Press Release: Spartech Announces Fourth Quarter Results and Continued Progress on Financial Improvement Initiatives
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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Fourth Quarter 2008 Financial Summary
-- Net sales were
-- Operating earnings excluding special items (consisting of the assetimpairments and restructuring and exit costs) were
-- The reported operating loss of
-- The diluted loss per share was
-- Progress was achieved in improving cash flows and working capital.Cash flows from operations for the quarter of
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
-- 2009 Turnaround Initiatives (Procurement, Segmentation, CostFootprint) -- In this release, we are announcing actions to realize anadditional
In summary, we have now announced
Spartech's President and Chief Executive Officer,
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."
Net sales for the fourth quarter of 2008 were
The reported operating loss of
Selling, general and administrative expenses increased
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 $45.3
The 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
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 $27.7
The net sales decrease of 3% in the fourth quarter was attributable to thenet effect of
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 $23.3
Net 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
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 $9.6
Volume 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
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 (consisting of asset impairments and restructuring and exitcosts) totaled
Asset impairments totaling
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
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
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
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