ST. LOUIS, March 4 /PRNewswire-FirstCall/ -- Spartech Corporation (NYSE: SEH)
announced today operating results for its 2009 first quarter.
First Quarter 2009 Financial Summary
-- Net sales were $249.2 million compared to $335.1 million in the first
quarter of 2008 representing a decrease of 26% which was primarily
attributable to weak end market demand partially offset by higher
selling prices and sales mix changes. Sales volumes were down 32% in
the first quarter of 2009 compared to the first quarter of the prior
year reflecting extended customer shutdowns and supply chain
destocking
in November and December along with the significant underlying demand
declines in the transportation, building and construction, and
recreation and leisure markets.
-- Despite the decline in sales volume, operating losses excluding
restructuring and exit costs were $1.8 million compared to $1.4
million
for the first quarter of 2008 reflecting the benefits realized from
the
financial improvement initiatives implemented. Gross margin per pound
increased significantly from 7.3 cents to 10.5 cents as a result of
cost
reduction and efficiency initiatives, selling price increases, and
improvements in our product sales mix. The reported operating loss of
$2.6 million compared to $1.6 million in the first quarter of 2008.
-- The diluted loss per share was $0.17 including the impact of
restructuring and exit costs compared to $0.12 in the first quarter of
2008. Excluding restructuring and exit costs, the loss per diluted
share for the first quarter of 2009 was $0.15 compared to $0.11 in the
first quarter of 2008.
Strategic Progress
The Company continues to make substantive progress on its strategic plan that
was developed early in 2008. This road map resulted from portfolio
assessments, new business strategies, asset restructurings, organizational
upgrades and redesign, business process reengineering, improvements in margin
and mix, and a major cost reduction initiative focused on building a low
cost-to-serve model. Throughout fiscal 2008 we accomplished measurable
savings and initiated numerous structural cost reductions to reduce our fixed
cost footprint and strengthen our competitive position and cash flow.
Our financial turnaround initiatives announced in fiscal 2008 totaled $50
million in earnings improvement from permanent structural actions. These
actions and related annual cost savings consisted of resizing the Company's
cost structure and labor force ($20 million), consolidating three plant
operations ($7 million), enhancing margins on unprofitable business ($20
million), and beginning to centralize our procurement function ($3 million).
Our results in the first quarter of 2009 reflect this $50 million of annual
benefits from these initiatives. These permanent, structural actions helped
to offset much of the impact of the current challenging demand environment.
We believe these actions have created a highly leveragable cost structure that
will enable us to improve profitability in the short term at lower volumes and
better position the Company for greater earnings potential when volumes
improve over the longer term.
Spartech continues to aggressively implement its strategic plan and has
initiated other actions since our last quarterly report to further
structurally reduce costs as well as short term measures to improve the
results of the Company during the current economic environment. The following
actions have been taken:
-- Operational and Organizational Restructuring - In February and March
2009, we eliminated approximately 260 additional jobs across the
businesses including the closure of a portion our Donchery Sheet
extrusion operation in France. These actions will reduce
manufacturing
costs approximately $7 million and general and administrative expenses
$4 million annually and cost approximately $2 million in restructuring
and exit costs primarily related to severance.
-- Short Term Cost Reduction Measures - In addition to the structural
cost
reductions, we continue to take actions to achieve further cost
reductions and align our cost structure to the current demand levels.
These actions include: optimizing the use of flex time across most
operations, temporary plant shutdowns, temporary pay cuts across the
organization, and other expense and capital spending controls. Annual
savings from these actions total approximately $11 million and are
designed to further enhance 2009 cash flows and provide greater
flexibility in taking longer term actions to support our strategy.
These actions are supportive of improving our short term results while
demonstrating our ability to execute the initiatives and related investments
to realize our longer term potential. We continue to monitor the dynamic
changes occurring in the current market and are prepared to adjust actions and
take further initiatives to improve cash flows and reduce costs as conditions
warrant.
Overview
Spartech's President and Chief Executive Officer, Myles S. Odaniell stated,
"We continue to manage through a very challenging economic environment that
has been negatively impacted by depressed demand in the end markets we serve.
Our seasonally weak first quarter was further impacted by broad-based customer
shutdowns and destocking in November and December. Our margins have faired
well and we continue to realize steady progress with structural cost reduction
efforts and improving mix. We believe achieving relatively the same operating
earnings as the prior year, under the significant end market demand weakness
in this quarter, is a testament to our resolve and ability to implement our
strategy and execute earnings improvement initiatives."
Mr. Odaniell continued, "We continue our focused efforts to resize our
Company's cost structure to ensure that Spartech is profitable even with
recession level end market demand. This is consistent with our strategy of
building a highly leveragable low cost-to-serve model. The financial
improvement initiatives at Spartech, which were initiated in 2008, have
positioned us to better manage through today's challenging market conditions
while we build a solid foundation for long-term success. We continue to take
actions to stay ahead of these challenges and initiate additional actions to
reduce our cost structure both in response to current market conditions, but
also to capitalize on unique improvement opportunities existing at Spartech."
Consolidated Results
Net sales for the first quarter of 2009 were $249.2 million compared to $335.1
million in the first quarter of 2008 representing a decrease of 26%. This
change was caused by a decline in underlying sales volume (-32%), partially
offset by an increase from price/mix changes (+6%). The underlying sales
volume decline related largely to lower sales to the automotive, recreation
and leisure, and residential construction markets.
The reported operating loss was $2.6 million for the first quarter of 2009
compared to an operating loss of $1.6 million in the prior year first quarter.
This $1.0 million decrease was primarily the result of $0.6 million of higher
restructuring and exit costs and the decline in sales volume from weak demand
offset by aggressive cost reduction actions. Conversion costs for the first
quarter of 2009 totaled $65.8 million compared to $83.0 million in the same
period last year. The 21% decrease represented the impact of reductions in
variable costs on the lower volume, plus the benefit of the structural cost
reductions implemented during 2008. Gross margin per pound sold was 10.5
cents in the first quarter of 2009 compared to 7.3 cents in the first quarter
of 2008. This gross margin per pound increase of 3.2 cents reflected the
benefit of conversion cost savings from our cost reduction initiatives,
improvements in our product sales mix, and sales price increases.
Selling, general and administrative expenses were essentially flat in the
first quarter of this year compared to the first quarter of last year.
Interest expense decreased to $4.7 million in our first quarter of 2009
compared to $5.1 million in 2008 due to lower average debt levels from the $65
million of debt pay downs in the second half of 2008. Our effective tax rate
was impacted by the operating loss incurred at our operation in France during
the quarter, which is not benefited for tax purposes. We estimate our 2009
tax rate to be approximately 38-39%.
Segment Results
Custom Sheet & Rollstock--The sheet segment continued to be impacted by weak
volume demand, but made progress on its cost reduction initiatives.
First Quarter
-------------
(In Millions) 2009 2008
---- ----
Net Sales $113.6 $147.4
====== =====
Operating Loss $0.0 ($1.8)
==== =====
Operating Earnings (Loss),
excluding Restructuring and
Exit Costs $0.1 ($1.6)
==== =====
The net sales decrease of 23% reflected a 27% decrease in volume net of a 4%
increase from price/mix changes. The volume decline was due primarily to
continued weakness in the residential construction, transportation, and
recreational vehicles sectors of our end markets. The improvement in
operating earnings represents the impact of price increases and lower
manufacturing costs from our cost footprint optimization and labor cost
reductions, partially offset by the impact of significant sales volume
declines. Gross margin per pound sold increased to 7.9 cents in the first
quarter of 2009 compared to 3.6 cents in the first quarter of the prior year.
Packaging Technologies--Net sales decreased, but operating earnings improved.
First Quarter
-------------
(In Millions) 2009 2008
---- ----
Net Sales $55.0 $65.7
===== =====
Operating Earnings $6.2 $4.8
==== ====
Operating Earnings, excluding
Restructuring and Exit Costs $6.5 $4.8
==== ====
The net sales decrease of 16% in the first quarter was attributable to the net
effect of a 7% decrease from packaging related volume, 14% decrease from
non-packaging related volume (largely related to automotive customers served
by the Packaging Technologies operations), and an 5% increase from price/mix.
The increase in operating earnings reflects improved sales mix and margins,
lower costs related to the Mankato consolidation completed in 2008, and our
cost reduction initiatives.
Color & Specialty Compounds--Net sales decreased with the substantial weakness
in end markets served by this segment, particularly the automotive sector.
First Quarter
-------------
(In Millions) 2009 2008
---- ----
Net Sales $68.4 $104.8
===== ======
Operating Earnings (Loss) ($0.4) $2.2
===== ====
Operating Earnings (Loss),
excluding Restructuring and
Exit Costs ($0.1) $2.2
===== ====
Net sales in the first quarter decreased 35%, 40% from underlying volume
decreases net of a 5% increase from price/mix. The decrease in volume related
to lower sales of compounds to the domestic automotive and construction
markets which represented approximately half of this segment's sales in 2008.
The increase in price/mix primarily reflects the improvement in mix from the
reduction in sales to lower margin markets. This segment's decrease in
operating earnings was a result of the volume decline net of improved mix and
a 26% reduction in manufacturing costs.
Engineered Products--Net sales and operating earnings both decreased with
lower volumes.
First Quarter
-------------
(In Millions) 2009 2008
---- ----
Net Sales $12.1 $17.2
===== =====
Operating Earnings $1.1 $1.6
==== ====
Operating Earnings, excluding
Restructuring and Exit Costs $1.1 $1.6
==== ====
Volume for the first quarter of 2009 was down 36% from the 2008 comparative
quarter due to the timing of seasonal lawn and garden sales compared to the
prior year. Operating earnings decreased due to the net effect of lower
volumes partially offset by an increase in gross margin per pound due to mix.
Cash Flow Performance
Free cash flow (cash flow from operations less capital expenditures)
represented a use of $4.9 million in the first quarter of 2009 compared to a
source of $1.3 million in the first quarter of 2008. This $6.2 million
decrease in free cash flow resulted from lower earnings and a 1% increase in
working capital as a percentage of sales in the current year quarter. As of
the end of the first quarter of 2009, we had $281.4 million of total debt
compared to $274.7 million at our fiscal year end.
Outlook
We are experiencing weak end market demand in all major markets, particularly
the transportation, recreation and leisure, and residential construction
markets. We will continue to execute on our structural cost reduction actions
and financial improvement initiatives to reduce costs and maximize cash flows.
We expect a turbulent economic environment for the foreseeable future and we
are prepared to adjust actions as conditions warrant. Our operating plans
assume the recessionary effects will continue through 2009 and that volumes
will be weak through this period. Our aggressive cost reduction efforts and
financial discipline are focused on effectively managing through this
challenging market. We expect to emerge from this environment a stronger and
better positioned company to support future long-term profitable growth.
Restructuring and Exit Activities
Restructuring and exit costs totaled $0.8 million in the first quarter of 2009
and $0.2 million in the prior year first quarter. These costs (primarily
related to severance and the movement of production lines) were incurred to
substantially complete the consolidations of our Mankato, Minnesota and St.
Clair, Michigan facilities.
In February and March 2009, we eliminated approximately 260 additional jobs
across the businesses including the closure of a portion of our Donchery Sheet
extrusion operation in France. These actions will result in approximately $7
million of lower manufacturing costs and $4 million of lower general and
administrative expenses and cost approximately $2 million in restructuring and
exit costs primarily related to severance.
We are continuing to focus on reducing our manufacturing cost footprint and
optimizing our production facilities. In our further efforts to reduce our
cost footprint, we are streamlining our Donchery Sheet extrusion operation in
France. We are taking action to reduce fixed costs and adapt to the current
competitive environment by discontinuing the manufacture of products that no
longer fit the market needs. However, we will maintain and grow our Donchery
Compound manufacturing capability to serve the market and customers that
remain as an important part of our business in Europe.
Spartech Corporation is a leading producer of engineered thermoplastic sheet
materials, thermoformed packaging, polymeric compounds and concentrates, and
engineered product solutions. The Company has facilities located throughout
the United States, Canada, Mexico, and Europe with annual sales of
approximately $1.4 billion in fiscal 2008.
Safe Harbor For Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. "Forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 relate to future events and expectations, include statements
containing such words as "anticipates," "believes," "estimates," "expects,"
"would," "should," "will," "will likely result," "forecast," "outlook,"
"projects," and similar expressions. Forward-looking statements are based on
management's current expectations and include known and unknown risks,
uncertainties and other factors, many of which management is unable to predict
or control, that may cause actual results, performance or achievements to
differ materially from those expressed or implied in the forward-looking
statements.
Important factors which have impacted and could impact our operations and
results include:
(a) further adverse in economic or industry conditions, including global
supply and demand conditions and prices for products of the types we produce;
(b) our ability to compete effectively on product performance, quality, price,
availability, product development, and customer service;
(c) material adverse changes in the markets we serve, including the packaging,
transportation, building and construction, recreation and leisure, and other
markets, some of which tend to be cyclical;
(d) further adverse changes in the domestic automotive markets, including
potential bankruptcies of one or more of the major automobile manufacturers or
suppliers;
(e) our inability to achieve the level of cost savings, productivity
improvements, gross margin enhancements, growth or other benefits anticipated
from our planned improvement initiatives;
(f) our inability to achieve the level productivity improvements, synergies,
growth or other benefits anticipated from acquired businesses and their
integration;
(g) volatility of prices and availability of supply of energy and of the raw
materials that are critical to the manufacture of our products, particularly
plastic resins derived from oil and natural gas, including future effects of
natural disasters;
(h) our inability to manage or pass through to customers an adequate level of
increases in the costs of materials, freight, utilities, or other conversion
costs;
(i) restrictions imposed on us by instruments governing our indebtedness, the
possible inability to comply with requirements of those instruments, and
inability to access capital markets;
(j) possible asset impairment charges;
(k) our inability to predict accurately the costs to be incurred, time taken
to complete, operating disruptions therefrom, or savings to be achieved in
connection with announced production plant restructurings;
(l) adverse findings in significant legal or environmental proceedings or our
inability to comply with applicable environmental laws and regulations;
(m) adverse developments with work stoppages or labor disruptions,
particularly in the automotive industry;
(n) our inability to develop and launch new products successfully;
(o) possible weaknesses in internal controls; and
(p) our ability to successfully complete the implementation of a new
enterprise resource planning computer system and to obtain expected benefits
from our system.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share data)
Three Months Ended
------------------
January 31, February 2,
2009 2008
---- ----
Net sales $249,150 $335,106
Costs and expenses
Cost of sales 226,668 311,997
Selling, general and administrative expenses 23,089 23,139
Amortization of intangibles 1,168 1,333
Restructuring and exit costs 827 224
--- ---
Total costs and expenses 251,752 336,693
------- -------
Operating loss (2,602) (1,587)
Interest, net of interest income of
$37 and $121, respectively 4,712 5,146
----- -----
Loss before income taxes (7,314) (6,733)
Income tax benefit (2,222) (3,243)
------ ------
Net loss $(5,092) $(3,490)
======= =======
Net loss per common share
Basic $(.17) $(.12)
===== =====
Diluted $(.17) $(.12)
===== =====
Dividends declared per common share $.050 $.135
===== =====
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
January 31, November 1,
2009
(Unaudited) 2008
--------- ----
Assets
Current assets
Cash and cash equivalents $2,159 $2,118
Trade receivables, net of allowances of
$5,820 and $4,550, respectively. 131,512 176,108
Inventories 90,968 96,721
Prepaid expenses and other current assets 27,214 24,665
------ ------
Total current assets 251,853 299,612
Property, plant and equipment, net of accumulated
depreciation of $307,271 and $297,876, respectively 272,211 280,202
Goodwill 145,498 145,498
Other intangible assets, net of accumulated
amortization of $14,288 and $13,148, respectively 31,588 32,722
Other long-term assets 4,145 4,385
----- -----
Total assets $705,295 $762,419
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $20,076 $20,428
Accounts payable 106,207 155,594
Accrued liabilities 34,892 42,676
------ ------
Total current liabilities 161,175 218,698
Long-term debt, less current maturities 261,341 254,226
Other long-term liabilities
Deferred taxes 56,373 56,516
Other long-term liabilities 6,074 6,189
----- -----
Total liabilities 484,963 535,629
Shareholders' equity
Preferred stock (authorized: 4,000,000, par
value $1.00)
Issued: None - -
Common stock (authorized: 55,000,000, par
value $0.75)
Issued: 33,131,846;
Outstanding: 30,562,027 and 30,563,605,
respectively 24,849 24,849
Contributed capital 203,381 202,656
Retained earnings 46,968 53,588
Treasury stock, at cost, 2,569,819 shares
and 2,568,241, respectively (56,389) (56,389)
Accumulated other comprehensive income 1,523 2,086
----- -----
Total shareholders' equity 220,332 226,790
------- -------
Total liabilities and shareholders' equity $705,295 $762,419
======== ========
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
Three Months Ended
------------------
January 31, February 2,
2009 2008
---- ----
Cash flows from operating activities
Net loss $(5,092) $(3,490)
Adjustments to reconcile net loss to cash
(used for) provided by operating activities:
Depreciation and amortization expense 11,143 11,885
Provision for bad debt expense 2,492 1,614
Deferred taxes (1,832) (1,153)
Stock-based compensation expense 725 1,383
Other, net 392 194
Change in current assets and liabilities (9,875) (3,896)
------ ------
Net cash (used for) provided by
operating activities (2,047) 6,537
------ -----
Cash flows from investing activities
Capital expenditures (2,895) (5,241)
Business acquisitions - (708)
--- -----
Net cash used for investing activities (2,895) (5,949)
------ ------
Cash flows from financing activities
Bank credit facility borrowings, net 6,360 12,376
Borrowings on bonds and leases, net 155 177
Cash dividends on common stock (1,529) (4,144)
Issuance of common stock - 2,812
Stock options exercised - 15
Treasury stock acquired - (9,667)
--- ------
Net cash provided by financing activities 4,986 1,569
----- -----
Effect of exchange rate changes on cash and cash
equivalents (3) 144
Increase in cash and cash equivalents 41 2,301
Cash and cash equivalents at beginning of year 2,118 3,409
----- -----
Cash and cash equivalents at end of quarter $2,159 $5,710
====== ======
SPARTECH CORPORATION AND SUBSIDIARIES
(Unaudited and dollars in thousands, except share data)
Within this press release we have included operating loss and net loss per
dilutive share excluding restructuring and exit costs, which are non-GAAP
measurements and believe they are meaningful to investors because they
provide a view of the Company's comparable operating results. Such
non-GAAP measurements are not recognized in accordance with generally
accepted accounting principles (GAAP) and should not be viewed as an
alternative to GAAP measures of performance. The following reconciles
GAAP to non-GAAP measures.
Three Months Ended
------------------
January 31, February 2,
2009 2008
---- ----
Operating loss (GAAP) $(2,602) $(1,587)
Restructuring and exit costs 827 224
--- ---
Operating loss excluding restructuring and
exit costs (non-GAAP) $(1,775) $(1,363)
======= =======
Net loss (GAAP) $(5,092) $(3,490)
Restructuring and exit costs, net of tax 532 156
--- ---
Net loss excluding restructuring and exit
costs (non-GAAP) $(4,560) $(3,334)
======= =======
Net loss per share (GAAP) $(.17) $(.12)
Restructuring and exit costs per share, net
of tax .02 .01
--- ---
Net loss per share excluding restructuring
and exit costs (non-GAAP) $(.15) $(.11)
===== =====
SOURCE Spartech Corporation
Myles S. Odaniell, President and Chief Executive Officer, or Randy C. Martin,
Executive VP and Chief Financial Officer, both of Spartech Corporation,
+1-314-721-4242
