|View printer-friendly version|
|Spartech Announces Third Quarter Results|
SPARTECH ANNOUNCES THIRD QUARTER RESULTS
St. Louis, Missouri, September 12, 2012 - Spartech Corporation (NYSE:SEH), a leading producer of plastic sheet, compounds, and packaging solutions, announced today operating results for the third quarter of 2012.
Highlights for the Third Quarter 2012
Vicki Holt, Spartech's President and Chief Executive Officer, said, "Although we continue to make progress on new customer programs in the Packaging Technologies segment, the results for the quarter fell short of our expectations due to lower sales in graphic arts and higher development costs for new programs. The growth and financial performance of our Packaging Technologies segment have not scaled up as quickly as anticipated, but we are successfully executing our strategy to expand our customer base and new commercial applications that will benefit the future sales potential of this segment."
Holt added, "We continue to be confident in our initiatives to enhance margins, accelerate growth, and manage our cost structure. The Custom Sheet and Rollstock segment continues to execute operational improvements and we are delivering measurable earnings improvements in this segment. We are on track to complete by calendar year end the two strategic actions we announced last quarter: the consolidation of our Custom Sheet and Rollstock facilities in Canada and the expansion of our Muncie, Indiana packaging facility."
Gross margin per pound sold increased from 11.5 cents for the three months ended July 30, 2011 to 12.2 cents for the three months ended August 4, 2012. The gross margin per pound increase primarily reflects improved margin from a better mix of high margin products and operational improvements. Focus on increased production yield and the use of regrind and recycled materials was instrumental to generating the operating improvements achieved.
Selling, general and administrative expenses were $20.7 million in the third quarter of 2012 compared to $17.7 million in the prior year. A $2.2 million change in bad debt expense from a reversal during the third quarter of 2011 accounted for the principal difference in the quarterly comparison. The period also includes higher benefit costs, travel expenses and $0.3 million of severance expense associated with the decision to streamline our management structure.
Interest expense, net of interest income, was $3.2 million in the third quarter of 2012 compared to $2.8 million in the same period of the prior year. The increase was primarily due to an increase in interest rates on outstanding debt as well as the additional fees incurred in the second quarter of 2012 that are amortized over the remaining term of the Company's senior note debt.
Income tax expense was $0.1 million in the third quarter of 2012 compared to an expense of $2.6 million in the third quarter of 2011. The current quarter tax expense was reduced by $0.6 million for income tax benefits related to additional research and development credits and other deferred tax adjustments, resulting in an effective tax rate of 6%. The prior year quarter tax expense included a $1.5 million expense associated with the write-off of a deferred tax asset due to a tax law change partially offset by $0.8 million of income tax benefits from discrete items including additional research and development credits and state tax incentives, reflecting a 46% effective tax rate. These tax rates compare to our statutory tax rate of 35%, which is impacted by the mix of income by tax jurisdiction, tax credits, and discrete items incurred in each period. The Company expects its effective tax rate to be in the range of 35% to 38% in the final quarter of its fiscal year.
Net earnings from continuing operations were $1.8 million or $0.06 per diluted share for the third quarter of 2012, compared to net earnings from continuing operations of $3.0 million or $0.10 per diluted share in the prior year. Excluding special items, net earnings from continuing operations were $2.5 million or $0.08 per diluted share for the third quarter of 2012, compared to a net earnings of $3.1 million or $0.10 per diluted share in the prior year. The current year third quarter earnings per share measures benefited from the lower effective tax rate (6%) compared to a higher effective tax rate (46%) in the previous period.
Cash flows from operations in the third quarter of 2012 were $20.3 million. The Company used these cash flows to reduce debt by $15.1 million and fund $4.9 million in capital expenditures including building capacity for new specialty production lines at the Muncie, Indiana facility.
A table is presented at the end of this release to reconcile amounts excluding special items to comparable GAAP measures.
Custom Sheet and Rollstock - Net sales were $149.4 million for the three months ended August 4, 2012, a 4% increase from price/mix offset by a decrease in underlying volume of 4% when compared to 2011. The underlying sales volume primarily reflects a decrease in sales volume to the appliance and electronics end market, partially offset by an increase in sales to the automotive and material handling sectors. The price/mix increase was mostly caused by a greater percentage of higher priced products, offset by lower selling prices from the pass through of raw material decreases from the prior year quarter. Operating earnings excluding special items were $7.8 million for the three months ended August 4, 2012 compared to $6.3 million for the three months ended July 30, 2011. The $1.5 million increase in operating earnings is attributed to $3.3 million of improvement primarily from an increased mix of higher margin products and operational improvements, such as increased production yield and regrind material usage, offset by $1.8 million resulting from the reversal of bad debt expense in the prior year period.
Packaging Technologies - Net sales were $58.4 million for the three months ended August 4, 2012, a 3% decrease from price/mix and a 7% decrease in underlying volume when compared to 2011. Underlying sales volume in this segment was down due to a significant decrease in volume to the graphic arts market related to certain programs not continuing in the current period. Sales volume to the food and consumer packaging market was up slightly, but below the Company's expectations due to the delayed launch or commercialization of several new programs. The price/mix decrease was primarily related to lower prices from raw material decreases passed through as lower selling prices and a product mix that included a greater percentage of lower priced products. Operating earnings excluding special items were $4.0 million for the three months ended August 4, 2012 compared to $6.9 million for the three months ended July 30, 2011. The decrease in earnings can be attributed to the decrease in sales and additional development costs from new food and consumer packaging programs.
Color and Specialty Compounds - Net sales were $74.7 million for the three months ended August 4, 2012, a 2% decrease from price/mix and a decrease in underlying volume of 2% when compared to 2011. Underlying sales volume for this segment was lower due to a decrease in automotive sales in Europe. The price/mix decrease was primarily attributable to lower prices from raw material decreases passed through as lower selling prices. Operating earnings excluding special items were $2.1 million for the three months ended August 4, 2012 compared to $3.1 million in the same period of the prior year. The decrease in operating earnings was due to a decrease in sales volume and mix of lower margin products offset by operational yield improvements. In addition, the prior year quarter included $0.4 million of income resulting from the reversal of bad debt expense in the prior year period.
Special Items and Discontinued Operations
As a result of this action, the Company recorded $0.9 million in restructuring and exit costs during the third quarter compared to $0.2 million in the same period of the prior year. The charges in the previous year are the result of a previous announced restructuring effort completed in 2011. Restructuring and exit costs were comprised of employee severance, facility consolidation and shut-down costs and fixed asset valuation adjustments for assets related to restructured facilities.
Discontinued operations include the Company's former marine business, sheet business in Donchery, France, and toll compounding business in Arlington, Texas, all of which were shutdown in 2009, and the Company's wheels and profiles businesses, both of which were divested in 2009.
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:
We assume no responsibility to update our forward-looking statements.
Spartech Corporation and Subsidiaries
Note: The Company's fiscal year ends on the Saturday closest to October 31st and fiscal years generally contain 52 weeks. However, because of this accounting convention, every fifth or sixth fiscal year has an additional week, and 2012 will be reported as a 53-week fiscal year. The Company's first nine months ended August 4, 2012 included 40 weeks compared to 39 weeks in the first nine months of the prior year.
Spartech Corporation and Subsidiaries
Spartech Corporation and Subsidiaries
Within this press release we have included operating earnings (GAAP) to operating earnings excluding special items (Non-GAAP), net earnings from continuing operations (GAAP) to net 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 consist of restructuring and exit costs. 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. The only adjustment reconciling GAAP to non-GAAP results is restructuring and exit costs. The GAAP results include the beneficial impact from a lower effective tax rate in the current year period as well as the adverse impact of a higher effective tax rate in the prior year period. The non-GAAP results have not been adjusted for any changes in tax rates.
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 tables reconcile (GAAP) to (Non-GAAP) measures:
The following table reconciles operating earnings (loss) (GAAP) to operating earnings (loss) excluding special items (Non-GAAP) by segment (in thousands):
Randy C. Martin
|Print Page | E-mail Page | RSS Feeds | E-mail Alerts | Contact | Financial Tear Sheet|