CLARCOR Inc. (NYSE: CLC):
�
Unaudited Fiscal Second Quarter
and Six Months 2009 Highlights
(Amounts in thousands, except per
share data and percentages)
� �
Quarter Ended
�
%
�
Six Months Ended
�
%
� �
5/30/09
�
5/31/08 �
Change
�
5/30/09
�
5/31/08
�
Change
Net Sales $ 229,395 � $ 267,137 (14.1 ) $ 443,085 � $ 517,318 (14.3
) Operating Profit $ 25,230 $ 37,458 (32.6 ) $ 38,917 $ 65,197
(40.3 ) Net Earnings $ 16,791 $ 24,634 (31.8 ) $ 25,582 $ 40,783
(37.3 ) Diluted Earnings Per Share � $ 0.33 � $ 0.48 � (31.3 ) � $
0.50 � $ 0.80 � (37.5 ) �
Second Quarter and Six Months
2009 Operating Review
CLARCOR Inc. (NYSE: CLC) reported its second quarter 2009
financial results and updated its guidance for its fiscal year
ending November 28, 2009.
Norm Johnson, CLARCOR�s Chairman and Chief Executive Officer,
said, �As we had expected, this year�s second quarter was
difficult, though operating results were much stronger than in our
first fiscal quarter. Operating margins in the second quarter of
2009 were 11.0% compared to 6.4% in the first quarter of 2009. In
general, replacement aftermarket filter sales were significantly
better than were sales of filters and filter systems that are
permanent and not periodically replaced. Fortunately, over 80% of
our filter sales are to the replacement market. Order rates overall
improved during the quarter, and we expect that third quarter sales
and operating profit this year will be sequentially better than the
second quarter and that the fourth quarter will be better than the
third quarter.
�Based upon the second quarter results, we have revised our
earnings guidance for 2009. We now expect diluted earnings per
share to be in the range of $1.40 to $1.60. Though not another
record year, 2009 will still be another solidly profitable year for
CLARCOR. We expect that sales in the last half of 2009 will
increase by 13% to 15% and operating profit by 50% to 60% compared
to the first six months of 2009. More importantly, we have
increased investments in new products, improved manufacturing
efficiencies in our plants and have expanded our sales and customer
service programs. We believe that these efforts lay the groundwork
for significant improvement in 2010 and 2011.
�Because we operate in so many different markets, it is usually
the case that some markets are stronger than others. Though slow at
the start of the quarter, sales of HVAC filters were significantly
better by the end of the second quarter. Compared to last year�s
second quarter, natural gas and aviation fuel filter sales declined
slightly in this year�s second quarter. Sales were slow for filters
sold to the over-the-road trucking, railroad, aerospace and oil
drilling markets compared to last year�s second quarter. Sales of
replacement maintenance filters to the automobile industry and
sales of dust collector systems were weak as we had expected.
�Our order rates, overall, have stabilized, and we are beginning
to see indications of increased product demand in selected markets.
As I noted above, we focus on the replacement filter aftermarket
where over 80% of our filter sales are generated. Even if companies
decide not to buy new transportation or production equipment or
build new production facilities, maintenance of equipment and
facilities they already own continues, and that is the primary
market we serve.
�We completed several acquisitions in China in the second
quarter, including acquiring the remaining 20% of our
Baldwin-Weifang engine filter company and purchasing another engine
filter manufacturer. These acquisitions will have a very small
sales impact on our results for 2009, but provide greater capacity
for heavy-duty engine filter manufacturing in Asia. We also
acquired a manufacturer of metal mesh filters for the plastic
resins and fibers markets that we believe lays the groundwork for a
significant presence in this market throughout Asia in future
years. We are also significantly expanding our technical facilities
in China for product development and testing.
Our Industrial/Environmental
Segment
�Within our Industrial/Environmental segment, certain of our
operating companies and markets are clearly showing improvement
from declines in the latter part of 2008 and the first half of
2009. Unfortunately this is not the case for every company or
market. For the quarter, sales in the segment declined by 14% from
2008 and operating profit declined by 49%. The largest improvement
in this segment came in our CLC Air operation while filter sales
for offshore oil drilling and air filter sales to the automobile
companies were the biggest disappointment for this quarter.
�Our CLC Air restructuring program has turned the corner with
significantly improved results. The company is now profitable and
growing. Sales for the quarter were higher than in last year�s
second quarter, and operating margins in the quarter have improved
by nearly five percentage points compared to the second quarter of
2008. For the rest of 2009, we expect CLC Air sales to increase by
approximately 5% compared to 2008, and operating margins to exceed
6%. This is a significant improvement from the first half of 2009
when sales dropped by 4%, and CLC Air incurred a loss. Sales growth
and major improvements in production efficiencies in our plants are
driving the improved operating results for the second half of
2009.
�We were recently selected by a large retail store chain for a
program to sell our high-end Purolator� brand HVAC residential
filters in one of their sales regions. So far, the program has been
successful with product reorders coming sooner than we had
initially expected. We expect that our customer will evaluate the
success of this program later this summer or in the early fall.
After this evaluation, we are hopeful that we will then begin to
sell into additional regions. We also incurred various costs, which
should not recur, to adjust our production facilities to meet the
sales volumes anticipated under this program.
�Sales to the aviation fuel market in this year�s second quarter
were slightly less than in last year�s second quarter, but
operating margins improved to over 16% from 14% last year driven
primarily by cost reductions. We expect that our aviation fuel
filtration sales for the rest of 2009 will exceed the second half
of last year�s sales by approximately 5%.
�The continued drop in automobile sales in the U.S. has clearly
impacted sales of replacement filters for automotive production and
assembly facilities. The result is that sales of our Total
Filtration Services (TFS) operation dropped by over 20% this
quarter compared to last year�s second quarter, while operating
profits dropped by a little more than $1 million. Sales to the
automotive market comprise the largest market for TFS. We expect
that sales to this market will not improve for the rest of this
year and may not improve in 2010. We have made major changes at TFS
to reduce costs and will continue to do so. We expect that TFS will
be a profitable operation even if sales to the automotive market
are permanently lower compared to previous years. Moreover, sales
to non-automotive companies through our Total Filtration Program
continue to grow. We do not expect any loss of monies owed to us
arising from the bankruptcy of General Motors.
�Sales of original equipment vessels and replacement filter
elements to the natural gas market declined by 5% this quarter, and
operating margins dropped from over 14% in last year�s second
quarter to approximately 11% in this year�s second quarter. Last
year�s second quarter operating margins were unusually strong, so
we are very pleased with this quarter�s results despite lower
margins. We expect sales of vessels for the remainder of 2009 to be
lower than in the second half of 2008.
�We remain very optimistic about the future of the natural gas
filter market over the next three to five years. We expect recent
discoveries of natural gas fields in the U.S. and expanded
production in current fields throughout the world will lead to new
pipelines and transmission facilities which will increase demand
for our natural gas filtration systems. We have begun to receive
purchase orders for many projects that were previously delayed. In
general, these projects are built over a six-month to 24 month
period, so the impact will be largely felt in 2010 and 2011. We are
not seeing any major order cancellations, and we are also actively
quoting many new development projects. In addition, we are actively
investing to grow our natural gas aftermarket filtration business
with increased new product development efforts and investments in
customer service, product availability and marketing programs. We
expect to be able to announce significant new products for this
market later this year.
�Sales of filters to the oil drilling market, aerospace market,
fibers and resins market and for dust collector systems were much
lower this quarter than in last year�s second quarter. Sales of
aftermarket dust collector cartridges also dropped slightly.
Margins declined as we were unable to fully absorb manufacturing
costs with lower production volumes. We continue to focus on
reducing costs at the companies which service these markets, as we
do not expect any improvement in sales in these markets for the
rest of this year.
�Overall for this segment, sales in international markets, in
dollar terms, were down approximately 4% compared to the same
quarter in 2008. International growth was seen for aviation fuel
filter sales in Spain and the U.K. and natural gas vessel and
filter element sales in Southeast Asia. Sales declines were seen
for air filtration system sales in Germany, aerospace filter sales
throughout Europe and aviation fuel filter sales in Italy and
France.
�For the segment as a whole, we expect sales to decrease by 6%
to 8% in the second half of 2009 compared to the same period in
2008. This compares to a sales decrease in the first half of 2009
of 12% compared to the first half of 2008.
Our Engine/Mobile Filtration
Segment
�Sales in this segment dropped by approximately 15%, and
operating profit declined by approximately 25% in the second
quarter of 2009 compared to the same quarter in 2008. We are
pleased though that operating margins, even with a 15% drop in
sales, remained at 20% for the quarter. Though these results are
still below last year�s, they are much better than in the first
quarter. Sales declined across all major market segments, including
over-the-road trucking, agriculture, mining, construction and
particularly in the railroad market. Fortunately, except for the
railroad market, we sell relatively few products into OEM markets,
and as has been historically the case, the aftermarket has held up
better than the new equipment market during the current difficult
economic period.
�Order rates for heavy-duty engine filters for over-the-road
trucking, construction, agriculture and mining markets have
improved by about 5% by the end of the second quarter from the end
of the first quarter. We have signed many new customers during the
last six months. We also believe that our current customers for
heavy-duty engine filters will need to restock their inventories
sometime in the latter part of 2009. Sales to the railroad market
have not improved since the first of the year and have continued to
decline during the first half of 2009. We do not see any
improvement in the railroad filtration market for the rest of
2009.
�We continue to make investments in new products for this
segment. It is important to point out that we have not stopped or
reduced spending or investment in inventory availability, customer
service and sales or marketing programs. To be successful in the
filtration aftermarket, having the right product at the right time
with the sales programs your customers need is critical.
�Overall for this segment, sales in international markets, in
dollar terms, were 18% lower than in 2008�s second quarter. Sales
in Asian markets increased by 8% in the 2009 quarter from last
year�s second quarter while sales in Europe, Morocco and South
Africa decreased by 25%.
�For the segment as a whole, we expect sales to decrease by
approximately 9% to 11% in the second half of 2009 compared to the
same period in 2008. This compares to a decrease of 17% in the
first half of 2009 compared to the first half of 2008.
Our Packaging
Segment
�Sales of our Packaging segment in the second quarter dropped by
10% from 2008, and operating profit dropped by 42%. Though the
quarter�s results were less than what we expected, we are still
confident that the segment will have a solid 2009 with a much
stronger second half of the year. We expect second half 2009 sales
to increase 6% to 8% compared to the same period in 2008. This
compares with a decrease in the first six months of 2009 of 15%
compared to the first six months of 2008. In addition, J.L. Clark
recently signed a five-year agreement with a major consumer
products company which is expected to result in additional sales of
$4 million to $5 million per year beginning in 2010.
Other Financial
Matters
�Other income included net interest expense of approximately
$500,000 and a currency gain of $600,000 in the 2009 quarter
compared to net interest income of approximately $400,000 and a
currency loss of $100,000 in the comparable 2008 quarter. Our tax
rate was approximately 32.3% for the quarter. We expect the rate to
be approximately 34.0% for the next two quarters.
�Foreign currency fluctuations reduced sales and operating
profit by approximately $12 million and $2 million, respectively,
for the quarter.
�Capital expenditures were $11 million for the six-month period
just ended compared to $17 million in the 2008 six-month period. We
expect capital spending will be approximately $15 million to $20
million during the second half of 2009.
�Cash flow continues to be strong. Cash flow from operations,
excluding changes in our short-term investments, was $53 million in
the 2009 six-month period compared to $56 million in the comparable
period last year. We did not repurchase any of our common stock in
the second quarter. Approximately $187 million remains outstanding
under our current share repurchase authorization.
�We expect free cash flow to remain strong for the remainder of
2009. Our balance sheet is very strong, and we have significant
available borrowing capacity under our current credit facility.
Barring more acquisitions or share repurchases later this year, we
expect to continue to repay outstanding borrowings and expect to be
largely debt-free, net of our available cash, by the end of
2009.
�In the second quarter of 2009, we recorded approximately a
$300,000 reduction in interest expense due to a mark-to-market
adjustment in our interest rate swap which expires in early 2010.
In the second quarter of 2008, we had recorded a $1.1 million
reduction in interest expense related to the swap. If interest
rates remain unchanged, we estimate that we will record a further
reduction of $900,000 in the third quarter and a $1.2 million
reduction in the fourth quarter of 2009 in interest expense as the
swap unwinds.
�Our principal raw material costs were much lower in the second
quarter of 2009 than they were in the same quarter in 2008
particularly for most grades of steel, but also for filter media,
packaging materials, aluminum, specialty metals, gaskets and
resins. We are beginning to see signs of increasing costs for
certain raw materials, though not for steel which is our largest
purchased commodity.
�We have implemented many cost reduction programs throughout
CLARCOR, including headcount reductions, wage freezes,
consolidation of manufacturing plants and controls over
discretionary spending. As cost controls take hold, we expect to
see an increasing drop in discretionary spending as 2009 unfolds
compared to 2008. Selling and administrative costs declined by 3%
in the first fiscal quarter of 2009 compared to 2008 and by 8% in
the second quarter of 2009 compared to the prior year�s second
quarter.
�Based on our first half results and current backlog, we expect
our 2009 full-year sales to decline by approximately 10% to 12%
from 2008, but that second-half sales will decline by 7% to 9%
compared to the second half of 2008. Although we will not record
our 17th consecutive year of record sales and earnings in 2009, we
expect 2009 will still be our fourth most profitable year in a
company with a 105-year history. We believe we have many
opportunities to grow significantly in 2010 and 2011. In 2010, we
expect the over-the-road trucking and railroad markets to recover,
our CLC Air operation to reach an 8% operating margin on higher
sales and our natural gas filtration business to have another good
year. We expect to see a recovery in most other markets,
particularly in oil drilling, aerospace and fibers, and a strong
year of growth for our packaging operations.�
Conference Call
CLARCOR will be holding a conference call to discuss its second
quarter and six-month results at 10:00 a.m. CDT on June 18, 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 access code 7449188. The replay will be
available through June 25, 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.
TABLES FOLLOW
� � � � � � � � � � �
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data) � Second Quarter Six
Months For periods ended May 30, 2009 and May 31, 2008 � 2009 �
2008 � 2009 � 2008 � Net sales $ 229,395 $ 267,137 443,085 $
517,318 Cost of sales � 159,797 � � 181,526 � � 312,504 � � 355,152
� Gross profit 69,598 85,611 130,581 162,166 Selling and
administrative expenses � 44,368 � � 48,153 � � 91,664 � � 96,969 �
Operating profit 25,230 37,458 38,917 65,197 Other (expense) income
� (52 ) � 183 � � (858 ) � (3,326 )
Earnings before income taxes and
minority interests
25,178 37,641 38,059 61,871 Income taxes � 8,121 � � 12,903 � �
12,217 � � 20,844 � Earnings before minority interests 17,057
24,738 25,842 41,027 Minority interests in earnings of subsidiaries
� (266 ) � (104 ) � (260 ) � (244 ) � Net earnings $ 16,791 � $
24,634 � � 25,582 � $ 40,783 � � Net earnings per common share:
Basic $ 0.33 � $ 0.49 � � 0.50 � $ 0.80 � Diluted $ 0.33 � $ 0.48 �
� 0.50 � $ 0.80 � � Average shares outstanding: Basic 51,042,665
50,752,765 51,014,126 50,682,871 Diluted 51,330,567 51,272,388
51,392,809 51,125,712 � � � �
CONSOLIDATED BALANCE SHEETS
SUMMARY CASH FLOWS (Dollars in thousands) (Dollars in
thousands) � � � � � � � � May 30, November 29, Six Months � � �
2009 � � 2008 � � � � � � � 2009 � � 2008
Assets
From Operating Activities Current assets: Net earnings $
25,582 $ 40,783 Cash and cash equivalents $ 46,803 $ 40,715
Depreciation 13,851 13,259 Short-term investments 23,334 7,269
Amortization 2,436 2,779 Accounts receivable, net 170,853 194,864
Loss on interest rate agreement 348 1,337 Inventories 168,101
158,201 Stock compensation expense 3,142 3,713
Other
32,942 31,522 Excess tax benefits from stock compensation (432 )
(2,289 )
Total current assets
442,033 432,571 Changes in short-term investments (16,065 ) (8,980
) Plant assets, net 190,514 192,599 Changes in assets and
liabilities, Acquired intangibles, net 325,627 319,053 excluding
short-term investments 7,394 (3,776 ) Other assets 13,375 13,659
Other, net 205 � 297 � $ 971,549 $ 957,882 Total provided by
operating activities 36,461 � 47,123 � �
Liabilities
From Investing
Activities
Current liabilities: Plant asset additions (10,784 ) (17,412 )
Current portion of long-term debt $ 154 $ 128 Business acquisitions
(12,192 ) (75,073 ) Accounts payable and Investment in affiliate
(1,000 ) (2,000 ) accrued liabilities 128,507 138,292 Other, net
394 � 56 � Income taxes 3,845 5,083 Total used in investing
activities (23,582 ) (94,429 )
Total current liabilities
132,506 143,503 Long-term debt 82,393 83,822
�
Long-term pension
From Financing
Activities
liabilities 29,327 27,307 Net proceeds (payments) under Other
liabilities 45,287 51,491 revolving credit agreement (10,000 )
100,000 289,513 306,123 Borrowings under long-term debt 8,410 -
Shareholders' Equity 682,036 651,759 Payments on long-term
debt (559 ) (7,327 ) $ 971,549 $ 957,882 Cash dividends paid (9,196
) (8,183 ) Excess tax benefits from stock compensation 432 2,289
Purchase of treasury stock - (37,260 ) Other, net 2,106 � 7,825 �
Total provided by (used in)
financing activities
(8,807 ) 57,344 � Effect of exchange rate changes on cash 2,016 �
1,062 �
Change in Cash and Cash Equivalents $ 6,088 � $
11,100 � � � �
QUARTERLY INCOME STATEMENT DATA BY SEGMENT
(Dollars in thousands) � � �
2009 Quarter
Quarter Ended Ended Six February
28 �
May 30 Months Net sales by segment:
Engine/Mobile Filtration $ 85,380 $ 92,277 $ 177,657
Industrial/Environmental Filtration 113,458 119,889 233,347
Packaging � 14,852 � � 17,229 � � 32,081 � $ 213,690 � $ 229,395 �
$ 443,085 � �
Operating profit by segment: Engine/Mobile
Filtration $ 13,301 $ 18,457 $ 31,758 Industrial/Environmental
Filtration 663 5,864 6,527 Packaging � (277 ) � 909 � � 632 � $
13,687 � $ 25,230 � $ 38,917 � �
Operating margin by
segment: Engine/Mobile Filtration 15.6 % 20.0 % 17.9 %
Industrial/Environmental Filtration 0.6 % 4.9 % 2.8 % Packaging �
-1.9 % � 5.3 % � 2.0 % � 6.4 % � 11.0 % � 8.8 % � �
2008
Quarter Quarter Ended Ended Six
March 1 May 31 Months Net sales by
segment: Engine/Mobile Filtration $ 105,109 $ 108,658 $ 213,767
Industrial/Environmental Filtration 126,422 139,326 265,748
Packaging � 18,650 � � 19,153 � � 37,803 � $ 250,181 � $ 267,137 �
$ 517,318 � �
Operating profit by segment: Engine/Mobile
Filtration $ 22,342 $ 24,450 $ 46,792 Industrial/Environmental
Filtration 4,285 11,444 15,729 Packaging � 1,112 � � 1,564 � �
2,676 � $ 27,739 � $ 37,458 � $ 65,197 � �
Operating margin by
segment: Engine/Mobile Filtration 21.3 % 22.5 % 21.9 %
Industrial/Environmental Filtration 3.4 % 8.2 % 5.9 % Packaging �
6.0 % � 8.2 % � 7.1 % � 11.1 % � 14.0 % � 12.6 %
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