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

February 08, 2010 | About:
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10qk

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Zoltek Companies Inc. (ZOLT) filed Quarterly Report for the period ended 2009-12-31.

Zoltek Companies Inc. has a market cap of $258.52 million; its shares were traded at around $7.51 with and P/S ratio of 1.86.

Highlight of Business Operations:

Carbon fiber sales decreased 26.8%, or $8.8 million, to $23.9 million in the first quarter of fiscal 2010 from $32.7 million in the first quarter of fiscal 2009. Technical fiber sales decreased 15.9%, or $0.9 million, to $4.4 million in the first quarter of fiscal 2010 from $5.3 million in the first quarter of fiscal 2009. Other revenues decreased $0.1 million to $0.5 million during the first quarter of fiscal 2010 from $0.6 million during the first quarter 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.

The Companys cost of sales decreased by 12.1%, or $3.5 million, to $24.9 million in the first quarter of fiscal 2010 from $28.4 million in the first quarter of fiscal 2009. Carbon fiber cost of sales decreased by 14.4%, or $3.4 million, to $20.3 million for the first quarter of fiscal 2010 from $23.7 million for the first quarter of fiscal 2009. The decrease in carbon fiber cost of sales reflected decreased sales of 26.8% discussed above offset by an increase in our cost of sales due to an unfavorable change in our product mix. Technical fiber cost of sales increased $0.1 million, or 3.4%, to $4.1 million for the first quarter of fiscal 2010 from $4.0 million for the first quarter of fiscal 2009. Included in the Companys cost of sales were available unused capacity costs of $2.8 million and $0.3 million for the first quarter of fiscal 2010 and first quarter of fiscal 2009, respectively. During the first quarter of fiscal 2010, these costs are comprised of fixed production costs allocated to manufacturing lines which were producing below normal levels and amounted to $2.4 million for the carbon fiber segment and $0.4 million for the technical fiber segment. During the first quarter of fiscal 2009, these costs are comprised of fixed production costs allocated to manufacturing lines which were producing below normal levels and amounted to $0.1 million for the carbon fiber segment and $0.2 million for the technical fiber segment. 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 cost of sales of the corporate/other products segment decreased for the first quarter ended fiscal 2010 to $0.5 million compared to $0.6 million for the first quarter ended fiscal 2009.

The Companys gross profit decreased by $6.4 million, to $3.9 million, or 13.7% of sales in the first quarter of fiscal 2010 from $10.3 million, or 26.6% of sales in the first quarter of fiscal 2009. Carbon fiber gross profit margin decreased to 15.2% for the first quarter of fiscal 2010 compared to 27.5% for the first quarter of fiscal 2009. Carbon fiber gross profit decreased from $9.0 million to $3.6 million during these respective periods. The decreases in carbon fiber gross profit and gross profit percentage resulted primarily from available unused capacity costs expensed during the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009 and the temporary increase in our cost of sales due to an unfavorable change in our product mix. Technical fiber gross profit decreased from $1.3 million, or 24.0% of sales, in the first quarter of fiscal 2009 to $0.3 million, or 6.6% of sales, during the corresponding period of fiscal 2010. The decrease in technical fiber gross profit percentage resulted from product sales mix. The corporate/other products segments reported a gross profit of slightly less than $0.1 million for both the first quarter of fiscal 2010 and 2009.

Operating loss from the first quarter of fiscal 2010 was $2.7 million, a decrease of $6.2 million from the operating income of $3.5 million incurred during the first quarter of fiscal 2009. This decline resulted primarily from a decrease in gross profit of $6.4 million. Carbon fiber operating income declined from $6.5 million in the first quarter of fiscal 2009 to $1.3 million in the first quarter of fiscal 2010. The decline resulted from lower sales as discussed above. The decrease in technical fiber operating income resulted from the decrease in gross profit described above. Other products/ headquarters operating loss increased from a loss of $3.6 million in the first quarter of fiscal 2009 to a loss of $4.1 million in the first quarter of fiscal 2010 due to increases in application and development, litigation, and selling, general, and administrative costs as discussed.

Income tax benefit was $1.8 million for the first quarter of fiscal 2010 compared to a $0.6 million expense for the first quarter of fiscal 2009. During the first quarter of fiscal 2010, the Company released a $2.3 million reserve on its uncertain tax positions. An additional income tax expense of $0.2 million was incurred related to the local Hungarian municipality tax and $0.3 million due to an increase in Hungarys deferred tax position. During the first quarter of fiscal 2009, the Company amortized its deferred tax asset by $0.4 million, reducing the existing net operating loss carryforwards. An additional income tax expense of $0.2 million compared to the prior year was incurred related to the local Hungarian municipality tax for the first quarter of fiscal 2009. An income tax expense of $0.5 million was recorded for the first quarter of fiscal 2009, as we established a deferred tax liability for book to tax differences within the Hungarian operation.

Operating activities provided $6.5 million of cash for the first quarter of fiscal 2010. Inventory levels used $0.2 million during the first quarter of fiscal 2010. As a result of the move to just-in-time inventories by our largest customer we expect our finished goods inventory will not decline significantly until late in the fiscal year as we will plan to maintain a steady production rate in order to minimize large fluctuations in our production levels. Cash flows were positively affected by depreciation of $4.3 million for the first quarter of fiscal 2010, which was included in the operating loss of $2.7 million. Cash collections reduced accounts receivables by $6.5 million during the first quarter of fiscal 2010. Payables and accrued expenses were reduced by $1.5 million.

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