Tredegar Corp (TG) 2004 Q2 法說會逐字稿

Good morning, and welcome to Tredegar Corporation's Second 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 touch-tone telephone. As a reminder, this conference call is being recorded.

I would like to now 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 Norman Scher, President and Chief Executive Officer; Drew Edward, CFO and Treasurer; and Tom Cochran, President of Tredegar Film Products.

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

Before proceeding we offer the following cautionary statement. 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 31, 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 a brief summary of quarterly earnings of our business segments. For those of you who have our press release in front of you, I am referring to the table on page one.

Second quarter income from continuing operations, under GAAP was $5.2 million or 14 cents per share, versus $1.7 million or 4 cents in 2003. Results reported under GAAP include a variety of special items that are explained in the press release. From this point on unless otherwise noted the comments we are making in today's call refer to second quarter result from continuing operation.

Second quarter income from manufacturing operation was $10.6 million or 27 cents per share, up about 40%, over $7.6 million or 20 cents in 2003. Net sales through manufacturing operations were $210.5 million up 19%. Results improved in both film product and aluminum extrusion. In film product, sales were at 15% to $101.5 million operating profit from on going operations was up 8% to $10.9 million. Volume in film product was also up 9%.

In Aluminum Extrusion, sales were at 23% to a $109 million. While, operating profit from on going operations increased 69% to $8.3 million. Volume was up 8%.

Finally our Therics subsidiary had an after-tax loss from ongoing operations of $1.7 million or 4 cents per share versus the loss of $2.1 million or 6 cents last year. I'll now turn it over to our CEO, Norm Scher. Norm?

Thanks, Mitzi. Good morning, everyone, and thanks for listening in. We are happy to report higher second quarter profits from our manufacturing operations. Up again with aluminum extrusions, since it laid the way with substantial profit growth over last year results. As most of you, already know, we've been focusing on the cost side of aluminum, for quite sometime now, and its gratifying to see that the kind of operating leverage that can occur, when you begin to bring some volume back in the door. Due to all this, and as Mitzi pointed out profits rose almost 70%, on an 8% increase in volume, and a 23% increase in sales. Market conditions, clearly improved during the second quarter, with generally higher selling prices on shipments that were up across all of our end markets. The commercial construction, transportation, and machinery, and equipments segments were particularly were robust. The big question is to remain sustainable. We are certainly encouraged by the up tick in volume and profits that we’ve seen during the first half of this year. We hope that volume growth will continue this pace which is consistent with industry expectations.

Moving to our films business, volume and profits also improved, though not as dramatically. As we told you in our first quarter call, we’ve successfully introduced a variety of new elastic, diaper laminates and feminine hygiene topsheets products to several global customers. And sales of new packaging and specialty films are growing. We’ve certainly demonstrated that we will invest aggressively to support these new growth initiatives. In fact, as our press release points out, we are increasing this years planed capital expenditures in film products from $40 million to $55 million to support additional growth expectations for P&G’s new feminine pad topsheet. This product was rolled out with great success in Europe and Japan, last year; and its opening up new opportunities for us in other regions. We feel strongly that continuing to support initiatives such as this one, is critical to our short and long term success. Our confidence is reinforced by the fact that this latest investment, by dollars before it is tied to contracted volume commitments. We are making good progress on several fronts and we think we are getting close to realize in a payoff on the substantial investments, we have made in recent years.

That’s a quick summary of our manufacturing operations. Before opening it up for questions, I will close by reminding you, that we are continuing the monitor progress of Therics very closely, and hope to see growing acceptance of its new bone void filler products during the second half of this year. Thanks 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 "*", "1" on your touchtone telephone. If your question has been answered or you wish to remove yourself from queue please press the "#" sign. If you are using a speaker phone please lift the handset before asking your question. Again, if you have question at this time please press "*", "1" on your touchtone telephone. One moment please our first question.

Our first question is coming from Steve Wilson (phonetic) with [inaudible].

Hey, Steve, how are you?

I am good, thanks. How are you going?

Good.

I have a got a few questions one is your comment on Therics, obviously we have got minimal revenue at this point. When you talk about the second half stepping up, I mean, are we talking about $1 million, kind of, levels is that what you are seeing or expecting?

Steve, we don’t make any forecast announcements on Therics. What we have said at the outset was that we were funding Therics, through the year, which we intended to do. And, we are looking at it against metrics and milestones, that makes sense to us, and that’s as far as I will go today on Therics.

Okay. Second question on cash flow. The upside of the income tax refund, cash flow is down noticeably, and clearly accounts receivable is part of that, is there some timing issues here, or are we looking at a scenario where cash flow is way down because we are starting to see nice revenue growth, probably up?

Steve. This is Drew, you know, the primary reason for the reduction in cash flow -- operating cash flow, excluding income tax recovery was due to accounts receivable, because of much higher sales in the second quarter relative to year end -- for the aluminum business, so we would expect that receivables to decline, as we move towards the year end. But overall, for our manufacturing operations this year we would expect negative free cash flow because of the higher capital expenditure requirements for films.

Got a follow up there, Steve?

Thank you. Once again, if you do have a question you may press "*", "1" on your touch tome phone at this time.

Your next question is coming from Tim Hayes with BB&T.

Hey, Tim, how are you doing?

Pretty good, thank you. How are you doing?

Fine

Question on the backend quarter strike, what repercussions are you feeling from the lack of build in the market place?

So far folks -- for those on the phone, who don’t know there is a large strike in Canada of [ALCO], was a bill it supplier or bill it plant, we are for the time being are okay, Tim, we think as sourcing as you know, that we have bill it operation, and therefore we are not in as much peril from an outside strike, as companies that don’t have cash balances; so our short term outlook is okay, we have no idea, how long that strike might last, and obviously the longer it goes, the more difficult it's going to be for the industry; but right now we’re feeling okay internally about our ability to have built.

Do you think, if the strike lingers on for a couple of months, then this will be an opportunity to take market share?

Where it might be?

Okay. Thank you.

You’re welcome.

Thank you. Your next question is coming from Steve Wilson (phonetic) with [inaudible].

Hey, Steve.

I was disconnected, so --

Yeah, I thought you may have a follow up question, go ahead.

Well, I didn’t hear your answers, so I don’t know what happened, but on the cash flow question, I heard the answer to the Therics question.

I’ll -- Let me repeat it; the decline in operating cash flow for the first 6 months excluding the income tax recovery is due to the higher accounts receivable; accounts receivable which is primarily seasonally related in our aluminum business, we would expect receivables in aluminum to be lower at year end, but overall, we expect negative free cash flow from our manufacturing operations, for 2004, primarily due to the higher CapEx in our films business.

Okay, and thus my next question is, the increase in CapEx, another $15 million, is that for a line; is that for a building in a line, I mean, is that for, you know, incremental investments in numerous plants, what is that going to provide?

I will let Tom Cochran, take that one.

This quarter, there are specifically to the ongoing success of P&G’s new feminine pad topsheet. Now, that was rolled out in Europe and Japan last year, and we hope poor growth in other regions. We don't disclose the actual cost of our a line etcetera, but that increase is tied specifically to that product and we do have contracted volume commitment on investment.

Alright. Let me ask the question a little differently. Did that money get you incremental capacity, were you are already making it, or does it provide capacity in locations where you are not making it now?

This proves -- this gives us incremental capacities produced as new topsheet. It is important to note that this product replaces the product that Tredegar currently sells. But in the transition we do expect this new top-sheet would drive profitable revenue growth.

Thanks.

Thank you. Your next question is coming from Tim Hayes of BB&T.

Hey, Tim.

Good. A follow-up on the Extrusion business. I wanted to get your last thoughts on the pricing in the market place, the what we have is, we have incurred two price increases that were announced in the second quarter of 3 cents each. Is there any update to that and how well are those being received by the marketplace?

Well, in terms of general comments, which is all we are making on price increases, we are reasonably satisfied with our progress on price increases and are clearly looking at other opportunities, generally, but I think the market is okay, right now, and we seem to be getting along okay under the circumstances.

Thank you.

Welcome.

Thank you. Once again, if you do have a question, you may press "*", "1" on your touchtone phone at this time. Ms. Reynolds, there are no further questions.

Okay. This is Mitzi Reynolds. I want to thank everyone for participating in our call today. We look forward to updating you in October. Thanks.

Thank you.

Ladies and Gentlemen, thank you for your participation in today's conference. This call be available for replay beginning at 2 PM eastern daylight time today through 11: 59 PM Eastern daylight time on July 29. The conference id number for the replay is 493-36-20, again the conference id number for the replay is 493-36-20. The number to dial for the replay is 877-519-4471 or 973-341-3080 for international callers. An archived copy of the webcast will be available for replay on the company's website, www.tredegar.com beginning at 2 PM eastern daylight today, so that webcast of first quarter, link on the home page. This concludes the program you may now disconnect.