Spartech Corporation (NYSE: SEH), a leading producer of plastic
sheet, compounds, and packaging products, announced today operating
results for its 2011 second quarter.
Second Quarter 2011 Financial Results
- Net sales of $282.6 million for the second quarter of 2011
increased 5% from the same period in 2010. The pass-through of
higher raw material costs as selling price increases and a greater
mix of higher-priced product more than offset a 3% decrease in
volume which primarily occurred with one sheet customer.
- Operating earnings excluding special items decreased $1.8
million to $7.6 million in the second quarter of 2011 from the
prior year second quarter. This decrease was caused by the lower
sales volume, continued production inefficiencies and raw material
and other cost increases which more than offset a benefit from
foreign currency.
- Reported diluted earnings per share from continuing operations
was $0.09 in the second quarter of 2011 compared to $0.15 in the
prior year second quarter. Excluding special items, diluted
earnings per share from continuing operations was $0.10 compared to
$0.13 in the prior year second quarter.
- Cash flows from operations were $0.8 million for the second
quarter of 2011 and included a $12.1 million investment in working
capital reflecting seasonality and raw material cost increases. The
Company ended the quarter with $178.3 million of debt.
Highlights
- We made solid progress during the second quarter on our six key
priorities: back to basics in operations, optimizing material
usage, starting up new production lines in support of organic
growth, leveraging new technology center, initiating a cross-unit
business selling program, and engaging customers at multiple
levels, all of which have an objective of improving profitability
of the Company.
- We have achieved improvements in several key performance
indicators in our Color & Specialty Compounds and Packaging
Technologies segments. In order to continue to drive improved
operational performance and profitability in our compounds
business, we recently filled our Senior Vice President of Color
& Specialty Compounds leader position.
- Effective June 1, 2011, Vicki Holt, President and Chief
Executive Officer, assumed the responsibilities of interim Senior
Vice President of the sheet business in addition to her Chief
Executive Officer role to lead the turnaround of this segment. With
a focus on driving revenues and profitability through expanded
marketing and sales, operational efficiencies and product yields,
we will re-establish our market leadership position for this
business.
- The Company strengthened its senior leadership team by filling
its open Senior Vice President of Human Resources position.
Note: Please see the reconciliation tables and the narrative
below for adjustments to GAAP and discussion of items affecting
results.
Spartech's President and Chief Executive Officer, Vicki Holt,
stated, "Although I remain disappointed with our financial results
compared to last year, we are making progress in the fundamentals
necessary to improve profitability in 2012. We have seen recent
improvements in our key metrics including on-time delivery to
customers, product yield and production yield in portions of our
business. A key focus for us in the next two quarters is to
implement a turnaround in our Custom Sheet and Rollstock business
in which we have significant opportunities to improve in the
operations and customer interface areas, and I am excited about
leading these efforts as the interim leader of this business."
Additionally, Holt stated, "We are realistic about the level of
work and cultural change necessary for us to achieve our targeted
improvement from our six key priorities and the headwinds brought
by a volatile resin and inflationary environment. We remain
committed to our priority initiatives that will lead to organic
sales growth coupled with a more efficient cost structure to
improve profitability."
Consolidated Results Net sales increased
5% to $282.6 million in the three month period ended April 30, 2011
over the same period in the prior year, representing an 8% increase
from price/mix offset by a 3% decrease in volume. This decrease was
due to a decline in sales of sheet for material handling
applications caused by a considerable slowdown in orders from one
of our significant customers. Mitigating this decrease were
increases in sales volume of compounds and sheet to the automotive
sector of the transportation market and compounds to the commercial
construction and agricultural end markets from continued demand
recovery, and an increase in graphic arts sales. The price/mix
increase was primarily related to increases in selling prices to
pass through increases in raw material costs.
For the second quarter year-over-year comparison, gross margin
per pound sold declined 1.2¢ to 11.5¢ in the second quarter of 2011
due primarily to the impact of production inefficiencies that began
in the second half of 2010 and cost increases.
Selling, general and administrative expenses were $19.0 million
in the second quarter of 2011 compared to $20.5 million in the same
period of the prior year. This $1.5 million decrease reflects a
$2.5 million change in foreign currency. Foreign currency gains
were $0.5 million in the second quarter of 2011 and losses were
$1.9 million in the second quarter of 2010 (foreign currency gains
and losses are recorded in our Corporate entity). Net of foreign
currency, the $1.0 million increase primarily reflects higher
employee relocation costs.
Amortization of intangibles was $0.4 million in the second
quarter of 2011 compared to $1.0 million in the same period of the
prior year. The decrease reflects intangible assets which became
fully amortized, coupled with the impact of intangible asset
impairments recorded by the Company in the fourth quarter of
2010.
Restructuring and exit costs were $0.5 million in the second
quarter of 2011 compared to $1.6 million in the same period of the
prior year. Restructuring and exit costs are mostly comprised of
employee severance, facility consolidation and shut-down costs and
accelerated depreciation.
Interest expense, net of interest income, was $2.7 million in
the second quarter of 2011 compared to $3.3 million in the same
period of the prior year. This decrease was primarily driven by a
reduction in higher interest rate debt.
Excluding special items (restructuring and exit costs, and tax
benefits from restructuring of foreign operations), net earnings
from continuing operations were $3.2 million or $0.10 per diluted
share for the second quarter of 2011, compared to net earnings from
continuing operations of $3.9 million or $0.13 per diluted share in
the same period of the prior year. The fluctuation reflects the
impact of items previously discussed.
Cash flows from operations in the second quarter of 2011 of $0.8
million included a $12.1 million investment in working capital
reflecting seasonality and raw material cost increases. Cash flow
from operations and borrowings from our credit facility were used
to fund $6.2 million of capital investments for additional capacity
in specialty sheet products, maintenance and cost reductions.
Segment Results The results of our three
operating segments are discussed below. A table is presented at the
end of this release to reconcile amounts excluding special items to
comparable GAAP measures.
Custom Sheet & Rollstock -- Net sales were $146.1 million in
the three month period ended April 30, 2011, representing a 3%
decrease in net sales, which consisted of a 16% decrease in volume
offset by a 13% increase from price/mix changes. The decrease in
underlying volume reflects a significant reduction in one
customer's business activity for a material handling application.
Absent this customer's decline, our sales volume was flat
reflecting additional sales volume sold to the automotive sector
which was offset somewhat by a decrease in volume sold of
refrigeration sheet. The price/mix increase was mostly caused by
increases in selling prices from the pass through of increases in
raw material costs and a greater mix of higher priced products.
Operating earnings excluding special items were $7.2 million for
the second quarter of 2011 compared to $10.6 million for the same
period of the prior year. The decrease in operating earnings
reflects lower sales volume to the material handling customer and
cost increases.
Packaging Technologies -- Net sales were $62.4 million in the
three month period ended April 30, 2011, representing a 14%
increase in net sales, which consisted of a 2% increase in volume
and a 12% increase in price/mix changes. Operating earnings
excluding special items were $6.5 million for the three months
ended April, 30, 2011 compared to $5.5 million for the three months
ended May 1, 2010. The increase in operating earnings was due to
lower depreciation and amortization relating to our prior year
impairments, higher sales volume and an increase in mix of higher
margin product.
Color & Specialty Compounds -- Net sales were $74.1 million
in the three month period ended April 30, 2011, representing a 17%
increase in net sales, which consisted of a 13% increase in volume
and a 4% increase in price/mix changes. The increase in underlying
volume was due to a significant increase in sales to the commercial
construction market, automotive sector of the transportation market
and agricultural market from continued end market demand recovery.
The price/mix increase was mostly caused by increases in selling
prices to pass through increases in raw material costs. Operating
earnings excluding special items were $1.3 million for the second
quarter of 2011 compared to operating earnings of $3.0 million in
the same period of the prior year. The decrease in operating
earnings reflects continued production inefficiencies and the
impact of cost increases.
Outlook We are continuing to focus on our
six key priorities which have an objective of improving our
profitability, building a more customer-focused organization, and
investing in capabilities to enhance growth. To date in fiscal 2011
we have managed through significant increases in raw materials and
other costs and expect a volatile raw material and inflationary
environment to continue through the rest of the year. Although we
believe the fundamental operational changes being undertaken in
each of our business segments during 2011 will lead to substantial
levels of earnings improvement in fiscal 2012, we expect our fiscal
2011 earnings performance to remain at depressed levels. We expect
our diluted earnings per share excluding special items to be in the
range of $0.16 to $.20 in 2011. Our commitment to our shareholders
is to execute on our plan to deliver significantly enhanced
profitability and organic growth over the next twelve months.
Special Items and Discontinued Operations
Restructuring and exit costs totaled $0.5 million during the second
quarter of 2011 compared to $1.6 million in the same period of the
prior year. Restructuring and exit costs are comprised of employee
severance, facility consolidation and shut-down costs and fixed
asset valuation adjustments. These costs resulted from the
Company's improvement initiatives, which include an objective of
reducing the Company's fixed portion of its cost structure. We
expect to incur approximately $0.6 million of additional
restructuring expenses which mostly consist of employee severance
and shutdown costs for facility consolidation initiatives
previously announced.
In the first quarter of 2010, we recognized a $2.8 million tax
benefit related to tax restructuring of foreign operations that was
excluded from our presentation of net earnings from continuing
operations as a special, non-recurring item.
Discontinued operations include our former Marine business,
sheet business in Donchery, France, and toll compounding business
in Arlington, Texas which were all shutdown in the 2009 and the
Wheels and Profiles businesses that were divested in 2009.
During the first quarter of 2011 the Company reached agreement
with Chemtura and the Bankruptcy Court approved the final
settlement of the claim for the breach of a contract by Chemtura
for $4.2 million in cash and equity in the newly reorganized
Chemtura. The equity was subsequently sold, resulting in $4.8
million of total cash proceeds. The associated gain was recorded in
discontinued operations.
Spartech will hold a conference call with investors and
financial analysts at 11:00 a.m. EDT on Thursday, June 9, 2011, to
discuss Spartech's second quarter 2011 financial results. Prior to
this call, the Company will provide supplemental slides on its
website at www.spartech.com (under Presentations in the Investor
Relations menu). Investors can listen to the call live via a
webcast by logging onto www.spartech.com, or via phone by dialing
800-642-9809 and providing the Conference ID #: 63210196.
International callers may dial 706-679-7637.
Spartech Corporation is a leading producer of plastic products
including polymeric compounds, concentrates, custom extruded sheet
and rollstock products and packaging technologies for a wide
spectrum of customers. The Company's three business segments, which
operate facilities in the United States, Mexico, Canada, and
France, annually process approximately one billion pounds of
plastic resins, specialty plastic alloys, and color and specialty
compounds.
Cautionary Statements
Concerning Forward-Looking Statements
Statements in this Form 10-Q that are not purely historical,
including statements that express the Company's belief,
anticipation or expectation about future events, are
forward-looking statements. "Forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995
relate to future events and expectations and 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 that could cause
actual results to differ from our forward-looking statements are as
follows:
(a) Adverse changes 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) 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) Volatility of prices
and availability of supply of energy and raw materials that are
critical to the manufacture of our products, particularly plastic
resins derived from oil and natural gas, including future impacts
of natural disasters (e) 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 (f) Our inability to
achieve and sustain the level of cost savings, productivity
improvements, gross margin enhancements, growth or other benefits
anticipated from our improvement initiatives (g) Our inability to
collect all or a portion of our receivables with large customers or
a number of customers (h) Loss of business with a limited number of
customers that represent a significant percentage of our revenues
(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 impairments (k) Our inability to predict accurately
the costs to be incurred, time taken to complete, operating
disruptions therefrom, potential loss of business or savings to be
achieved in connection with announced production plant
consolidations and line moves (l) Adverse findings in significant
legal or environmental proceedings or our inability to comply with
applicable environmental laws and regulations (m) Our inability to
develop and launch new products successfully (n) Possible
weaknesses in internal controls
We assume no responsibility to update our forward-looking
statements.
Spartech Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
Three Months Ended Six Months Ended
-------------------- --------------------
April 30, May 1, April 30, May 1,
(Unaudited and dollars in 2011 2010 2011 2010
thousands, except per --------- --------- --------- ---------
share data)
Net sales $ 282,551 $ 268,524 $ 517,334 $ 493,687
Costs and expenses
Cost of sales 255,474 237,642 471,851 435,974
Selling, general and
administrative expenses 19,010 20,452 37,984 38,868
Amortization of intangibles 422 963 845 1,928
Restructuring and exit costs 548 1,596 1,377 2,266
--------- --------- --------- ---------
Total costs and expenses 275,454 260,653 512,057 479,036
========= ========= ========= =========
Operating earnings 7,097 7,871 5,277 14,651
Interest, net of interest
income 2,686 3,251 5,257 6,767
--------- --------- --------- ---------
Earnings from continuing
operations before income taxes 4,411 4,620 20 7,884
Income tax expense (benefit) 1,564 80 (987) (1,393)
--------- --------- --------- ---------
Net earnings from continuing
operations 2,847 4,540 1,007 9,277
Net earnings (loss) from
discontinued operations, net
of tax (225) (87) 2,646 (80)
--------- --------- --------- ---------
Net earnings $ 2,622 $ 4,453 $ 3,653 $ 9,197
========= ========= ========= =========
Basic earnings per share:
Earnings from continuing
operations $ 0.09 $ 0.15 $ 0.03 $ 0.30
Earnings (loss) from
discontinued operations, net
of tax (0.01) (0.01) 0.09 (0.00)
--------- --------- --------- ---------
Net earnings per share $ 0.08 $ 0.14 $ 0.12 $ 0.30
========= ========= ========= =========
Diluted earnings (loss) per
share:
Earnings from continuing
operations $ 0.09 $ 0.15 $ 0.03 $ 0.30
Earnings (loss) from
discontinued operations, net
of tax (0.01) (0.01) 0.09 (0.01)
--------- --------- --------- ---------
Net earnings per share $ 0.08 $ 0.14 $ 0.12 $ 0.29
========= ========= ========= =========
Spartech Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
April 30, October 30,
(Dollars in thousands, except share data) 2011 2010
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 2,707 $ 4,900
Trade receivables, net of allowances of $3,863
and $3,404, respectively 149,254 134,902
Inventories, net of inventory reserves of $8,312
and $6,539, respectively 99,894 79,691
Prepaid expenses and other current assets, net 24,966 35,789
Assets held for sale 3,156 3,256
----------- -----------
Total current assets 279,977 258,538
Property, plant, and equipment, net 210,835 211,844
Goodwill 87,921 87,921
Other intangible assets, net 13,716 14,559
Other long-term assets 4,102 4,279
----------- -----------
Total assets $ 596,551 $ 577,141
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 526 $ 880
Accounts payable 137,731 129,037
Accrued liabilities 32,877 34,112
----------- -----------
Total current liabilities 171,134 164,029
Long-term debt, less current maturities 177,734 171,592
Other long-term liabilities:
Deferred taxes 41,751 42,648
Other long-term liabilities 6,358 5,866
----------- -----------
Total liabilities 396,977 384,135
Shareholders' equity
Preferred stock (authorized: 4,000,000 shares,
par value $1.00) - -
Issued: None
Common stock (authorized: 55,000,000 shares, par
value $0.75) 24,849 24,849
Issued: 33,131,846 shares; outstanding:
30,825,000 and 30,884,503 shares, respectively
Contributed capital 204,435 204,966
Retained earnings 13,689 10,036
Treasury stock, at cost, 2,306,846 and 2,247,343
shares, respectively (50,952) (52,730)
Accumulated other comprehensive income 7,553 5,885
----------- -----------
Total shareholders' equity 199,574 193,006
----------- -----------
Total liabilities and shareholders' equity $ 596,551 $ 577,141
=========== ===========
Spartech Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Six Months Ended
--------------------
April 30, May 1,
2011 2010
(Unaudited and dollars in thousands) --------- ---------
Cash flows from operating activities
Net earnings $ 3,653 $ 9,197
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,137 19,013
Stock-based compensation expense 1,541 1,931
Restructuring and exit costs 299 152
(Gain) loss on disposition of assets, net 192 (884)
Provision for bad debt expense 774 25
Change in current assets and liabilities (13,434) (8,161)
Other, net (673) (1,703)
--------- ---------
Net cash provided by operating activities 8,489 19,570
Cash flows from investing activities
Capital expenditures (14,201) (7,579)
Proceeds from the disposition of assets - 2,876
--------- ---------
Net cash used by investing activities (14,201) (4,703)
Cash flows from financing activities
Bank credit facility borrowings, net 6,000 11,900
Payments on notes and bank term loan (378) (49,590)
Payments on bonds and leases (255) (262)
Debt issuance costs (1,561) -
Stock-based compensation exercised (294) -
--------- ---------
Net cash provided (used) by financing
activities 3,512 (37,952)
Effect of exchange rates on cash and cash
equivalents 7 18
--------- ---------
Decrease in cash and cash equivalents (2,193) (23,067)
Cash and cash equivalents at beginning of year 4,900 26,925
--------- ---------
Cash and cash equivalents at end of period $ 2,707 $ 3,858
========= =========
Non-GAAP Reconciliations
Within this press release we have included operating earnings
(GAAP) to operating earnings excluding special items (Non-GAAP),
net (loss) earnings from continuing operations (GAAP) to net (loss)
earnings from continuing operations excluding special items
(Non-GAAP) and net earnings from continuing operations per diluted
share (GAAP) to net earnings from continuing operations per diluted
share excluding special items (Non-GAAP). Special items include
restructuring and exit costs and a tax benefit on restructuring of
foreign operations. We have also excluded the operations of our
discontinued wheels, profiles, marine, Donchery sheet and
Arlington, Texas compounding operations throughout this press
release and in the presentation below.
We use these measurements to assess our ongoing operating
results without the effect of these adjustments and compare such
results to our historical and planned operating results. We believe
these measurements are useful to help investors to compare our
results to previous periods and provide an indication of underlying
trends in the business. 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 table reconciles (GAAP) to (Non-GAAP)
measures:
Three Months Ended Six Months Ended
-------------------- --------------------
April 30, May 1, April 30, May 1,
2011 2010 2011 2010
(unaudited and in thousands, --------- --------- --------- ---------
except per share data)
Operating earnings (GAAP) $ 7,097 $ 7,871 $ 5,277 $ 14,651
Restructuring and exit costs 548 1,596 1,377 2,266
--------- --------- --------- ---------
Operating earnings excluding
special items (Non-GAAP) $ 7,645 $ 9,467 $ 6,654 $ 16,917
========= ========= ========= =========
Net earnings from continuing
operations (GAAP) $ 2,847 $ 4,540 $ 1,007 $ 9,277
Restructuring and exit costs,
net of tax 345 998 868 1,418
Tax benefits from
restructuring of foreign
operations - (1,631) - (4,401)
--------- --------- --------- ---------
Net earnings from continuing
operations excluding
special items (Non-GAAP) $ 3,192 $ 3,907 $ 1,875 $ 6,294
========= ========= ========= =========
Net earnings from continuing
operations per diluted share
(GAAP) $ 0.09 $ 0.15 $ 0.03 $ 0.30
Restructuring and exit costs,
net of tax 0.01 0.03 0.03 0.05
Tax benefit on restructuring
of foreign operations - (0.05) - (0.14)
--------- --------- --------- ---------
Net earnings from continuing
operations per diluted
share excluding special
items (Non-GAAP) $ 0.10 $ 0.13 $ 0.06 $ 0.21
========= ========= ========= =========
The following table reconciles operating (loss) earnings (GAAP)
to operating (loss) earnings excluding special items (Non-GAAP) by
segment (in thousands):
Three Months Ended April 30, Three Months Ended May 1,
2011 2010
----------------------------- -----------------------------
Operating Operating
Earnings Earnings
(Loss) (Loss)
Operating Excluding Operating Excluding
Earnings Special Earnings Special
(Loss) Special Items (Loss) Special Items
Segment (GAAP) Items (Non-GAAP) (GAAP) Items (Non-GAAP)
--------- -------- --------- --------- ------- ---------
Custom Sheet
and
Rollstock $ 7,075 $ 109 $ 7,184 $ 9,815 $ 771 $ 10,586
Packaging
Technologies 6,358 131 6,489 5,467 10 5,477
Color &
Specialty
Compounds 961 308 1,269 2,191 787 2,978
Corporate (7,297) - (7,297) (9,602) 28 (9,574)
--------- -------- --------- --------- ------- ---------
Total $ 7,097 $ 548 $ 7,645 $ 7,871 $ 1,596 $ 9,467
========= ======== ========= ========= ======= =========
Company Contacts: Victoria M. Holt President and Chief
Executive Officer (314) 721-4242 Randy C. Martin Executive Vice
President and Chief Financial Officer (314) 721-4242
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