CLARCOR Inc. (NYSE: CLC):
Unaudited Fiscal First Quarter
2009 Highlights
(Amounts in thousands, except per
share data and percentages)
� �
Quarter Ended
�
%
� �
2/28/09
�
3/1/08
�
Change
Net Sales $213,690 � $250,181 (14.6) Operating Profit $13,687
$27,739 (50.7) Net Earnings $8,791 $16,149 (45.6) Diluted Earnings
Per Share $0.17 $0.32 (46.9) Average Diluted Shares Outstanding �
51,470,412 � 51,211,190 � (0.5)
First Quarter 2009 Operating
Review
CLARCOR Inc. (NYSE: CLC) today reported results for the
first quarter ended February 28, 2009. Sales in the first quarter
of 2009 dropped by $36 million, a 15% decrease compared to the
first quarter of 2008. Operating profit decreased by 51% compared
to the same quarter in 2008. Foreign currency fluctuations reduced
sales and operating profit by approximately $9 million and $1
million, respectively, for the current quarter.
Norm Johnson, CLARCOR�s Chairman and Chief Executive Officer,
said, �The decline in our first quarter sales and operating profit
was sudden and deeper than we had expected. Although we knew that
this fiscal year�s first quarter would be much more difficult than
last year�s first quarter, we did not expect such a large drop in
sales. We believe this reflects customer efforts to reduce their
inventory levels, as well as a response to the severity of the
recession which reduced demand, both in the U.S. and overseas.
�Before discussing the first quarter in more detail, I want to
speak to our expectations for the rest of 2009 and specifically,
why we expect the rest of the year will be better than the first
quarter. We do expect sales will be down in our filtration
businesses in the second quarter compared to last year, though
certainly better than the first quarter. We expect sales will
significantly improve in the last half of 2009 compared to the
first half of the year.
�We believe that our customers� inventory reductions during the
first quarter will not continue, and that, as we sell primarily
aftermarket maintenance filters, base replacement demand will
resume, particularly in our independent distribution market
channel. We have signed major sales contracts with new customers
and shipments will start in the second quarter. Despite a slowdown
in Asia during the first quarter, the Chinese market is still
growing for our current business there. This will be further
enhanced, as well, by recent acquisitions we have made in China.
Our sales to other parts of Asia and the Middle East are also
expected to grow for the rest of the year based on current orders
we have received. It is not unusual for one or two quarters to be
down, despite our aftermarket focus, as our customers often react
suddenly to unfavorable financial or political news by stopping
orders. I know of no major customers we have lost, and I expect
that the rest of 2009 will show a resumption in orders and
sales.
�Although we expect that sales will decline for all of 2009
compared to 2008, for the remaining nine months of 2009 we expect
the decline in operating profit in percentage terms will be less
than the percentage decline in sales. We expect that operating
profit in some markets, such as for HVAC air filters, will be
significantly improved compared to 2008. In other markets, such as
for aviation fuel filtration systems, we expect operating profit to
match or be slightly better than last year. Even in the midst of a
severe global recession, our product and market diversification and
the strength of our balance sheet are great advantages to have.
�More specifically, we expect our Engine/Mobile Filtration
segment sales to decline by approximately 6% to 8% and operating
profit to decline by a similar percentage over the next three
quarters compared to the last three quarters of 2008. For our
Industrial/Environmental Filtration segment over the next three
quarters, we expect sales to decline by 2% to 5% and operating
profit to decline by 1% to 2% compared to 2008. In our Packaging
segment, we expect sales to increase by 5% to 7% and operating
profit to grow by 10% to 12% over the next three quarters compared
to 2008.
�We have implemented significant cost reduction programs for
2009, including a salary and headcount freeze for our domestic
operating companies and curtailment of discretionary expenses.
Unfortunately, some costs are out of our control such as an
increase this year in pension expense of nearly $4 million compared
to 2008 caused by the decline in asset values in our pension trust.
Importantly, we have not cut back on product development, sales and
marketing initiatives, plant maintenance and safety programs. If
the current recession does not worsen, based on our current
forecast, we now expect that 2009 earnings per share will be in the
$1.60 to $1.75 range.
�With respect to our first quarter results, sales declined in
all three of our operating segments, though there were still areas
of growth in certain markets. Overall, Engine/Mobile Filtration
sales dropped 19%, Industrial/Environmental Filtration sales
dropped 10% and Packaging sales dropped 20%. Within the U.S. across
all three segments, sales declined by 9%, while outside the U.S.
sales declined by 26%.
�In our Engine/Mobile Filtration segment, sales in the U.S.
declined by 13%. Heavy-duty engine filter sales grew in Mexico,
Australia and South Africa, while filter sales in Asia dropped more
than in the rest of the world. By end-market, we saw a drop in
filter sales in over-the-road trucking, construction, agriculture,
mining and locomotive filtration sales. The decline was seen in
sales to both aftermarket and OEM customers.
�Sales in our Industrial/Environmental Filtration segment were
more varied across end-markets and channels. Air filtration systems
sales dropped significantly as customers reduced their capital
spending plans, both in the U.S. and in Europe. HVAC filter sales
also dropped with a significant decline in filters used in
automobile plants. Sales to the natural gas industry grew in the
first quarter in the U.S., but outside the U.S. dropped from last
year�s first quarter. Overall, sales to the natural gas industry
declined by about 4%. Filter sales for oil drilling also declined
by over 10% as oil drilling throughout the world slowed and
drilling projects were delayed. We remain very optimistic, however,
in our outlook for medium and long-term growth in filters used in
natural resource industries, such as natural gas, oil and water,
but it is clear that filter sales to these industries will not grow
in 2009. In contrast, aviation fuel filters sales grew in the first
quarter, both in the U.S. and in Europe. We expect this trend to
continue for the rest of 2009.
�Our Packaging segment sales dropped by 20% in the first quarter
compared to last year, but we are optimistic about the rest of
2009. As we have noted before, sales in this segment in the first
quarter are usually not indicative of activity for the entire year.
We recently received significant orders that should enable us to
record improved results in subsequent quarters this year compared
to 2008.
�Other expense included a charge of approximately $600,000
related to the interest rate swap we have discussed in previous
press releases. The current mark-to-market liability for this swap
is $2.6 million. The entire $2.6 million liability will be reversed
over the next 10 months and reduce interest expense, though the
amount recorded in any particular month or quarter will vary and be
partly dependent on interest rates.
�Our balance sheet remains very strong, with outstanding debt,
net of cash, of $41 million, and outstanding debt, net of cash, as
a percentage of total capital of less than 6%. We have a very
attractive credit facility that does not expire until December
2012. This facility enables us to borrow up to $250 million at a
variable interest rate that is currently less than 1% per year.
�Our tax rate in the first quarter at 31.8% was slightly lower
than we expect for the rest of 2009. The tax rate for all of 2009
should be approximately 33% to 34%.
�Cash flows from operating activities of $19 million decreased
by $7 million this quarter compared to last year�s first quarter,
mostly because of lower net income. Free cash flow, however, which
we define as operating cash flow after working capital and less
dividends and capital expenditures, remained positive, as it has
done nearly every quarter for many years. We expect this to
continue. Cash dividends increased by nearly 11% compared to last
year�s first quarter and our annual dividend coverage is expected
to be over four times net income for 2009.
�During the quarter, we did not repurchase any shares of our
common stock. We still have approximately $185 million available
for share repurchases under our current authorization. Share
repurchases in future quarters will depend on cash availability,
acquisition opportunities and the market price of our common
stock.
�Capital expenditures this year are expected to be approximately
$35 million to $40 million compared to $35 million in 2008. We have
curtailed certain capacity expansion projects, but continue to
invest aggressively in cost reduction efforts, new product
development, new technologies and safety initiatives.
�During the first quarter, we purchased a Chinese company, based
in Pujiang, that manufactures wire mesh filtration products,
primarily sold to the fibers, resin and aerospace markets. We also
purchased an aerospace filter company in Kansas and an aerospace
filter product line based in Europe. We are looking at many
potential acquisitions. We negotiated the purchase of the remaining
20% of our heavy-duty engine filter company in Weifang, China and
we are also negotiating to purchase another, smaller heavy-duty
engine filter company, also based in China. Both of these
transactions should close in the second quarter. Although none of
these acquisitions were large, each added to our product offerings,
expanded our reach in certain geographies and markets, and, for
certain of our Chinese acquisitions, will allow us to lower the
cost of products we had purchased from other third parties.
�We believe that our cost reduction efforts and our sales and
marketing programs are clearly having a positive impact on CLARCOR
despite our first quarter results. Though sales and profits will be
less than last year, what we see is an upward slope for the
remainder of the year despite the severity of the recession.
Although our results for 2009 will obviously not be what we would
like, our broad product, market and channel diversification, and
our balance sheet flexibility are clearly great advantages to
CLARCOR. We expect this will become even more evident as the year
progresses and in the future.�
CLARCOR will be holding a conference call to discuss the first
quarter results at 10:00 a.m. CDT on March 19, 2009. Interested
parties can listen to the conference call at www.clarcor.com or
www.viavid.net. A replay will
be available on these websites and also at 888-203-1112 or
719-457-0820 and providing confirmation code 4152217. The replay
will be available through March 26, 2009 by telephone and for 30
days on the Internet.
CLARCOR is based in Franklin, Tennessee, and is a diversified
marketer and manufacturer of mobile, industrial and environmental
filtration products and consumer and industrial packaging products
sold in domestic and international markets. Common shares of the
Company are traded on the New York Stock Exchange under the symbol
CLC.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements made in this press release other than
statements of historical fact, are forward-looking statements.
These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements may include, among other things:
statements and assumptions relating to future growth, as well as
management's short-term and long-term performance goals; statements
regarding anticipated order patterns from our customers or the
anticipated economic conditions of the industries and markets that
we serve; statements related to the performance of the U.S. and
other economies generally; statements relating to the anticipated
effects on results of operations or financial condition from recent
and expected developments or events; statements relating to the
Company's business and growth strategies; and any other statements
or assumptions that are not historical facts. The Company believes
that its expectations are based on reasonable assumptions. However,
these forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
Company's actual results, performance or achievements, or industry
results, to differ materially from the Company's expectations of
future results, performance or achievements expressed or implied by
these forward-looking statements. In addition, the Company's past
results of operations do not necessarily indicate its future
results. These and other uncertainties are discussed in the "Risk
Factors'' section of the Company�s 2008 Form 10-K. The future
results of the Company may fluctuate as a result of these and other
risk factors detailed from time to time in the Company's filings
with the Securities and Exchange Commission. You should not place
undue reliance on any forward-looking statements. These statements
speak only as of the date of this press release. Except as
otherwise required by applicable laws, the Company undertakes no
obligation to publicly update or revise any forward-looking
statements or the risk factors described in this press release,
including projected sales and profit levels for any business
segment in any given quarter, whether as a result of new
information, future events, changed circumstances or any other
reason after the date of this press release.
CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands
except per share data) � � � � Three Months For periods ended
February 28, 2009 and March 1, 2008 � � 2009 � � 2008 � Net sales $
213,690 $ 250,181 Cost of sales 152,707 173,626 � Gross profit
60,983 76,555 Selling and administrative expenses 47,296 48,816 �
Operating profit 13,687 27,739 Other expense 806 3,509 � Earnings
before income taxes and minority interests 12,881 24,230 Income
taxes 4,096 7,941 � Earnings before minority interests 8,785 16,289
Minority interests in losses (earnings) of subsidiaries 6 (140 ) �
Net earnings $ 8,791 $ 16,149 � � Net earnings per common share:
Basic $ 0.17 $ 0.32 � Diluted $ 0.17 $ 0.32 � � Average shares
outstanding: Basic 50,988,461 50,595,412 Diluted 51,470,412
51,211,190
CONSOLIDATED BALANCE SHEETS � �
SUMMARY CASH
FLOWS (Dollars in thousands) (Dollars in thousands) � � � � � �
� February 28, November 29, Three Months � � � 2009 � � 2008 � � �
� � � � 2009 � � 2008
Assets From Operating
Activities Current assets: Net earnings $ 8,791 $ 16,149 Cash
and cash equivalents $ 43,281 $ 40,715 Depreciation 6,921 6,636
Short-term investments 13,498 7,269 Amortization 1,215 1,195
Accounts receivable, net 165,595 194,864 Loss on interest rate
agreement 605 2,453 Inventories 168,640 158,201 Stock compensation
expense 2,415 2,009 Other 31,449 31,522 Excess tax benefits from
stock compensation (422 ) (966 ) Total current assets 422,463
432,571 Changes in short-term investments (6,229 ) (570 ) Plant
assets, net 191,703 192,599 Changes in assets and liabilities,
excluding Acquired intangibles, net 322,138 319,053 short-term
investments 5,745 (863 ) Other assets 16,671 13,659 Other, net (88
) 159 � $ 952,975 $ 957,882 Total provided by operating activities
18,953 � 26,202 � �
Liabilities From Investing
Activities Current liabilities: Plant asset additions (6,075 )
(8,137 ) Current portion of long-term debt $ 114 $ 128 Business
acquisitions (6,955 ) (75,073 ) Accounts payable and accrued
Investment in affiliate (1,000 ) -
liabilities
131,288 138,292 Other, net 224 � (702 ) Income taxes 5,418 5,083
Total used in investing activities (13,806 ) (83,912 ) Total
current liabilities 136,820 143,503 Long-term debt 83,905 83,822
From Financing Activities Long-term pension liabilities
28,258 27,307 Net proceeds under revolving credit agreement -
110,000 Other liabilities 47,023 51,491 Payments on long-term debt
(45 ) (7,240 ) 296,006 306,123 Cash dividends paid (4,596 ) (4,125
)
Shareholders' Equity 656,969 651,759 Excess tax benefits
from stock compensation 422 966 $ 952,975 $ 957,882 Purchase of
treasury stock - (37,260 ) Other, net 1,805 � 2,307 � Total
provided by (used in) financing activities (2,414 ) 64,648 � Effect
of exchange rate changes on cash (167 ) 173 �
Change in Cash and
Cash Equivalents $ 2,566 � $ 7,111 �
QUARTERLY INCOME
STATEMENT DATA BY SEGMENT (Dollars in thousands) � � �
Three
Months February 28, March 1, 2009
2008 Net sales by segment: Engine/Mobile Filtration $
85,380 $ 105,109 Industrial/Environmental Filtration 113,458
126,422 Packaging � 14,852 � � 18,650 � $ 213,690 � $ 250,181 � �
Operating profit by segment: Engine/Mobile Filtration $
13,301 $ 22,342 Industrial/Environmental Filtration 663 4,285
Packaging � (277 ) � 1,112 � $ 13,687 � $ 27,739 � �
Operating
margin by segment: Engine/Mobile Filtration 15.6 % 21.3 %
Industrial/Environmental Filtration 0.6 % 3.4 % Packaging � -1.9 %
� 6.0 % � 6.4 % � 11.1 %
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