SPARTECH CORP. is in the plastics processing business with its two lines of business being: Extruded Sheet & Rollstock - which sells its products to various manufacturers who use plastic components in their industrial products. Merchant Compounding - which sells specialty alloys compounds and color concentrates principally to manufacturers of specialized footwear shutters loose-leaf binders cosmetic packaging products and numerous other custom plastic applications. Spartech Corp. has a market cap of $187.37 million; its shares were traded at around $6.1 with a P/E ratio of 19.4 and P/S ratio of 0.13. The dividend yield of Spartech Corp. stocks is 3.26%. Spartech Corp. had an annual average earning growth of 0.3% over the past 10 years.
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Press Release:ST. LOUIS, Dec. 15 /PRNewswire-FirstCall/ -- Spartech Corporation(NYSE: SEH) announced today operating results for its 2008 fourth quarter andan additional $25 million of turnaround improvement initiatives. Strongoperating cash flows and continued progress on structural cost reductionshighlighted a quarter that experienced substantial volume decreases from weakend market demand. The fourth quarter 2008 results include a $254.1 millionnon-cash charge for asset impairments. Fourth Quarter 2008 Financial Summary -- Net sales were $346.1 million compared to $366.2 million in the fourthquarter of 2007 representing a decrease of 5% reflecting weak end marketdemand partially offset by higher selling prices from the pass through ofresin cost increases and sales mix changes. Sales volumes were down 21% inthe fourth quarter of 2008 compared to the prior year reflecting demanddeclines in the transportation and recreation and leisure markets and generalinventory reductions across most markets. -- Operating earnings excluding special items (consisting of the assetimpairments and restructuring and exit costs) were $5.4 million which declined$3.8 million compared to the fourth quarter of 2007, primarily reflecting thelower sales volume partially offset by improved gross margins. Solid grossmargin per pound increases reflected conversion cost savings from our costreduction initiatives, improvements in our product sales mix, and the timelypass through of significant resin price increases. -- The reported operating loss of $249.4 million included special itemstotaling $254.8 million in the fourth quarter of 2008 and $2.2 million in theprior year fourth quarter. The non-cash asset impairments of $254.1 millionprimarily relate to the write off of goodwill from past acquisitions. -- The diluted loss per share was ($6.51) including the impact of noncash asset impairments and restructuring and exit costs. Excluding thesespecial items, the earnings per diluted share for the fourth quarter of 2008was $0.02 compared to $0.08 in the fourth quarter of 2007. -- Progress was achieved in improving cash flows and working capital.Cash flows from operations for the quarter of $45.8 million were higher thanthe $34.3 million in the fourth quarter of 2007 and funded $3.4 million ofcapital expenditures and $38.8 million of debt repayments. For the year, werealized $96.6 million in cash flows from operations and paid down $57.2million in debt. Turnaround Initiatives Update The company continued to make progress on financial improvement andturnaround initiatives including structural cost reductions and additionalactions to reduce our fixed cost footprint and strengthen our competitiveposition and cash flow. During the second quarter, a framework for astrategic assessment was established. In June, the assessment was completedand a roadmap was created for improving Spartech's performance for enhancedshort-term results and long-term sustainable profit growth. The strategicreview included the development of comprehensive portfolio plans,organizational restructuring plans, manufacturing cost reduction plans, andother financial turnaround initiatives. We accomplished measurable savingsand initiated additional actions in the fourth quarter of 2008. -- 2008 Turnaround Initiatives (Labor Reduction, Mankato Consolidation,St. Clair Consolidation) -- During 2008, we undertook initial steps tostreamline our manufacturing cost structure, in part by reducing the number ofjobs at the company and optimizing the use of flex time and overtime in ouroperations. Our target was a 10% reduction in labor, but we realized a 12%reduction (representing approximately 440 full-time equivalents) from thebeginning of calendar 2008 and this has resulted in approximately $15 millionof lower labor-related costs in 2008 compared to 2007. In addition to theacross-the-board labor reduction initiative, we announced two plantconsolidations in 2008 which were completed in our fourth quarter: Mankato,Minnesota and St. Clair, Michigan. We expect to see an additional $10 millionof benefit in 2009 due to the full-year impact of our labor reductions and thetwo plant consolidations. -- 2009 Turnaround Initiatives (Procurement, Segmentation, CostFootprint) -- In this release, we are announcing actions to realize anadditional $25 million in annualized benefits from initiatives inconsolidating procurement, improving margin segmentation, and furtheroptimizing our manufacturing cost footprint across the company. We havecommenced many of these initiatives and made progress in laying the foundationfor completing these actions throughout 2009. These new activities includespecific moves to further consolidate compounding production and a decision toterminate our Plastics Recycling Center, LLC joint venture in recycledcompounds which was completed in November. These two actions will provideannual benefits of approximately $2.0 million and cost approximately $2.0million to complete. In summary, we have now announced $50 million in improvements from thecombined 2008 and 2009 Turnaround Initiatives. The $25 million in 2008Turnaround Initiatives have been completed with $15 million of improvementsbenefiting 2008 and the incremental $10 million to be realized in 2009. Themajority of the 2009 Turnaround Initiatives will be realized in 2009 as weimplement them throughout our fiscal year. These actions will maximize cashflow in a challenging near term environment, improve our future earningspotential, and better position Spartech for an economic recovery. Overview Spartech's President and Chief Executive Officer, Myles S. Odaniellstated, "We continue to manage through a very challenging economic environmentthat has negatively impacted the end markets we serve. We are experiencingweak end market demand in our major transportation, recreation and leisure,and residential construction markets, but we are also experiencing lowerdemand in most other markets. Our margins have faired well and we continue torealize steady progress with structural cost reduction efforts, but we havenot been able to fully offset the sharp decreases in demand. As expected,resin prices have started to decline and we expect additional reductions inthe near term." Mr. Odaniell continued, "We are taking aggressive actions to maximize cashflows and reduce our cost structure both in response to current marketconditions but also to capitalize on unique improvement opportunities existingat Spartech. Our financial improvement initiatives at Spartech, which wereinitiated early in the year, has positioned us to address today's verychallenging market conditions and ensure we have a solid foundation for long-term success. While the current demand declines are more extreme and extendedthan we expected, we are staying the course on executing the turnaroundinitiatives and additional near term actions to improve our company. We arerealistic about the challenges ahead in this market and are prepared to adjustactions as conditions warrant. Our effective management of working capitaland aggressive cost reduction initiatives should support continued solid cashflow performance." Consolidated Results Net sales for the fourth quarter of 2008 were $346.1 million compared to$366.2 million in the fourth quarter of 2007 representing a decrease of 5%.This change was caused by a decline in underlying sales volume (-21%),partially offset by contributions from the Creative Forming acquisition (+2%)and an increase from price/mix changes (+14%). The underlying sales volumedecline related largely to lower sales to the automotive and recreation andleisure markets. Price/mix changes reflect higher selling prices fromeffective pass through of significant resin cost increases that occurredthrough October. The reported operating loss of ($249.4) million for the fourth quarter of2008 compared to operating earnings of $7.0 million in the prior year fourthquarter. Operating earnings excluding special items were $5.4 millioncompared to $9.2 million in the fourth quarter of 2007. This $3.8 milliondecrease was primarily the result of the decline in sales volume from weakdemand. In addition, our operating earnings excluding special items in ourfourth quarter of 2008 were negatively impacted by a $2.7 million increase inbad debt reserves and $0.9 million of foreign currency loss resultingprimarily from a significantly strengthening of the U.S. dollar compared tothe Mexican peso. However, gross margin per pound sold was 11.4 cents in thefourth quarter of 2008 compared to 9.3 cents in the fourth quarter of 2007.This solid gross margin per pound increase reflected conversion cost savingsfrom our cost reduction initiatives, improvements in our product sales mix,and the timely pass through of significant resin price increases. Selling, general and administrative expenses increased $2.8 million in thefourth quarter of this year compared to the fourth quarter of last year due tothe impact of higher bad debt expense ($1.9 million), placement fees forhiring new executives ($0.5 million), and the late 2007 acquisition ofCreative Forming, Inc. ($0.2 million). Interest expense increased to $5.1million in our fourth quarter of 2008 compared to $4.5 million in 2007 due tohigher average debt levels from the impact of the Creative acquisition andstock buybacks in late calendar 2007. Our effective tax rate was impacted bythe significant asset impairments, some of which are not tax deductible. Weestimate our 2009 tax rate to be approximately 38-39%. Segment Results Custom Sheet & Rollstock -- The sheet segment continued to be impacted byweak volume demand, but made progress on its cost reduction initiatives.
Fourth Quarter Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales $161.5 $164.5 $637.1 $674.8 Operating Earnings (Loss) $(112.8) $6.6 $(100.1) $44.2 Operating Earnings, excluding Special Items $6.4 $7.2 $19.8 $45.3The net sales decrease of 2% reflected a 16% decrease in volume mostlyoffset by a 14% increase from price/mix changes. The volume decline was dueprimarily to continued weakness in the residential construction,transportation, and recreational vehicles sectors of our end markets. Theincrease from price/mix mostly represents higher resin costs that were passedon to customers as higher selling prices. The slight decrease in operatingearnings excluding special items in the fourth quarter of 2008 reflects theimpact of the significant decrease in volume mostly offset by a 2.7 centincrease in gross margin per pound. In addition, the operating earnings inthe fourth quarter of 2008 included $1.0 million of additional bad debtexpense.
Packaging Technologies -- Net sales and operating earnings decreased withthe lower volume. Fourth Quarter Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales $68.6 $70.5 $274.4 $253.7 Operating Earnings $4.7 $6.5 $18.8 $26.1 Operating Earnings, excluding Special Items $5.4 $8.1 $20.2 $27.7The net sales decrease of 3% in the fourth quarter was attributable to thenet effect of $5.7 million in incremental sales from the Creative acquisition,7% decrease from packaging related volume, 12% decrease from non-packagingrelated volume (related to automotive customers served by the PackagingTechnologies operations), and an 8% increase from price/mix. The decrease inoperating earnings reflects the lower volumes and a decrease in gross marginper pound of 1.3 cents as the conversion costs were not reduced enough tooffset the lower volume. Color & Specialty Compounds -- Net sales decreased, but margins improvedfrom the prior year fourth quarter.
Fourth Quarter Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales $100.3 $117.6 $414.0 $446.8 Operating Earnings (Loss) $(111.3) $1.4 $(98.0) $23.1 Operating Earnings, excluding Special Items $1.9 $1.5 $15.6 $23.3Net sales in the fourth quarter decreased 15%, 27% from underlying volumedecreases partially offset by a 12% increase from price/mix. The decrease involume related to lower sales of compounds to domestic automotive, lawn andgarden, and recreation and leisure markets which typically account forapproximately 35% of this segment's sales. The increase in price/mix reflectsthe reduction in sales to less profitable customers and higher resin coststhat were passed on to customers as higher selling prices. This segment'sincrease in operating earnings excluding special items was a result of thevolume decline and $0.4 million in bad debt expense which was more than offsetby an improved mix and some purchasing benefits that resulted in a grossmargin per pound sold that was 1.7 cents higher than the prior year fourthquarter. Engineered Products -- Net sales and operating earnings excluding specialitems both increased with higher volumes.
Fourth Quarter Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales $15.8 $13.7 $73.4 $76.7 Operating Earnings (Loss) $(20.7) $0.8 $(13.3) $9.6 Operating Earnings, excluding Special Items $0.9 $0.8 $8.3 $9.6Volume for the fourth quarter of 2008 was up 22% from the 2007 comparativequarter primarily related to higher sales of wheels into the lawn and gardenmarket. Operating earnings excluding special items was up slightly from thenet effect of higher volumes partially offset by a decrease in gross marginper pound due to mix. Cash Flow Performance We continue to make progress improving cash flows and working capital.Strong cash flows from operations for the quarter of $45.8 million were higherthan both the $34.3 million in the fourth quarter of 2007 and the $34.1million in the third quarter of 2008. Operating cash flows funded $3.4million of capital expenditures and $38.8 million of debt repayments in thefourth quarter of 2008. For the year, we realized $96.6 million in cash flowsfrom operations and paid down $57.2 million in debt. As of the end of thefourth quarter of 2008, we had $274.7 million of total debt. Outlook We will continue to execute on our structural cost reduction actions andfinancial improvement initiatives to reduce costs and maximize cash flows.These activities are in addition to work schedule reductions to accommodatedynamic changes in volumes. We expect a turbulent economic environment forthe foreseeable future and we are prepared to adjust actions as conditionswarrant. Our operating plans assume the recessionary effects will continuethrough 2009 and that volumes will be weak through this period. Ouraggressive cost reduction efforts and financial discipline will enable us toeffectively manage through this challenging market. We expect to emerge fromthis environment a stronger and better positioned company to support futurelong-term profitable growth. Special Items Special items (consisting of asset impairments and restructuring and exitcosts) totaled $254.8 million in the fourth quarter of 2008 and $2.2 millionin the prior year fourth quarter. Asset impairments totaling $254.1 million consisted of non-cash chargesfor the write off of goodwill ($238.6) million, identifiable intangible assets($6.9) million, and certain fixed assets at non-core operations ($8.5)million. These charges have no effect on cash flows, but reduced reportedoperating earnings and earnings per common share, resulting in a loss for thequarter and fiscal year ended November 1, 2008. We incurred various restructuring and exit costs (primarily related toseverance and moving costs) to complete the announced cost reductionactivities to consolidate and close down production facilities. Restructuringand exit costs for these activities totaled $0.7 million for the fourthquarter of 2008. During the fourth quarter of 2008, we completed theconsolidations of our Mankato, Minnesota and St. Clair, Michigan facilities.In addition, we are consolidating production of certain compounds that willallow us to operate more efficiently and we have terminated our PlasticsRecycling Center, LLC joint venture in recycled compounds, which was completedin November. The joint venture with another plastics processing company wasdesigned to process scrap compounds into pellets for consumption by theoperating companies. We have alternative supplies at a more effective priceand have decided to terminate the venture. The consolidation of compoundingproduction and termination of the joint venture is estimated to improveoperating earnings by approximately $2 million in 2009. Spartech Corporation is a leading producer of engineered thermoplasticsheet materials, thermoformed packaging, polymeric compounds and concentrates,and engineered product solutions. The Company has facilities locatedthroughout the United States, Canada, Mexico, and Europe with annual sales ofapproximately $1.4 billion. Safe Harbor For Forward-Looking Statements This press release contains "forward-looking statements" within themeaning of the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" within the meaning of the Private Securities LitigationReform Act of 1995 relate to future events and expectations, includestatements containing such words as "anticipates," "believes," "estimates,""expects," "would," "should," "will," "will likely result," "forecast,""outlook," "projects," and similar expressions. Forward-looking statementsare based on management's current expectations and include known and unknownrisks, uncertainties and other factors, many of which management is unable topredict or control, that may cause actual results, performance or achievementsto differ materially from those expressed or implied in the forward-lookingstatements. Important factors which have impacted and could impact our operations andresults include:
(a) further adverse in economic or industry conditions, including global supply and demand conditions and prices for products of the types we produce; (b) our ability to compete effectively on product performance, quality, price, availability, product development, and customer service; (c) material adverse changes in the markets we serve, including the packaging, transportation, building and construction, recreation and leisure, and other markets, some of which tend to be cyclical; (d) further adverse changes in the domestic automotive markets, including potential bankruptcies of one or more of the major automobile manufacturers or suppliers; (e) our inability to achieve the level of cost savings, productivity improvements, gross margin enhancements, growth or other benefits anticipated from our planned improvement initiatives; (f) our inability to achieve the level productivity improvements, synergies, growth or other benefits anticipated from acquired businesses and their integration; (g) volatility of prices and availability of supply of energy and of the raw materials that are critical to the manufacture of our products, particularly plastic resins derived from oil and natural gas, including future effects of natural disasters; (h) our inability to manage or pass through to customers an adequate level of increases in the costs of materials, freight, utilities, or other conversion costs; (i) restrictions imposed on us by instruments governing our indebtedness, the possible inability to comply with requirements of those instruments, and inability to access capital markets; (j) possible asset impairment charges; (k) our inability to predict accurately the costs to be incurred, time taken to complete, operating disruptions therefrom, or savings to be achieved in connection with announced production plant restructurings; (l) adverse findings in significant legal or environmental proceedings or our inability to comply with applicable environmental laws and regulations; (m) adverse developments with work stoppages or labor disruptions, particularly in the automotive industry; (n) our inability to develop and launch new products successfully; (o) possible weaknesses in internal controls; and (p) our ability to successfully complete the implementation of a new enterprise resource planning computer system and to obtain expected benefits from our system. SPARTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and dollars in thousands, except per share data) Three Months Ended Fiscal Year Ended November November November November 1, 3, 1, 3, 2008 2007 2008 2007 Net sales $346,095 $366,238 $1,398,893 $1,451,983 Costs and expenses: Cost of sales 314,199 333,479 1,273,015 1,288,402 Selling, general, and administrative expenses 25,229 22,397 92,557 83,830 Amortization of intangibles 1,299 1,165 5,189 4,500 Goodwill impairments 238,641 - 238,641 - Fixed asset and other intangible asset impairments 15,431 1,550 15,503 1,550 Restructuring and exit costs 694 628 2,320 1,262 595,493 359,219 1,627,225 1,379,544 Operating earnings (loss) (249,398) 7,019 (228,332) 72,439 Interest expense (net of interest income: $61, $120, $395, and $501, respectively) 5,070 4,511 20,574 17,629 Earnings (loss) before income taxes (254,468) 2,508 (248,906) 54,810 Income tax (benefit) expense (57,071) 1,243 (56,794) 20,964 Net earnings (loss) $(197,397) $1,265 $(192,112) $33,846 Net earnings (loss) per common share: Basic $(6.51) $.04 $(6.35) $1.06 Diluted $(6.51) $.04 $(6.35) $1.05 Dividends declared per common share $.05 $.135 $.37 $.54 SPARTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited and dollars in thousands, except share data) November 1, November 3, 2008 2007 Assets Current assets Cash and cash equivalents $2,118 $3,409 Trade receivables, net of allowances of $4,550 and $1,572, respectively 176,108 212,221 Inventories 96,721 116,076 Prepaid expenses and other current assets 24,665 20,570 Total current assets 299,612 352,276 Property, plant and equipment, net 280,202 324,025 Goodwill 145,498 383,988 Other intangible assets, net 32,722 45,151 Other assets 4,385 5,431 Total assets $762,419 $1,110,871 Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt $1,158 $448 Accounts payable 155,594 167,713 Accrued liabilities 42,676 49,319 Total current liabilities 199,428 217,480 Long-term debt, less current maturities 273,496 333,835 Other long-term liabilities Deferred taxes 56,516 111,997 Other long-term liabilities 6,189 8,279 Total long-term liabilities 535,629 454,111 Shareholders' equity Preferred stock (authorized: 4,000,000 shares, par value $1.00) Issued: None - - Common stock (authorized: 55,000,000 shares, par value $0.75) Issued: 33,131,846 shares; Outstanding: 30,563,605 and 30,564,946 shares, respectively 24,849 24,849 Contributed capital 202,410 200,485 Retained earnings 53,834 257,111 Treasury stock, at cost, 2,568,241 and 2,566,900 shares, respectively (56,389) (52,531) Accumulated other comprehensive income 2,086 9,366 Total shareholders' equity 226,790 439,280 Total liabilities and shareholders' equity $762,419 $1,110,871 SPARTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and dollars in thousands) Fiscal Year Ended November 1, November 3, 2008 2007 Cash flows from operating activities Net earnings (loss) $(192,112) $33,846 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 47,201 43,069 Stock-based compensation expense 3,634 2,884 Goodwill impairments 238,641 - Fixed asset and other intangible asset impairments 15,846 1,550 Restructuring and exit costs 659 573 Provision for bad debt expense 4,763 2,099 Deferred taxes (59,100) 2,792 Change in current assets and liabilities, net of effects of acquisitions: Trade receivables 31,326 (6,172) Inventories 19,026 10,291 Prepaid expenses and other current assets 1,727 (664) Accounts payable (11,691) 16,761 Accrued liabilities (2,766) (6,078) Other, net (542) 3,060 Net cash provided by operating activities 96,612 104,011 Cash flows from investing activities Capital expenditures (17,276) (34,743) Business acquisitions (792) (61,371) Dispositions of assets 584 94 Net cash used in investing activities (17,484) (96,020) Cash flows from financing activities Bank credit facility (payments) / borrowings, net (57,779) 36,823 Borrowings / (payments) on bonds and leases 573 (580) Cash dividends on common stock (13,926) (17,006) Issuance of common stock 2,812 - Stock options exercised 16 8,449 Treasury stock acquired (9,667) (38,374) Excess tax benefits from stock-based compensation - 716 Debt issuance costs (2,424) - Net cash used by financing activities (80,395) (9,972) Effect of exchange rate changes on cash and cash equivalents (24) 18 Decrease in cash and cash equivalents (1,291) (1,963) Cash and cash equivalents at beginning of year 3,409 5,372 Cash and cash equivalents at end of year $2,118 $3,409 SPARTECH CORPORATION (Unaudited and dollars in thousands, except share data)Within this press release we have included operating earnings (loss), netearnings (loss), and net earnings (loss) per dilutive share excluding specialitems, which are non-GAAP measurements and believe they are meaningful toinvestors because they provide a view of the Company's comparable operatingresults. Special items (goodwill impairments, fixed asset and otherintangible asset impairments, restructuring and exit costs, and former CEOseparation expense) represent significant items that we believe are importantto an understanding of the Company's overall operating results in the periodspresented. Such non-GAAP measurements are not recognized in accordance withgenerally accepted accounting principles (GAAP) and should not be viewed as analternative to GAAP measures of performance. The following reconciles GAAP tonon-GAAP measures.
Three Months Ended Fiscal Year Ended November November November November 1, 3, 1, 3, 2008 2007 2008 2007 Operating earnings (loss) (GAAP) $(249,398) $7,019 $(228,332) $72,439 Goodwill impairments 238,641 - 238,641 - Fixed asset and other intangible asset impairments 15,431 1,550 15,503 1,550 Restructuring and exit costs 694 628 2,320 1,262 Former CEO separation expense - - - 1,856 Operating earnings excluding special items (non-GAAP) $5,368 $9,197 $28,132 $77,107 Net earnings (loss) (GAAP) $(197,397) $1,265 $(192,112) $33,846 Goodwill impairments, net of tax 185,158 - 185,158 - Fixed asset and other intangible asset impairments, net of tax 12,282 960 12,327 960 Restructuring and exit costs, net of tax 442 386 1,537 784 Former CEO separation expense - - - 1,147 Net earnings excluding special items (non-GAAP) $485 $2,611 $6,910 $36,737 Net earnings (loss) per diluted share (GAAP) $(6.51) $.04 $(6.35) $1.05 Goodwill impairments, net of tax 6.11 - 6.12 - Fixed asset and other intangible asset impairments, net of tax .41 .03 .41 .03 Restructuring and exit costs, net of tax .01 .01 .05 .02 Former CEO separation expense - - - .04 Net earnings per diluted share excluding special items (non-GAAP) $.02 $.08 $.23 $1.14
More on SEH:
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10-year financial history of SEH.
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