Spartech Announces Third Quarter ResultsST. LOUIS, MO -- (Marketwire - September 09, 2009) - Spartech Corporation (NYSE: SEH), a leading producer of plastic sheet, compounds, and packaging products, announced today operating results for its 2009 third quarter. Overall, volumes have started to stabilize, the benefits from our improvement initiatives have more than offset the lower demand level, cash flows are solid, and we have made further progress on plant consolidations and portfolio restructurings.
Third Quarter 2009 Financial Highlights
- Net sales were $241.7 million, down 30% from the prior year third quarter, reflecting weak end-market demand. Sales volumes have been at relatively stable levels for the past six months.
- Operating earnings excluding restructuring and exit costs increased to $14.1 million from $11.5 million in the third quarter of 2008. Gross margin per pound sold increased to 15.6 cents from 11.6 cents for the quarter reflecting improved operating performance at our Custom Sheet and Packaging Technologies segments. Both comparisons include the benefit of temporary compensation reductions and exclude the results of discontinued operations related to the closure of our Marine business and the shutdown of our toll compounding business in Arlington, Texas.
- Diluted earnings per share from continuing operations excluding restructuring and exit costs were $0.18 compared to $0.16 in the prior year third quarter.
- Cash flow from operations of $26.9 million funded debt pay down of $26.5 million in the quarter. In the last four quarters, the Company has generated $81.8 million of free cash flow and paid down $76.7 million of debt.
- Spartech continues to execute on its strategy which includes company-wide improvement initiatives and portfolio restructurings. During the quarter, the Company completed the consolidation of its Atlanta, Georgia sheet plant, and the shutdown of its Arlington, Texas compound operation and Marine business. Today we are announcing the consolidation of our Lockport, New York compounding operation into existing facilities and the pending sale of our Profile Extrusion business in Canada.
Note: Please see reconciliation tables and the narrative below for adjustments to GAAP and discussion of items affecting results.
Consolidated Results
Net sales for the third quarter of 2009 were $241.7 million compared to $347.5 million in the third quarter of 2008 representing a decrease of 30%. This change was caused by a decline in underlying sales volume (25% decline), and a decrease from price/mix changes (5% decrease). The underlying volume decline related to lower demand across a broad group of end markets including automotive, recreation and leisure, and residential construction. The price/mix decline was primarily due to lower raw material costs which were passed through to customers as lower selling prices.
The reported operating earnings for the third quarter of 2009 were $13.0 million compared to $10.6 million in the prior year third quarter. Operating earnings excluding restructuring and exit costs were $14.1 million for the third quarter of 2009 compared to $11.5 million in the prior year third quarter, benefiting from our improvement initiatives (including approximately $2.0 million from temporary compensation and benefit reductions) which more than offset the decline in sales volume. Gross margin per pound sold was 15.6 cents in the third quarter of 2009 compared to 11.6 cents in the third quarter of 2008, reflecting the benefits from our cost reduction activities focused on building a low cost-to-serve model and short-term spending controls. Selling, general and administrative expenses were reduced to $19.6 million for the third quarter of 2009 from $21.7 million in the prior year quarter, benefiting from both structural cost reductions and short-term spending controls. Interest expense decreased to $3.8 million in our third quarter of 2009 compared to $5.2 million in 2008 due to lower average debt levels resulting from the debt pay down during the last four quarters. Our effective tax rate of 49% for the quarter was impacted by operating losses from non-U.S. operations for which we have not recorded a tax benefit and non-deductible items, resulting in a higher effective tax rate than our historical rate of 37-39% for the Company.
Cash flows from operations in the third quarter of 2009 were $26.9 million compared to $34.1 million in the prior year third quarter. Continued solid cash flows resulted in debt pay down of $26.5 million in the quarter and borrowing availability at the end of the third quarter of $73.8 million. Free cash flow totaled $25.3 million (cash flow from operations of $26.9 million less capital expenditures of $1.6 million) in the third quarter of 2009. We have generated $81.8 million of free cash flow (cash flow from operations of $92.0 million less capital expenditures of $10.2 million) in our last four quarters and paid down $76.7 million of debt resulting in total debt of $239.2 million at the end of the third quarter of 2009.
Strategic and Operational Overview
Our results in the third quarter of 2009 reflect the results of executing structural cost reductions and other earnings improvement initiatives with $80 million of anticipated annualized benefits implemented over the last year. The improvement initiatives are directed at reducing our current cost structure and enhancing profitability while also leveraging the Company's cost footprint for future market recovery and growth. In addition, earlier in the year we implemented several, shorter term compensation and benefit reductions and cost containment initiatives. Based on the progress of our improvement initiatives, we expect the compensation and benefit reductions will be restored at the end of the year and the impact replaced with further structural reductions initiated during the year.
Spartech's President and Chief Executive Officer, Myles S. Odaniell, stated, "We continue to make excellent progress executing our improvement program at Spartech which has allowed us to enhance our organizational capabilities, substantially reduce our cost structure, improve our operating margins and de-lever our balance sheet concurrent with making investments for future growth. With the execution of our improvement initiatives, we are now focused on generating growth through technology and providing innovative solutions and leveraging our lower cost structure to generate higher incremental earnings when demand improves. We are confident the discipline and commitment of our employees that has delivered improved results during the economic downturn will serve us well as we transition to growth and further earnings improvement activities."
Segment Results
The results of our three segments are discussed below and presented in the table at the end of this release to reconcile amounts excluding restructuring and exit costs to comparable GAAP measures.
Custom Sheet & Rollstock -- Net sales of $122.3 million in the third quarter of 2009 reflected a decrease of 24%, a 12% decrease in volume and 12% decrease from price/mix changes compared to the prior year third quarter. The volume decline was primarily due to lower demand in the residential construction, automotive, and recreational vehicles sectors of our end markets. Operating earnings excluding restructuring and exit costs were $10.3 million in the third quarter of 2009 compared to $7.0 million in the prior year third quarter, reflecting the benefit of improvement initiatives partially offset by lower demand.
Packaging Technologies -- Net sales of $52.7 million in the third quarter of 2009 reflected a decrease of 25%, consisting of a 6% decrease in packaging-related volume, 9% decrease from non-packaging related volume (largely related to automotive customers served by the Packaging Technologies operations), and a 10% decrease from price/mix compared to the prior year third quarter. Operating earnings excluding restructuring and exit costs were $8.1 million in the third quarter of 2009 compared to $5.1 million in the prior year third quarter, primarily reflecting benefits of our improvement initiatives.
Color & Specialty Compounds -- Net sales of $54.4 million in the third quarter of 2009 reflected a decrease of 46%, a 41% decrease in volume and 5% decrease from price/mix changes compared to the prior year third quarter. The volume decline was primarily due to lower demand in the automotive, construction, and film packaging end markets. Operating earnings excluding restructuring and exit costs were $2.8 million in the third quarter of 2009 compared to $6.3 million in the prior year third quarter, primarily reflecting the lower demand partially offset by benefits from our improvement initiatives.
Outlook
Volumes in many of the markets we serve stabilized in the third quarter, albeit at continued low levels of end-market demand. We are cautiously optimistic by this general stabilization and improved customer sentiment, but our operating plans assume the lower demand levels will continue through 2009 and that end-market demand will remain weak. The level of general economic demand and its ultimate impact on the end markets we serve are still uncertain. In addition, we continue to manage through a volatile raw material pricing environment. We continue to execute our improvement initiatives and focus on maximizing cash flows. We expect to emerge from this recessionary environment as a stronger company that is better able to leverage its cost structure and better positioned to generate profitable growth and enhanced shareholder returns.
Restructuring and Portfolio Activities
Restructuring and exit costs totaled $1.1 million in the third quarter of 2009 and $0.9 million in the prior year third quarter. These costs (primarily comprised of employee severance and facility consolidation and shutdown costs) were related to the structural reductions in labor across the organization and the consolidation of facilities. We have completed the consolidation of our sheet facility in Atlanta, Georgia and we are announcing the consolidation of our Lockport, New York compounding operation into existing facilities which we expect to complete by the end of fiscal 2009.
In the third quarter of 2009, we completed the shutdown of our toll compounding business in Arlington, Texas and our Engineered Products business which manufactured products for the marine industry in Rockledge, Florida. The loss from these discontinued operations, net of tax, for the third quarter of 2009 was $3.2 million compared to income of $0.1 million in the prior year's quarter.
Today, we entered into an agreement to sell our profiles extrusion business located in Winnipeg, Manitoba Canada to Acrylon Plastics Inc. The sale of this business, which is reported in our Engineered Products segment and has annual sales of approximately $9 million, is expected to close in October 2009 and will subsequently be reported as a discontinued operation.
Spartech will hold a conference call with investors and financial analysts at 11:00 a.m. EDT on Thursday, September 10, 2009, to discuss Spartech's third quarter 2009 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 Web cast by logging onto www.spartech.com, or via phone by dialing 866-393-9360 and providing the Conference ID #: 27606792. International callers may dial 706-758-1626.
Spartech Corporation is a leading producer of plastic sheet, compounds, and packaging products. The Company has facilities located throughout the United States, and in Canada, Mexico, and Europe.
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, but are not limited to:
(a) Further 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) adverse changes in the domestic automotive markets, including the
bankruptcy filings by the automobile original equipment manufacturers
which could have a cascading effect on our customers and adversely
impact our business;
(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) 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;
(g) 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;
(h) 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;
(i) possible asset impairment charges;
(j) 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;
(k) adverse findings in significant legal or environmental proceedings or
our inability to comply with applicable environmental laws and
regulations;
(l) our inability to develop and launch new products successfully;
(m) possible weaknesses in internal controls; and
(n) our ability to successfully complete the implementation of a new
enterprise resource planning computer system and to obtain expected
benefits from our system.
We assume no responsibility to update our forward-looking statements, except as required by law.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------ ------------------------
August 1, August 2, August 1, August 2,
2009 2008 2009 2008
----------- ------------ ----------- ------------
Net sales $ 241,736 $ 347,459 $ 722,740 $ 1,043,135
Costs and expenses:
Cost of sales 206,861 313,041 629,403 950,421
Selling, general and
administrative
expenses 19,642 21,706 61,074 66,671
Amortization of
intangibles 1,098 1,249 3,427 3,889
Restructuring and
exit costs 1,130 857 5,556 1,693
----------- ------------ ----------- ------------
228,731 336,853 699,460 1,022,674
----------- ------------ ----------- ------------
Operating earnings 13,005 10,606 23,280 20,461
Interest, net of
interest income of
$0, $122, $22 and
$334, respectively 3,845 5,223 12,597 15,328
----------- ------------ ----------- ------------
Earnings from continuing
operations before
income taxes 9,160 5,383 10,683 5,133
Income tax expense 4,448 1,023 6,388 122
----------- ------------ ----------- ------------
Net earnings from
continuing operations 4,712 4,360 4,295 5,011
----------- ------------ ----------- ------------
(Loss) / earnings of
discontinued operations,
net of tax (3,219) 50 (4,130) 274
----------- ------------ ----------- ------------
Net earnings $ 1,493 $ 4,410 $ 165 $ 5,285
=========== ============ =========== ============
Basic earnings per
share:
Earnings from
continuing
operations $ .16 $ .14 $ .14 $ .17
(Loss) / earnings of
discontinued
operations (.11) .01 (.13) -
----------- ------------ ----------- ------------
Net earnings $ .05 $ .15 $ .01 $ .17
=========== ============ =========== ============
Diluted earnings per
share:
Earnings from
continuing
operations $ .15 $ .14 $ .14 $ .17
(Loss) / earnings of
discontinued
operations (.10) .01 (.13) -
----------- ------------ ----------- ------------
Net earnings $ .05 $ .15 $ .01 $ .17
=========== ============ =========== ============
Dividends declared per
share $ - $ .05 $ .05 $ .32
=========== ============ =========== ============
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
August 1,
2009 November 1,
(Unaudited) 2008
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 437 $ 2,118
Trade receivables, net of allowances of
$3,522, and $4,550, respectively 128,706 176,108
Inventories 71,596 96,721
Prepaid expenses and other current assets 26,867 24,665
------------ ------------
Total current assets 227,606 299,612
Property, plant and equipment, net of
accumulated depreciation of $338,784 and
$297,876, respectively 256,303 280,202
Goodwill 145,498 145,498
Other intangible assets, net of accumulated
amortization of $16,689 and $13,148,
respectively 29,429 32,722
Other long-term assets 3,889 4,385
------------ ------------
Total assets $ 662,725 $ 762,419
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 20,071 $ 20,428
Accounts payable 93,163 155,594
Accrued liabilities 35,395 42,676
------------ ------------
Total current liabilities 148,629 218,698
Long-term debt, less current maturities 219,167 254,226
Other long-term liabilities:
Deferred taxes 57,413 56,516
Other long-term liabilities 6,649 6,189
------------ ------------
Total liabilities 431,858 535,629
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) Issued: 33,131,846;
Outstanding: 30,722,927 and 30,563,605 shares,
respectively 24,849 24,849
Contributed capital 203,577 202,656
Retained earnings 52,225 53,588
Treasury stock, at cost, 2,408,919 and
2,568,241 shares, respectively (54,961) (56,389)
Accumulated other comprehensive income 5,177 2,086
------------ ------------
Total shareholders' equity 230,867 226,790
------------ ------------
Total liabilities and shareholders' equity $ 662,725 $ 762,419
============ ============
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
Nine Months Ended
August 1, August 2,
2009 2008
----------- -----------
Cash flows from operating activities
Net earnings $ 165 $ 5,285
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization expense 33,025 35,496
Provision for bad debt expense 4,064 2,110
Restructuring and exit costs 2,677 296
Stock-based compensation expense 2,350 2,469
Other, net 1,465 (942)
Change in current assets and liabilities 2,387 6,062
----------- -----------
Net cash provided by operating activities 46,133 50,776
----------- -----------
Cash flows from investing activities
Capital expenditures (6,722) (13,850)
Business acquisitions - (792)
Proceeds from disposition of assets 102 571
----------- -----------
Net cash used for investing activities (6,620) (14,071)
----------- -----------
Cash flows from financing activities
Payments on bank credit facility, net (18,000) (19,352)
Payments on notes and bank term loan (18,936) -
(Payments) / borrowings on bonds and leases,
net (887) 990
Debt issuance costs (191) -
Cash dividends on common stock (3,057) (12,397)
Issuance of common stock - 2,812
Stock options exercised - 16
Treasury stock acquired - (9,667)
----------- -----------
Net cash used for financing activities (41,071) (37,598)
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents (123) 4
Decrease in cash and cash equivalents (1,681) (889)
Cash and cash equivalents at beginning of year 2,118 3,409
----------- -----------
Cash and cash equivalents at end of period $ 437 $ 2,520
=========== ===========
SPARTECH CORPORATION AND SUBSIDIARIES
(Unaudited and dollars in thousands, except share data)
Within this press release we have included operating earnings and net earnings per dilutive share excluding restructuring and exit costs and free cash flow which are non-GAAP measurements. We have also excluded the operations of our discontinued marine business and our Arlington, Texas compounding operation 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 planned operating results. We believe these measurements are useful to investors because they help them 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 free cash flow is reconciled within the narrative of the release. The following reconciles GAAP to non-GAAP measures:
Three Months Ended Nine Months Ended
------------------- -------------------
August 1, August 2, August 1, August 2,
2009 2008 2009 2008
--------- --------- --------- ---------
Operating earnings (GAAP) $ 13,005 $ 10,606 $ 23,280 $ 20,461
Restructuring and exit costs 1,130 857 5,556 1,693
--------- --------- --------- ---------
Operating earnings excluding
restructuring and exit costs
(non-GAAP) $ 14,135 $ 11,463 $ 28,836 $ 22,154
========= ========= ========= =========
Net earnings from continuing
operations (GAAP) $ 4,712 $ 4,360 $ 4,295 $ 5,011
Restructuring and exit costs, net
of tax 719 546 3,620 1,142
--------- --------- --------- ---------
Net earnings from continuing
operations excluding restructuring
and exit costs (non-GAAP) $ 5,431 $ 4,906 $ 7,915 $ 6,153
========= ========= ========= =========
Net earnings from continuing
operations per diluted share
(GAAP) $ .15 $ .14 $ .14 $ .17
Restructuring and exit costs, net
of tax .03 .02 .12 .03
--------- --------- --------- ---------
Net earnings from continuing
operations per diluted share
excluding restructuring and exit
costs (non-GAAP) $ .18 $ .16 $ .26 $ .20
========= ========= ========= =========
Three Months Ended Three Months Ended
August 1, 2009 August 2, 2008
----------------------------- -----------------------------
Operating Operating
Earnings Earnings
Excluding Excluding
Restructuring Restructuring
Restructuring and Restructuring and
Operating and Exit Operating and Exit
Earnings Exit Costs Earnings Exit Costs
(GAAP) Costs (non-GAAP) (GAAP) Costs (non-GAAP)
-------- --------- --------- -------- --------- ---------
Custom Sheet
& Rollstock $ 9,335 $ 950 $ 10,285 $ 6,751 $ 228 $ 6,979
Packaging
Technologies 8,048 56 8,104 4,505 558 5,063
Color &
Specialty
Compounds 2,706 124 2,830 6,212 71 6,283
Engineered
Products 2,638 - 2,638 2,327 - 2,327
Corporate (9,722) - (9,722) (9,189) - (9,189)
-------- --------- --------- -------- --------- ---------
Total $ 13,005 $ 1,130 $ 14,135 $ 10,606 $ 857 $ 11,463
======== ========= ========= ======== ========= =========
Company Contacts:
Myles S. Odaniell
President and Chief Executive Officer
(314) 721-4242
Randy C. Martin
Executive VP and Chief Financial Officer
(314) 721-4242
