy for you to see is that right Tom?.

That's correct.

Yeah, we'll be there. One another question on Aluminum Extrusions if I could, the capital utilization rate before the closure of Alroy (ph) and then what do you expect utilization go to after the closure assuming that current business condition hold, you know keeping those constant..

Al, do you want to shot at that?

I do. Capacity utilization -- currently is running 72% before the Alroy shut down and your run closely to 80% after they Alroy shut down.

Okay. No worry, if volume and takes off to without from that plenty of capacity there to new opportunities?

We assume one to go.

Okay. Very good. Thank you.

Thanks, Tim.

Your next question is from Josh Fonton (ph) of Gabelli Asset Management.

Hi, Josh. How are you?.

Good morning. How are you?.

Fine. Thanks.

Balance sheet was great, net debt dropped a lot what do you -- any thoughts on the cash?

Yeah. Obviously, that question is a recurring question and my answer is not going to be materially different from some of the conservation we'd had in the past. We are still in the process of waiting for the turned in films and I think we've made it clear today that we think maybe that turned is not too far away, we've got a significant over capacity and several pricing issues on aluminum that we are working hard on and I'm very confident that Al will be able to help us figure out the way go forward and then Therics is only in the very early stages of where its headed. I think this year in particular -- is a year that we will be given some significant thought to where we got next with that balance sheet? But my number one concern and I think its always been is getting a feeling that the businesses that we actually have are headed in the right direction and feels pretty confident that any next steps or well thought out. I would also underline for you, that our capital expenditure and that's why we took the time, the data Tredegar go through that or not insignificant particularly in films and that ta0kes a chunk of our firepower and certainly both it developing our new businesses. But what I am hopeful is that we can get a better feel -- where these business is going and gives some very serious thought, where we go from hear, we are not at that stage right now, the Board obviously has been given, but we need to get better sense of direction before I could really answer that question.

Okay. Thanks.

You're welcome.

Your next question is another follow-up from Tim Hayes of BB&T Capital Markets.

Hi Tim, back again.

A question for Al, trying to refresh my memory, has there been any conversion price increases for South Alroy, because that we've seen some increases, conversion price increases on the flat role product side. I just was trying to remember it we seen anything extrusion?.

Yeah, Timothy. We have, we increased prices April first and it came in two forms, one our finishing prices were increased fairy substantially and are -- would remain across the Board increase in our prices it will grow about 3.5 cents a pound

Okay. And the finishing prices, how much did they go up?

Well, when you through looking at it, probably going to be about 3 cents a pound, but they think they're not that way

Okay. Any is it too early to tell that's sticking or how is that been received?

I can say the initial reaction is a little more positive then we thought they might be coming out of the shoe. We won't all of those for sure, but so far we're working, do we know we have the situation where we've had some customers under contracts and so there is timing issues and other people who have price looked up and so forth I get more working through all those issues with their customers, but there is no question I think that we will get the price increases the question is just time , how much time it takes us to get there?.

See, let me ask it to all the back trend (ph) supplement that comment, you've been many times jammed this road, would you put -- your stand on ability to get price increases in the aluminum extrusion industry?

I think during that pretty audience would say that we have announced price increases, we're hopeful that we'll get some of that is bit a lot of that depend upon what the, what happens in the total industry and to see how much actually does stick or doesn't stick, its really too early to tell.

Okay, your spot between spot and contract business do you disclose that? Or can you give us a rough idea?.

No. We do not disclose that. All right.

All right.

And there -- Tim it really depends, it changes an awful lot, what sort of kind of contract and what is it and I think long term contract any way.

In long-term do you find that 12 months more or?

Actually more than twelve months for sure, long-term.

Okay. Thank you.

Thank you.

Again, in order to ask a question, please press "star", "one" on your touchtone telephone. Ms. Reynolds, there are no further questions.

Before you hang up operator, let me get Tom Cochran to comment on a question that wasn't asked but it's I think important to talk about, I was hoping someone would ask the question. So, I think it's good to just get it on the table and that is, we have very carefully used the word meaningful with respect to where we thank, hopefully our new operating profit level will go. Tom is the one who is charged with having that expectation fulfill so, I think, it would be helpful for Tom to say a few words about his interpretation of meaningful and if there any follow up questions after Tom says what he says that would be good, so Tom?

Sure Norm. I think, The folks on this call remember that films expecting growth from four main areas, elastic laminate materials for diapers, apertured material is primarily for feminine hygiene, aquagene (ph) to protect the films and we have mini recently installed production line that are now entering into qualification phase. That's a fairly extensive process at present but as the year goes by we certainly hope that those line fill up profitability and startup expenses decline.

Precise timing of all these new sales, and production line qualification is always difficult to forecast but indications are pretty positive. Cost reductions are also a big factor for us this year. We're on track to close our new print plan. We're constantly considering to moving forward on other cost reduction efforts. We decided that we don't expect meaningful increases over current profit levels until late this year or early 2005. Given the significant capital, these investments don't products recently, I would only consider profit improvements meaningful once they're sustainable higher that the current 10 million range.

Thanks Tom. Operator could you see if their any follow ups to that statement if note, we can adjourn the call.

You do have a follow up question from Timothy Hayes with BB&T Capital Market.

Okay Tim.

May again. Tom in the quarter were their any impact still hanging over from higher resin prices are pinchy margins.

We did have a slight uptick in resin cost in the first quarter. We also had on some price adjustments that have came into affect from earlier increases. So, is there any -- any impact in the first quarter was very, very insignificant either positive or minus.

Any worries with the, with what oil prices have been doing, here in the second quarter that second half might be still tough on margins from that standpoint?

We're always worried Tim, but right now, we hope for softening in the coming quarters. And there's nothing certain yet but a moment seem to be shifting towards soft. We haven't seen anything yet.

Okay. Thanks.

Thanks.

At this time, there are no further questions.

Thank you.

Thank you. I want to thank everyone for participating in our call today. We look forward to updating you in July.

Ladies and gentlemen, thank you for your participation in today's conference. This call will be available for reply beginning at 2 p.m. Eastern Daylight Time today though 11.59 p.m. Eastern Daylight Time on April 29. The conference ID number for the replay is 673-7088. Again the conference ID number for the replay is 673-7088. The number to dial for the replay is 800-642-1687 or 706-645-9291 for international callers. An archived copy of the web-cast will be available for replay on the company's website www.tredegar.com beginning at 2 p.m. Eastern Daylight Time today for approximately two weeks. To listen to the call select the web-cast at first quarter results link on the homepage. This concludes the program. You may now disconnect.