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Zoltek Companies Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 10, 2009 08:26PM

Zoltek Companies Inc. (ZOLT) filed Quarterly Report for the period ended 2009-06-30. Zoltek Companies Inc. is an applied technology and advanced materials company. Their primary focus is the manufacturing and marketing of carbon fibers. The most significant current application for carbon fibers produced by Zoltek is for aircraft brake manufacturers who use their fibers as base materials for the carbon/carbon brake systems used in most newly designed aircraft. Zoltek Companies Inc. has a market cap of $354.7 million; its shares were traded at around $10.31 with a P/E ratio of 43 and P/S ratio of 1.9.

Highlight of Business Operations:

The Company’s cost of sales decreased by 22.9%, or $7.2 million, to $24.1 million in the third quarter of fiscal 2009 from $31.3 million in the third quarter of fiscal 2008. Carbon fiber cost of sales decreased by 22.0%, or $5.5 million, to $19.6 million for the third quarter of fiscal 2009 from $25.1 million for the third quarter of fiscal 2008. The decrease in carbon fiber cost of sales reflected decreased sales of 33.6% discussed above. Technical fiber cost of sales decreased $1.3 million and other cost of sales decreased $0.3 million due to decreased sales discussed above. Included in the Company’s gross profit of 20.3% are unused productive capacity costs equal to 8.7% of net sales. These costs include depreciation and other overhead associated with the unused capacity. These costs were $2.4 million for the carbon fiber segment and $0.2 million for the technical fiber segment during the first three months of fiscal 2009. The Company believes maintaining this excess capacity has been necessary to encourage development of significant large-scale applications and maintain a level of readiness as we anticipate a return to more robust market conditions. In accordance with our inventory accounting policy, as production levels fall below the range of normal rates, these excess capacity costs are expensed in the period in which they were incurred.

The Company’s gross profit decreased by 54.8%, or $7.4 million, to $6.2 million in the third quarter of fiscal 2009 from $13.6 million in the third quarter of fiscal 2008. Carbon fiber gross profit percentage decreased to 21.7% for the third quarter of fiscal 2009 compared to 33.3% for the third quarter of fiscal 2008. Carbon fiber gross profit decreased to $5.4 million from $12.6 million during these respective periods. The decreases in carbon fiber gross profit and gross profit percentage resulted primarily due to excess capacity costs expensed during the quarter. Technical fiber gross profit decreased from $1.2 million, or 17.9% of sales, in the third quarter of fiscal 2008 to $0.7 million, or 14.7% of sales, during the corresponding period of fiscal 2009. The decreases in technical fiber gross profit and gross profit percentage resulted from excess capacity costs expensed during the quarter and decreased shipments to the primary aircraft brake customers. The gross profit of the other products increased for the third quarter ended fiscal 2009 to $0.1 million compared to a loss on gross profit for the third quarter ended fiscal 2008 of $0.1 million.

Operating loss in the third quarter of fiscal 2009 was $0.2 million, a decrease of $7.5 million from the operating income of $7.3 million reported during the third quarter of fiscal 2008. This decline resulted primarily from a decrease in gross profit of $7.4 million. Carbon fiber operating income declined from $9.9 million in the third quarter of fiscal 2008 to $2.3 million in the third quarter of fiscal 2009. The decrease resulted from the 33.6% decrease in sales discussed above and excess capacity costs expensed during the quarter. Operating income from technical fibers decreased from $0.7 million in the third quarter of fiscal 2008 to $0.3 million in the third quarter of fiscal 2009 due to excess capacity costs expensed during the quarter. Corporate/other operating loss decreased from a loss of $3.3 million in the third quarter of fiscal 2008 to a loss of $2.8 million in the third quarter of fiscal 2009. Selling, general and administrative expenses also increased and are described above.

The Company’s cost of sales decreased by 17.4%, or $16.8 million, to $79.4 million during the first nine months of fiscal 2009 from $96.2 million during the first nine months of fiscal 2008. Carbon fiber cost of sales decreased by 18.7%, or $14.9 million, to $64.7 million during the first nine months of fiscal 2009 from $79.6 million for the first nine months of fiscal 2008. The decreases in carbon fiber cost of sales resulted from the decreased sales of 23.8% discussed above. Technical fiber cost of sales decreased $0.9 million, or 6.9%, to $13.2 million for the first nine months of fiscal 2009 from $14.1 million for the first nine months of fiscal 2008. The decrease in technical fiber cost of sales resulted from the decreased sales of 9.3% discussed above. Included in the Company’s gross profit of 24.3% are unused productive capacity costs equal to 4.2% of net sales. These costs include depreciation and other overhead associated with the unused capacity. These costs were $3.6 million for the carbon fiber segment and $0.8 million for the technical fiber segment during the first nine months of fiscal 2009. The Company believes maintaining this excess capacity has been necessary to encourage development of significant large-scale applications and maintain a level of readiness as we anticipate a return to more robust market conditions. In accordance with our inventory accounting policy, as production levels fall below the range of normal rates, these excess capacity costs are expensed in the period in which they were incurred. The cost of sales of other products decreased for the first nine months of fiscal 2009 to $1.6 million compared to the first nine months of fiscal 2008 of $2.5 million.

The Company’s gross profit decreased by 33.5%, or $12.9 million, to $25.5 million during the first nine months of fiscal 2009 from $38.4 million during the first nine months of fiscal 2008. Carbon fiber gross profit percentage decreased to 25.3% for the first nine months of fiscal 2009 compared to 30.0% for the first nine months of fiscal 2008. Carbon fiber gross profit decreased from $34.1 million to $22.0 million during these same respective periods. The decreases in carbon fiber gross profit and gross profit percentage were primarily due to excess capacity costs expensed during the quarter. Technical fiber gross profit decreased from $4.0 million, or 21.9% of sales, for the first nine months of fiscal 2008 to $3.3 million, or 19.8% of sales, during the corresponding period of fiscal 2009. The decreases in technical fiber gross profit and gross profit percentage resulted from the inability of the business to absorb certain fixed costs due to decreased production of technical fiber products. The gross profit of the other products remained unchanged at $0.3 million for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008.

Operating income was $5.3 million for the first nine months of fiscal 2009 compared to income of $20.4 million in the first nine months of fiscal 2008. Carbon fiber operations reported operating income of $13.5 million for the first nine months of fiscal 2009 compared to income of $28.1 million in the first nine months of fiscal 2008. The decrease was due to decreased sales of 23.8% discussed above and the excess capacity costs expensed during the period. Operating income in technical fibers declined, from $1.6 million for the first nine months of fiscal 2008 to $1.4 million for the first nine months of fiscal 2009. Corporate/other reported an operating loss of $9.6 million for the nine months ended June 30, 2009 compared to a loss of $9.3 million for the nine months ended June 30, 2008.

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