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Zoltek Companies Inc. Reports Operating Results (10-Q)

August 09, 2010 | About:

10qk

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Zoltek Companies Inc. (ZOLT) filed Quarterly Report for the period ended 2010-06-30.

Zoltek Companies Inc. has a market cap of $353.7 million; its shares were traded at around $10.28 with and P/S ratio of 2.6. ZOLT is in the portfolios of Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Carbon fiber sales increased 41.0%, or $10.2 million, to $35.2 million in the third quarter of fiscal 2010 from $25.0 million in the third quarter of fiscal 2009. Technical fiber sales increased 45.6%, or $2.1 million, to $6.8 million in the third quarter of fiscal 2010 from $4.7 million in the third quarter of fiscal 2009. Technical fiber sales increased as shipments to its primary aircraft brake customers increased. Other revenues decreased $0.2 million to $0.4 million during the third quarter of fiscal 2010 from $0.6 million during the third quarter of fiscal 2009.

The Companys cost of sales increased by 56.5 %, or $13.7 million, to $37.8 million in the third quarter of fiscal 2010 from $24.1 million in the third quarter of fiscal 2009. Our raw material costs increased substantially as unscheduled shutdowns in production in Europe coupled with an increase in demand for acrylonitrile (ACN) drove market prices up more than 100% since the end of fiscal 2009. Included in the Companys cost of sales were available unused capacity costs of $3.4 million and $2.6 million for the third quarter of fiscal 2010 and third quarter of fiscal 2009, respectively. During the third quarter of fiscal 2010, these costs were comprised of fixed production costs allocated to manufacturing lines which were producing below normal levels and amounted to $3.2 million for the carbon fiber segment and $0.3 million for the technical fiber segment. During the third quarter of fiscal 2009, these costs amounted to $2.4 million for the carbon fiber segment and $0.2 million for the technical fiber segment. The cost increased during the third quarter of fiscal 2010 as compared to the third quarter of 2009 primarily due to Hungary reducing production output during the first month of the third quarter of fiscal 2010. The Company believes maintaining this available unused 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.

The Companys gross profit decreased by $1.5 million, to $4.7 million, or 11.0% of sales in the third quarter of fiscal 2010 from $6.2 million, or 20.3% of sales in the third quarter of fiscal 2009. Carbon fiber gross profit margin decreased to 9.0% for the third quarter of fiscal 2010 compared to 21.7% for the third quarter of fiscal 2009. Carbon fiber gross profit decreased to $3.2 million from $5.4 million during these respective periods. Our raw material costs increased substantially as unscheduled shutdowns in production in Europe coupled with an increase in demand for acrylonitrile (ACN) drove market prices up more than 100% since the end of fiscal 2009. Additional decreases in carbon fiber gross profit and gross profit margin resulted from available unused capacity costs expensed during the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. Technical fiber gross profit increased from $0.7 million, or 14.7% of sales, in the third quarter of fiscal 2009 to $1.3 million, or 19.4% of sales, during the corresponding period of fiscal 2010. The increase in technical fiber gross profit resulted from favorable product sales mix. The corporate/other products segment reported a gross profit of $0.2 million for the third quarter of fiscal 2010 as compared to a gross profit of $0.1 million for the third quarter of 2009.

Operating loss increased from a loss of $0.2 million in the third quarter of fiscal 2009 to a loss of $0.9 million in the third quarter of fiscal 2010. This resulted primarily from a decrease in gross profit of $1.5 million. Carbon fiber operating income declined from $2.3 million of operating income in the third quarter of fiscal 2009 to $1.3 million in the third quarter of fiscal 2010. The decline resulted primarily from a decrease in gross profit discussed above. Operating income from technical fibers increased from $0.3 million in the third quarter of fiscal 2009 to $1.1 million in the third quarter of fiscal 2010, resulting from a 46% increase in sales. Other products/ headquarters operating loss increased from a loss of $2.8 million in the third quarter of fiscal 2009 to a loss of $3.2 million in the third quarter of fiscal 2010 due to increases in application and development and selling, general, and administrative costs as discussed.

Carbon fiber sales decreased 9.0%, or $7.7 million, to $78.9 million in the first nine months of fiscal 2010 from $86.6 million in the first nine months of fiscal 2009. Technical fiber sales increased 4.7%, or $0.8 million, to $17.2 million in the first nine months of fiscal 2010 from $16.4 million in the first nine months of fiscal 2009. Technical fiber sales increased as shipments to primary aircraft brake customers increased. Other revenues decreased $0.6 million to $1.3 million during the first nine months of fiscal 2010 from $1.9 million during the first nine months of fiscal 2009. Many of our customers are being impacted by the global economic downturn and difficult capital market conditions. Management believes that these customers reactions of reducing inventories and slowing orders is temporary and that Zoltek is best positioned to supply our current customers and new customers with their commercial carbon fiber needs as opportunities arise and economic conditions and capital markets improve.

Operating loss from the first nine months of fiscal 2010 was $8.7 million, compared to operating income of $5.3 million reported during the first nine months of fiscal 2009. This decline resulted primarily from a decrease in gross profit of $15.5 million. Carbon fiber operating income declined from income of $13.5 million in the first nine months of fiscal 2009 to $0.9 million in the first nine months of fiscal 2010. The decline resulted from a decrease in gross profit as discussed above. Operating income from technical fibers increased from $1.4 million in the first nine months of fiscal 2009 to $1.9 million in the first nine months of fiscal 2010. The Company reclassified certain research and development personnel from technical fiber to the other products segment during the third quarter of fiscal 2009 which increased technical fiber operating income by $1.0 million. Other products/ headquarters operating loss increased from a loss of $9.6 million in the first nine months of fiscal 2009 to a loss of $11.5 million in the first nine months of fiscal 2010 due to increases in application and development costs.

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