CLARCOR Inc. (NYSE: CLC):
Unaudited Third Quarter 2012
Highlights(Amounts in millions, except per share data and
percentages)
Three Months Ended Nine Months
Ended 9/1/12 8/27/11 Change
9/1/12 8/27/11 Change Net
sales $ 286.7 $ 284.8 1 % $ 828.9 $ 819.1
1 % Operating profit 46.2 46.5 -1 % 129.6 126.5 2 % Net
earnings – CLARCOR 30.3 32.1 -6 % 86.7 86.8 - % Diluted earnings
per share $ 0.60 $ 0.63 -5 % $ 1.70 $ 1.69 1 % Operating margin
16.1 % 16.3 % -0.2 pts
15.6 % 15.4 % 0.2 pts
CLARCOR Inc. (NYSE: CLC) reported its financial
results for the third quarter of 2012. Diluted earnings per share
declined 5% to $0.60 from $0.63 in the third quarter of 2011. Lower
diluted earnings per share were driven by a 1% reduction in
operating profit and a 3.0 percentage point increase in the
effective income tax rate compared with last year’s third quarter.
Net sales increased 1% based upon 5% higher sales at the company’s
Industrial/Environmental Filtration segment—which also increased
operating profit by 15% from the third quarter of 2011. Higher
sales at this reporting segment were offset by lower sales in the
Engine/Mobile Filtration and Packaging segments. Lower net sales in
the Engine/Mobile Filtration segment were driven by lower domestic
heavy-duty engine filter aftermarket sales and unfavorable changes
in foreign currency exchange rates.
Changes in foreign currency exchange rates reduced consolidated
net sales and operating profit by 2% in the third quarter of 2012
which lowered diluted earnings per share by $0.01 from the third
quarter of 2011. For the first nine months of 2012, changes in
foreign currency exchange rates reduced net sales and operating
profit by 1% from the first nine months of 2011. These changes were
driven primarily by the strengthening of the U.S. dollar against
the Euro.
Chris Conway, CLARCOR’s Chief Executive Officer, commented, “Our
third quarter financial results were below our internal
expectations heading into the quarter primarily due to lower than
expected sales of heavy-duty engine filtration products in the
domestic aftermarket and China. In addition, softness in other
markets contributed to our shortfall compared with expectations
including sales of air filtration products to the swine industry
and sales of packaging products. Lower sales in these markets were
partially offset by higher than expected operating results in
several markets within our Industrial/Environmental Filtration
segment including our natural gas filtration business both in the
U.S. and abroad. However, our overall lower than expected sales,
coupled with the impact of a higher effective income tax rate,
drove our lower than expected earnings.
“Although third quarter sales of heavy-duty engine filters in
the domestic aftermarket increased sequentially from the second
quarter of 2012, sales did not meet our expectations and slightly
declined from the third quarter of 2011. Based upon continued
discussions with our distributors and other industry participants,
we believe our sales levels are consistent with slowing industry
demand primarily in the over-the-road truck market—which represents
about two-thirds of our domestic aftermarket—indicative of a
slowdown in the U.S. economy which has grown less than 2.0% in the
first half of 2012 and is projected to expand at a similar rate in
the third quarter. We believe that the U.S. trucking industry has
been negatively impacted by this slow growth as evidenced by
declining diesel fuel consumption and a 5% reduction in truck
tonnage from an all-time high in December 2011. We believe we have
maintained our market share through the first nine months of 2012,
and we anticipate a rebound in our base domestic business when the
U.S. economy accelerates. Moreover, we continue to make strides in
our efforts to expand our domestic aftermarket share as we have
added distributors on a net basis and have expanded our product
offerings through the first nine months of 2012. Further share
gains in the domestic and foreign aftermarket are evidenced by the
launch of aftermarket programs through OE dealers in the third
quarter that were held previously by competitors. Although we
anticipate that the full sales potential of these programs will not
be realized until the second half of 2013, it is an example of the
positive strides we are making to further develop our markets.
Although third quarter sales of heavy-duty engine filters in China
were lower than our expectations heading into the quarter, these
sales were higher than last year’s third quarter due to the
procurement of a new OE aftermarket program from a large local
diesel engine manufacturer. We believe we continue to be
well-positioned to capitalize on China’s projected long-term
first-fit and aftermarket heavy-duty engine filtration growth.
“Another market that experienced headwinds in our third quarter
compared with expectations was sales of air filtration products to
the swine industry which was negatively impacted by the severe
summer drought in the U.S. Due to higher feed prices, we believe
hog farmers delayed investment in new air filtration systems. As a
result, our third quarter sales of these products were below our
expectations heading into the quarter. We anticipate that many of
these orders will be deferred until the summer of 2013. Despite
lower than expected third quarter 2012 sales in this market, we
believe we are the leader in this growth industry in the U.S., and
we are excited about the many opportunities outside the U.S.
including China—where we have recently launched the manufacture and
sale of swine filtration products and systems.
“Operating performance at our Industrial/Environmental
Filtration segment continues to be solid as our 11.4% operating
margin in the third quarter was not only 1.1 percentage points
higher than last year’s third quarter but was a record high for any
third quarter in this reporting segment. Net sales increased 7%
from the third quarter of 2011 when adjusted for changes in foreign
currency exchange rates. Driven by these higher sales and improved
operating margin, third quarter operating profit was 15% higher
than the third quarter of 2011 and year-to-date operating profit
was 19% higher than last year’s first nine months. Sales growth was
driven by stronger sales in several markets but notably in the
natural gas filtration industry both within the U.S. and in our
foreign markets. Although natural gas vessel sales remain strong,
we continue to focus on the development of the natural gas
filtration aftermarket where global sales grew 14% in the third
quarter compared with last year’s third quarter. Other markets in
our Industrial/Environmental Filtration segment also demonstrated
strong third quarter sales growth including our dust collector
business and our Total Filtration Services (TFS) distribution
business. With our continued focus on profitable growth in this
reporting segment, we believe we are well-positioned to achieve our
long-term operating margin goal of 15% in the next three to four
years.”
Third Quarter Results:
Engine/Mobile Filtration
Segment
Net sales at our Engine/Mobile Filtration segment declined 2%
from the third quarter of 2011. Lower net sales included a 1%
reduction in the U.S.—due to lower heavy-duty engine filter
aftermarket sales—and a 3% reduction in foreign sales. Foreign
sales actually increased 2% when adjusted for changes in foreign
currency exchange rates. Higher heavy-duty engine filter sales in
Mexico, North and South Africa and a rebound in China from last
year’s third quarter were partially offset by lower heavy-duty
engine filter sales in Europe.
Operating profit at our Engine/Mobile Filtration segment
declined 6% from the third quarter of 2011 primarily from the 2%
reduction in sales and a 0.9 percentage point decline in operating
margin to 22.4%. Lower operating margin was partially due to lower
absorption of fixed manufacturing costs from lower sales in
addition to higher material costs as a percentage of sales
primarily due to product mix.
Industrial/Environmental Filtration
Segment
Net sales at our Industrial/Environmental Filtration segment
increased 5% from the third quarter of 2011. These higher net sales
included 2% sales growth domestically and 11% sales growth outside
the U.S. This increase in foreign sales, which was 20% when
adjusted for changes in foreign currency exchange rates, was due to
an increase in natural gas vessel and aftermarket filter sales
based upon sales growth in several international markets including
Asia and Canada. This increase excludes the impact of our second
quarter acquisition of Modular Engineering.
Operating profit at our Industrial/Environmental Filtration
segment grew 15% from the third quarter of 2011. Our 11.4% third
quarter operating margin increased 1.1 percentage points from last
year’s third quarter as we were able to leverage fixed
manufacturing and administrative costs with higher net sales.
Packaging Segment
Net sales at our Packaging segment declined 7% from the third
quarter of 2011 and fell short of our expectations heading into the
third quarter. Similar to the first two quarters of 2012, the
reduction from 2011 was primarily driven by lower smokeless tobacco
packaging and confection packaging sales. The 26% reduction in
operating profit and the 2.3 percentage point reduction in
operating margin compared with the third quarter of 2011 were
primarily the result of lower sales.
Despite the difficult sales environment, our operating margin in
this reporting segment has sequentially improved from 2.0% in the
first quarter to 8.9% in the second quarter to 9.2% this quarter.
We intend to continue to aggressively pursue several significant
sales opportunities in our pipeline over the remainder of the year.
Accordingly, we expect our Packaging segment operating performance
to continue to improve sequentially in the fourth quarter.
Income Taxes
Our third quarter effective tax rate of 33.9% was 3.0 percentage
points higher than the third quarter of 2011. This higher rate was
primarily driven by a $1.0 million tax benefit related to the
release of a valuation allowance at a foreign subsidiary in the
third quarter of 2011 that did not recur in 2012. This tax benefit
lowered the third quarter 2011 average tax rate by approximately
2.2 percentage points. The remainder of the increase from the third
quarter of 2011 was primarily due to the research and
experimentation tax credit not being renewed for 2012. The higher
effective tax rate in the third quarter of 2012 negatively impacted
our diluted earnings per share by approximately $0.03 compared with
the third quarter of 2011.
2012 Guidance
Chris Conway commented on 2012 guidance: “Based upon our results
for the third quarter of 2012 and our expectations for the fourth
quarter, we are lowering our full year diluted earnings per share
guidance to be in the range of $2.35 to $2.45, down from our
previous guidance of $2.50 to $2.65. This revised guidance implies
a fourth quarter diluted earnings per share range of $0.65 to
$0.75—up from diluted earnings per share of $0.60 in the third
quarter. This anticipated increase in projected diluted earnings
per share in the fourth quarter from the third quarter of 2012 is
primarily due to higher sales—which are expected to increase 8%
from the third quarter of 2012 based upon the mid-point of our
revised full-year sales growth guidance. We anticipate that these
higher fourth quarter sales will be driven by a backlog of aviation
fuel, marine fuel and petrochemical filtration vessel sales in
Europe, the Middle East and Africa and higher projected sales of
heavy-duty engine filtration products in markets outside the U.S.
including China where we expect to benefit from the launch of an
OEM aftermarket program with a large local diesel engine
manufacturer. Our projections imply flat sales in the domestic
heavy-duty engine filter aftermarket in the fourth quarter compared
with the third quarter of 2012.
“Our long-term expectations are to grow sales between 6% and 10%
annually. Even though we will fall short of this goal this year, we
believe we are well-positioned to achieve this growth going
forward. We believe we possess a solid foundation for future
long-term growth based upon the many initiatives we continue to
develop including adding new heavy-duty engine filtration
distributors and broadening our product offerings both in the U.S.
and abroad. The oil and gas filtration industry remains strong, and
we feel as good about our position in this filtration market as we
do with any other market. Moreover, with an approximate 80%
company-wide mix of aftermarket business, we believe we are
well-positioned within a growing filtration industry to continue to
capitalize on future profitable growth opportunities including our
ability to share our advanced media development technology across
our diverse business units.”
Estimated full-year sales growth as compared with 2011 and 2012
operating margin by segment and on a consolidated basis are as
follows:
2012 EstimatedSales
Growth
2012 EstimatedOperating
Margin
Engine/Mobile Filtration 0.0% to 1.0% 21.5% to 22.5%
Industrial/Environmental Filtration 3.0% to 5.0% 11.0% to 12.0%
Packaging -16.0% to -12.0% 8.5% to 9.5% CLARCOR 0.0% to 2.0% 15.5%
to 16.5%
Our fiscal year 2011 included fifty-three weeks while our fiscal
year 2012 will include fifty-two weeks. In addition, our fourth
quarter 2011 included fourteen weeks while our fourth quarter 2012
will include thirteen weeks. We estimate that the additional week
in the fiscal year and fourth quarter of 2011 will impact net sales
and operating profit growth comparisons to comparable periods in
2012 by 2% for the full year and 7% for the fourth quarter.
We project 2012 cash from operations to be between $125 million
and $135 million, capital expenditures to be between $35 million
and $40 million and our average tax rate to be between 32.5% and
33.5%.
CLARCOR will be holding a conference call to discuss the third
quarter 2012 results at 10:00 a.m. CST on September 20, 2012.
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 877-870-5176 or 858-384-5517 by
providing confirmation code 6433348. The replay will be available
through October 4, 2012 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
CLARCOR 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 may be identified from use of the words “may,”
“should,” “could,” “potential,” “continue,” “plan,” “forecast,”
“estimate,” “project,” “believe,” “intent,” “anticipate,” “expect,”
“target,” “is likely,” “will,” or the negative of these terms, and
similar expressions. 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 anticipated future
growth and results of operations, including the anticipated 2012
performance of the Company and each of its segments, our
projections with respect to 2012 estimated sales growth and 2012
estimated operating margins for the Company and each of its
segments, our projections with respect to 2012 diluted earnings per
share (including our implied projected fourth quarter diluted
earnings per share range), and our projections with respect to 2012
cash from operations, 2012 capital expenditures and 2012 effective
tax rates; statements regarding 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 regarding our belief that we
will experience a rebound in our base domestic business with
respect to heavy-duty engine filters when the U.S. economy
accelerates; statements regarding our belief that we will not
realize the full sales potential of aftermarket programs through OE
dealers launched in the third quarter until the second half of
2013; statements regarding our belief that we continue to be
well-positioned to capitalize on China’s projected long-term
first-fit and aftermarket heavy-duty engine filtration growth;
statements regarding our belief that many orders of new air
filtration systems by hog farmers will be deferred until the summer
of 2013; statements regarding our belief that we are
well-positioned to achieve our long-term operating margin goal of
15% in the Industrial/Environmental Filtration segment in the next
three to four years; statements regarding our intent to
aggressively pursue several significant sales opportunities in our
pipeline with respect to our Packaging segment over the remainder
of the year; statements regarding our expectation that our
Packaging segment operating performance will continue to improve
sequentially in the fourth quarter; statements regarding our
anticipated increase in sales of 8% in the fourth quarter of 2012
compared to the third quarter of 2012; statements regarding our
expectation that higher fourth quarter sales will be driven by a
significant backlog of aviation fuel, marine fuel and petrochemical
filtration vessel sales in Europe, the Middle East and Africa and
higher sales of heavy-duty engine filtration products in markets
outside the U.S. including China where we believe we will benefit
from the launch of an OEM aftermarket program with a large local
diesel engine manufacturer; statements regarding our expectation of
flat sales in the domestic heavy-duty engine filter aftermarket in
the fourth quarter from the third quarter of 2012; statements
regarding our long-term expectation to grow sales between 6.0% and
10.0% annually, and that we will fall short of that goal this year;
statements regarding our belief that we are well-positioned to
achieve between 6.0% and 10.0% sales growth going forward;
statements regarding our belief that we possess a solid foundation
for future long-term growth based upon the many initiatives we
continue to develop including adding new heavy-duty engine
filtration distributors and broadening our product offerings both
in the U.S. and abroad; statements regarding our belief about our
position in the oil and gas filtration market compared with other
markets; statements regarding our belief that we are well
positioned within a growing filtration industry to continue to
capitalize on future profitable growth opportunities including our
ability to share our advanced media development technology across
our diverse business units; our estimates related to the sales and
operating profit growth comparison impact of the fifty-third week
in 2011 and the fourteenth week in the fourth quarter of 2011
compared with comparable period in 2012; 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. The Company's past results of
operations do not necessarily indicate its future results. The
Company’s future results may differ materially from the Company’s
past results as a result of various risks and uncertainties,
including the risk factors discussed in the “Risk Factors” section
of the Company’s 2011 Form 10-K 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 estimated 2012 diluted
earnings per share and estimated sales growth and estimated
operating margin levels for 2012 for the Company and its business
segments, whether as a result of new information, future events,
changed circumstances or any other reason after the date of this
press release.
TABLES FOLLOW
CLARCOR INC. 2012 UNAUDITED
THIRD QUARTER RESULTS
CONSOLIDATED CONDENSED STATEMENTS
OF EARNINGS (Dollars in thousands except per share data)
Quarter Ended Nine Months
September 1, August 27, September 1, August
27, 2012 2011 2012 2011 Net
sales $ 286,733 $ 284,819 $ 828,852 $ 819,072 Cost of sales
191,845 188,945 549,563
542,783 Gross profit 94,888 95,874 279,289 276,289
Selling and administrative expenses 48,707
49,413 149,685 149,757
Operating profit 46,181 46,461
129,604 126,532 Other income
(expense): Interest expense (176 ) (87 ) (364 ) (352 ) Interest
income 156 170 459 446 Other, net (186 ) 16
309 (412 ) (206 ) 99
404 (318 ) Earnings before
income taxes 45,975 46,560 130,008 126,214 Provision for
income taxes 15,564 14,401
43,026 39,253 Net earnings 30,411
32,159 86,982 86,961
Net (earnings) losses attributable to
noncontrolling interests
(141 ) (89 ) (306 ) (202 ) Net
earnings attributable to CLARCOR Inc $ 30,270 $ 32,070
$ 86,676 $ 86,759 Net earning per share
attributable to CLARCOR Inc. - Basic $ 0.60 $ 0.63 $
1.72 $ 1.72 Net earning per share attributable to
CLARCOR Inc. - Diluted $ 0.60 $ 0.63 $ 1.70 $
1.69 Weighted average number of shares outstanding -
Basic 50,283,340 50,527,206
50,357,567 50,563,556 Weighted average number
of shares outstanding - Diluted 50,863,894
51,200,241 50,979,542 51,256,621
Dividends paid per share $ 0.1200 $ 0.1050 $
0.3600 $ 0.3150
CLARCOR INC. 2012 UNAUDITED THIRD QUARTER RESULTS, continued
CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in
thousands)
September 1,
December 3, 2012 2011 ASSETS Current
assets: Cash and cash equivalents $ 165,347 $ 155,999 Restricted
cash 869 1,105
Accounts receivable, less allowance for
losses of $9,524 and $9,795, respectively
212,687 206,664 Inventories 210,521 200,274 Deferred income taxes
32,377 25,974 Income tax receivable - 3,373 Prepaid expenses and
other current assets 7,324 7,510 Total
current assets 629,125 600,899
Plant assets, at cost, less accumulated depreciation of
$309,822 and $293,111, respectively 195,239 184,992 Assets held for
sale 2,000 2,000 Goodwill 241,602 235,530 Acquired intangibles,
less accumulated amortization 96,871 98,674 Deferred income taxes
361 749 Other noncurrent assets 16,221 12,089
Total assets $ 1,181,419 $ 1,134,933
LIABILITIES Current liabilities: Current portion of
long-term debt $ 208 $ 1,289 Accounts payable and accrued
liabilities 166,190 155,585 Income taxes payable 1,504
3,176 Total current liabilities 167,902
160,050 Long-term debt, less current
portion 16,551 15,981 Long-term pension and postretirement
healthcare benefits liabilities 35,124 74,524 Deferred income taxes
54,586 36,194 Other long-term liabilities 8,774
11,069 Total liabilities 282,937
297,818 Contingencies Redeemable noncontrolling
interests 1,707 1,557
SHAREHOLDERS' EQUITY Capital
stock 50,076 50,145 Capital in excess of par value 14,223 19,453
Accumulated other comprehensive loss (46,625 ) (44,391 ) Retained
earnings 878,193 809,520 Total CLARCOR
Inc. equity 895,867 834,727
Noncontrolling interests 908 831 Total
shareholders' equity 896,775 835,558
Total liabilities and shareholders' equity $ 1,181,419 $
1,134,933 CLARCOR
INC. 2012 UNAUDITED THIRD QUARTER RESULTS, continued
CONSOLIDATED CONDENSED CASH FLOWS (Dollars in thousands)
Nine Months Ended
September 1, August 27, 2012 2011
Cash flows from operating activities: Net earnings $ 86,982
$ 86,961 Depreciation 19,387 20,679 Amortization 4,383 4,160 Other
noncash items (24 ) 180 Net loss (gain) on disposition of assets
(792 ) 168 Stock-based compensation expense 5,397 4,786 Excess tax
benefit from stock-based compensation (2,606 ) (2,338 ) Deferred
income taxes 8,355 (1,353 ) Changes in assets and liabilities
(41,325 ) (43,934 ) Net cash provided by operating
activities 79,757 69,309
Cash
flows from investing activities: Restricted cash (79 ) (317 )
Business acquisitions, net of cash acquired (11,974 ) (14,160 )
Additions to plant assets (29,473 ) (16,789 ) Proceeds from
disposition of plant assets 502 244 Investment in affiliates
(801 ) (100 ) Net cash used in investing activities
(41,825 ) (31,122 )
Cash flows from financing
activities: Payments on long-term debt (1,253 ) (1,825 )
Payment of financing costs (564 ) - Sale of capital stock under
stock option and employee purchase plans 5,389 6,900 Purchase of
treasury stock (16,724 ) (18,204 ) Excess tax benefits from
stock-based compensation 2,606 2,338 Dividend paid to
noncontrolling interests - (321 ) Cash dividends paid
(18,132 ) (15,927 ) Net cash used in financing activities
(28,678 ) (27,039 ) Net effect of exchange
rate changes on cash 94 (1,105 ) Net
change in cash and cash equivalents 9,348 10,043 Cash and
cash equivalents, beginning of period 155,999
117,022 Cash and cash equivalents, end of period $
165,347 $ 127,065
Cash paid during the
period for: Interest $ 319 $ 95 Income taxes, net
of refunds $ 27,827 $ 26,505
CLARCOR INC. 2012 UNAUDITED THIRD QUARTER
RESULTS, continued
QUARTERLY INCOME STATEMENT DATA BY
SEGMENT (Dollars in thousands)
Quarter Ended Nine Months September 1,
August 27, September 1, August 27, 2012
2011 2012 2011 Net sales by segment:
Engine/Mobile Filtration $ 126,903 $ 129,467 $ 377,863 $ 372,071
Industrial/Environmental Filtration 138,532 132,380 394,275 377,998
Packaging 21,298 22,972 56,714
69,003 $ 286,733 $ 284,819 $
828,852 $ 819,072
Operating profit by
segment: Engine/Mobile Filtration $ 28,478 $ 30,175 $ 81,403 $
80,969 Industrial/Environmental Filtration 15,741 13,650 44,193
37,077 Packaging 1,962 2,636
4,008 8,486 $ 46,181 $ 46,461 $
129,604 $ 126,532
Operating margin by
segment: Engine/Mobile Filtration 22.4 % 23.3 % 21.5 % 21.8 %
Industrial/Environmental Filtration 11.4 % 10.3 % 11.2 % 9.8 %
Packaging 9.2 % 11.5 % 7.1 % 12.3 %
16.1 % 16.3 % 15.6 % 15.4 %
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