Aldila Inc. (ALDA) filed Quarterly Report for the period ended 2009-09-30.
Aldila, Inc. is the leading designer and manufacturer of high-quality innovative graphite golf shafts. The company is one of the few independent shaft manufacturers with the technical and production expertise required to produce high-quality graphite shafts in quantities sufficient to meet rapidly growing demand. The company's current golf shaft product line consists of Aldila and G. Loomis branded products designed for custom club makers as well as custom shafts developed in conjunction with its major customers. Aldila Inc. has a market cap of $17.59 million; its shares were traded at around $3.4 with and P/S ratio of 0.33. Aldila Inc. had an annual average earning growth of 102.6% over the past 5 years.
Highlight of Business Operations:
The Company tries to maintain a broad customer base in both the OEM production shaft and branded shaft market segments and competes aggressively with foreign-based shaft manufacturers for OEM production shafts and branded shafts. However, the Company’s sales have tended to be concentrated among a limited number of major club companies, thus making the Company’s results of operations dependent on those customers, their continued willingness to purchase a significant portion of their shafts from the Company, and their success in selling clubs containing the Company’s shafts to their customers. In 2008, net sales to Ping, Acushnet Company and Callaway Golf, represented 21%, 16% and 15% of the Company’s net sales, respectively, and the Company anticipates that these companies will continue, collectively, to represent the largest portion of its sales in 2009.
Although it is generally difficult to predict in advance the success of any particular club or of any particular manufacturer, the Company believes that it is protected to some extent from normal periodic fluctuations in sales among the various golf club companies by virtue of the broad depth and range of its customer base. Golf club companies regularly introduce new clubs, frequently containing innovations in design. Sometimes these new clubs achieve dramatic success in the marketplace, thus increasing the overall volatility of club sales among the major companies. While the Company seeks to have its shafts represented on as many major product introductions as possible, it can provide no assurance that its shafts will be included in any particular “hot” club or that sales of a “hot” club that does not include the Company’s shafts will not have a negative impact on the sales of those clubs that do. The Company’s sales could also suffer a significant drop-off from period to period to the extent that they may be dependent in any period on sales of one or more “hot” clubs, which then tail off in subsequent periods and at the same time, new offerings fail to achieve a high level of new sales sufficient to exceed or replace the previous sales levels of “hot” clubs. This is especially true in the premium branded driver programs. If the Company does not participate in these programs, it could have an adverse effect on the Company’s revenues and average selling prices. Average selling prices of the Company’s shafts have varied greatly over the years based upon programs it participates in, mix of shafts, wood versus. irons, competition, retail inventory situations or a shortage of raw materials available. The Company’s average selling price increased by approximately 1% for the three month period ended September 30, 2009 (“2009 Quarter”) as compared to the three month period ended September 30, 2008 (“2008 Quarter”) and has decreased 2% for the nine month period ended September 30, 2009 (“2009 Period”) as compared to the nine month period ended September 30, 2008 (“2008 Period”).
The Company began to manufacture composite materials in 1994. Initially, the prepreg produced was mainly consumed by the Composite Products segment. Until recently, the Company’s external sales of prepreg and other materials had increased over the past several years. Sales of prepreg, as a percentage of net sales, were approximately 14% for the 2009 Period as compared to approximately 15% for the 2008 Period. The Company has spent a significant amount of money over the past several years to increase the capacity of its prepreg operations in support of its external sales of prepreg and Composite Products operations. Over the last several years, the Company has put in place two prepreg production lines, a second resin filmer and completed the installation of a wide prepreg tape line during the first quarter of 2008. The prepreg lines add to the Company’s capacity of prepreg to support both the Composite Materials and Composite Products segments. The additional resin filmer supports the Company’s wide tape line and provides backup film capacity as the Company had previously only one resin filmer. In addition, the wide tape line allows the Company to enter some markets it has previously not been able to access.
Net sales decreased by $1.1 million, or 9%, for the 2009 Quarter as compared to the 2008 Quarter. The decrease in sales was attributed to decreases in Composite Products sales, which was partially offset by an increase in Composite Materials sales. The decrease in the Composite Product sales of $1.4 million is mainly attributed to a decrease in OEM production shafts. The golf industry continues to be impacted by the worldwide recession with an estimated contraction of the golf market between twenty and thirty percent. Club companies continue to actively manage their inventories as they prepare to launch their 2010 product lines. We believe our market share remains strong based upon our share of the upcoming 2010 product lines, which began during the 2009 Quarter. The Company’s average selling price of golf shafts increased by approximately 1% for the 2009 Quarter as compared to the 2008 Quarter. The Company’s unit sales decreased by 14% in the 2009 Quarter as compared to the 2008 Quarter. Composite Materials sales increased by $305,000, or a 22% increase. Composite Materials sales were approximately 16% of the Company’s consolidated net revenues for the 2009 Quarter as compared to 12% for the 2008 Quarter. Although the Composite Materials sales increased quarter versus quarter, the segment also continues to be impacted by the worldwide recession. The majority of our Composite Materials business is to customers in the recreational products industry. Our customers’ businesses have been impacted by the weak economy similar to what is impacting the Composite Products segment. The Company continues to attempt to diversify its customer base in this segment so as not to be highly concentrated in the recreational products industry.
to the 2008 Quarter. The Company’s branded and co-branded shafts sales, which sell at better margins, were 37% of sales for the 2009 Quarter as compared to 33% for the 2008 Quarter. In addition, the decrease in units shipped during the 2009 Quarter was attributed to a 29% decrease in sales of iron shafts, which typically sell at lower margins than the Company’s wood shafts. In addition to the favorable mix in shafts sold during the 2009 Quarter, the Company benefited from lower manufacturing costs, including material, labor and overhead, during the 2009 Quarter as compared to the 2008 Quarter. The majority of the units produced and shipped during the 2009 Quarter were manufactured in Asia, as the Company has announced the closure of its manufacturing facility in Mexico. Composite Products gross margin increased to 23% for the 2009 Quarter as compared to 8% for the 2008 Quarter. The Composite Materials gross profit increased by approximately $170,000, or 64%, in the 2009 Quarter as compared to the 2008 Quarter. Composite Materials gross margin was 26% for the 2009 Quarter as compared to 19% for the 2008 Quarter.
Operating loss decreased by $1.7 million, or 97%, in the 2009 Quarter as compared to the 2008 Quarter. The decrease in operating loss was attributed to an increase in gross profit of $1.4 million and a decrease in SG&A of $262,000. Included in the Composite Products SG&A is $212,000 of Plant Consolidation costs. Without such costs, the Company’s SG&A would have decreased by $474,000 in the 2009 Quarter as compared to the 2008 Quarter. The decrease in SG&A is mainly attributed to decreases in advertising and marketing spending. SG&A expenses, excluding the aforementioned Plant Consolidation costs, as a percentage of revenues is 22% for the 2009 Quarter as compared to 24% for the 2008 Quarter.
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