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Libbey Inc. Reports Operating Results (10-Q)

November 05, 2010 | About:
10qk

10qk

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Libbey Inc. (LBY) filed Quarterly Report for the period ended 2010-09-30.

Libbey Inc. has a market cap of $226.3 million; its shares were traded at around $14.04 with a P/E ratio of 28 and P/S ratio of 0.3.

Highlight of Business Operations:

For the quarter ended September 30, 2010, gross profit decreased by $1.3 million, or 3.0 percent, to $41.7 million, compared to $43.0 million in the year-ago quarter. Gross profit as a percentage of net sales decreased to 20.8 percent, compared to 23.0 percent in the year-ago quarter. The major reasons for the decline in gross profit were increased sales of lower margin products in the retail market and a $2.8 million increase in packaging costs compared to the prior-year period. Restructuring charges for the three months ended September 30, 2010 were $0.6 million primarily due to costs related to the write-off of the decorating assets at our Shreveport, Louisiana facility. Restructuring charges for the quarter ended September 30, 2009 were $0.2 million primarily due to costs related to the Syracuse China facility closure. These were offset by higher sales levels.

Income from operations for the quarter ended September 30, 2010 decreased $2.2 million, or 12.3 percent, to $15.7 million, compared to $17.8 million in the year-ago quarter. Income from operations as a percentage of net sales declined to 7.8 percent in the third quarter of 2010, compared to 9.6 percent in the year-ago quarter. The decrease in income from operations is a result of lower gross profit and gross profit margin (discussed above), increased workers compensation expense of $1.0 million related to a facility in California which was closed in 2005 and $1.1 million of finance fees related to the secondary stock offering completed in August 2010. This was partially offset by a $0.9 million reduction in other selling, general and administrative expenses (primarily labor and benefits). In addition, the $0.3 million of pension settlement charges that we incurred in the third quarter of 2009 did not recur in the current period.

We recorded net income of $2.3 million, or $0.12 per diluted share, in the third quarter of 2010, compared to $3.5 million, or $0.23 per diluted share, in the year-ago quarter. Net income as a percentage of net sales was 1.2 percent in the third quarter of 2010, compared to 1.9 percent in the year-ago quarter. The decline in net income and diluted net income per share is generally due to the factors discussed in EBIT above and a $5.6 million reduction in interest expense offset by a $1.9 million increase in provision for (benefit from) income taxes. The reduction in interest expense is driven by lower debt levels and the impact of the debt refinancing completed in February 2010. The effective tax rate was a 38.6 percent expense for the quarter compared to a 13.9 percent benefit in the year-ago quarter. The Companys effective tax rate differs from the United States statutory tax rate primarily due to changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions and changes in tax laws.

For the nine months ended September 30, 2010, gross profit increased by $35.6 million, or 40.5 percent, to $123.6 million, compared to $88.0 million in the year-ago period. Gross profit as a percentage of net sales increased to 21.4 percent, compared to 16.3 percent in the year-ago period. The major reason for the improvement in gross profit was increased production activity that resulted in a $28.2 million benefit, net of cost increases inherent with the higher level of activity. Favorable currency impact contributed another $8.8 million to the margin, primarily from movement in the Mexican peso. Higher levels of net sales and favorable mix contributed another $2.0 million to gross profit, while restructuring charges related to facility closures decreased by $2.0 million. These improvements were offset by a $2.9 million increase in distribution costs due to increased sales and a $2.7 million fixed asset write-down in 2010 related to after-processing equipment in our International segment.

Income from operations for the nine months ended September 30, 2010 increased $32.3 million, to $49.6 million, compared to $17.3 million in the year-ago period. Income from operations as a percentage of net sales increased to 8.6 percent in the first nine months of 2010, compared to 3.2 percent in the year-ago period. The improvement in income from operations is a result of higher gross profit and gross profit margin (discussed above), offset by a $3.2 million increase in selling, general and administrative expenses and a $0.1 million increase in items on the restructuring charges line. The increase in selling, general and administrative expenses included $1.1 million in fees related to the secondary stock offering in 2010 and increases of $3.2 million in labor and benefits (which includes the $1.0 million workers compensation charge and $2.0 million of other benefit cost increases), $0.9 million in legal and professional fees and $0.7 million in supplies and other costs, offset by $3.0 million of pension settlement expenses in 2009 that did not recur in 2010.

Adjusted EBITDA increased by $25.2 million, or 41.3 percent in the first nine months of 2010, to $86.2 million, compared to $61.0 million in the year-ago period. As a percentage of net sales, Adjusted EBITDA was 14.9 percent for the first nine months of 2010, compared to 11.3 percent in the year-ago period. The key contributors to the increase in Adjusted EBITDA were those factors discussed above under Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Negatively impacting Adjusted EBITDA for the first nine months of 2010 were the exclusion of a $56.8 million gain on redemption of debt and a $0.9 million insurance claim recovery in 2010, a $1.1 million charge for fees related to a secondary equity offering in 2010, a $2.7 million fixed asset write down of after-processing equipment in our International segment in 2010, a $1.3 million charge to write off decorating assets at our Shreveport, Louisiana facility in 2010 and a $0.5 million facility closure charge in 2010. Negatively impacting Adjusted EBITDA in the first nine months of 2009 were pension settlement charges of $3.0 million and facility closure charges of $3.2 million less $0.7 million of accelerated depreciation included in those charges in 2009.

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