Gibraltar Industries Inc. Reports Operating Results (10-Q)

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May 07, 2009
Gibraltar Industries Inc. (ROCK, Financial) filed Quarterly Report for the period ended 2009-03-31.

Gibraltar Industries Inc. is a leading manufacturer processor and distributor of metals and other engineered materials for the building products vehicular and other industrial markets. Gibraltar Industries Inc. has a market cap of $250.4 million; its shares were traded at around $8.36 with a P/E ratio of 6.7 and P/S ratio of 0.2. Gibraltar Industries Inc. had an annual average earning growth of 4.3% over the past 10 years.

Highlight of Business Operations:

We have taken a number of steps to position the Company as a low-cost provider of our products. Over the past two years our focus has been on achieving operational excellence through lean initiatives and the consolidation of facilities. We have closed or consolidated a total of 15 facilities since January 2008. Due to the negative impact the significant economic downturn has had on our end markets, we have continued to aggressively reduce costs throughout the Company to adjust to the decreased sales volumes and maximize cash flows generated from operating activities. Actions implemented during the first quarter of 2009 to reduce costs and maximize cash included further staff reductions of 17% (staff levels have been reduced 36% since September 2007), 10% reductions in the salaries of the Chief Executive Officer and Chief Operating Officer, 10% reduction in fees paid to the Board of Directors, elimination of salary increases, suspension of the company match on 401(k) contributions, furloughs at many business units, limitations on capital expenditures, travel restrictions, and many other discretionary spending reductions. We believe these actions will help us to meet our priorities for 2009: serving our customers and maximizing our liquidity.

Gross margin decreased to 6.4% for the quarter ended March 31, 2009, from 17.7% for the quarter ended March 31, 2008. The decrease in gross margin was the result of decreasing customer selling prices as pricing for certain products are indexed to commodity costs and the significant drop in demand. The precipitous decrease in commodity costs has led to higher cost inventory being sold at lowered customer selling prices. The decrease in customer selling prices has resulted in material costs as a percentage of net sales increasing approximately 10% during the three months ended March 31, 2009, compared to the same period in 2008, resulting in a reduction in gross profit by approximately $20 million, including a $2.0 million lower-of-cost-or-market inventory valuation charge. Gross margin was also negatively impacted by a reduction in sales volume that resulted in an increase in the percentage of fixed costs to net sales as our costs were spread over less volume partially offset by our aggressive cost cutting initiatives that reduced the impact of reduced sales volume.

Selling, general and administrative expenses decreased by approximately $4.4 million, or 12.5%, to $30.7 million for the quarter ended March 31, 2009, from $35.1 million for the quarter ended March 31, 2008. The $4.4 million decrease is net of a $2.4 million increase for foreign currency losses and $0.4 million of higher bad debt expense, both of which were more than offset by a $4.0 million decrease in payroll-related expenses resulting from our reduced headcount and another $3.2 million of cost reduction primarily from lower marketing and outside professional fees. Despite our efforts to reduce costs, selling, general and administrative expenses as a percentage of net sales increased to 15.0% for the quarter ended March 31, 2009, from 11.9% for the quarter ended March 31, 2008, as a result of a the 30.3% reduction in net sales during the first quarter of 2009.

Income from operations as a percentage of net sales in our Building Products segment for the quarter ended March 31, 2009, decreased to -17.2% from 9.1% in the quarter ended March 31, 2008. The decrease in operating margin was the result of decreasing customer selling prices as pricing for certain products are indexed to commodity costs, much lower sales volume, and the $25.5 million goodwill impairment charge. The precipitous decrease in commodity costs has led to higher cost inventory being sold at lowered customer selling prices. The decrease in customer selling prices has resulted in material costs as a percentage of net sales increasing approximately 7.3% during the three months ended March 31, 2009, compared to the same period in 2008, resulting in a reduction in income from operations by approximately $11 million. Operating margin was also negatively impacted by a reduction in sales volume that resulted in an increase in the percentage of fixed costs (in cost of sales and selling, general and administrative expenses) to net sales as our costs were spread over less volume. Despite aggressively reducing our costs to better align with net sales for the quarter, these fixed costs contributed to an additional 3.7% decrease in the Building Products segments operating margin during the quarter ended March 31, 2009, compared to the quarter ended March 31, 2008.

Income from operations as a percentage of net sales in our Processed Metal Products segment decreased to -25.0% of net sales for the quarter ended March 31, 2009, from 3.3% for the prior years comparable period. Similarly to the Building Products segment, the Processed Metal Products segment was most significantly impacted by lower sales volume and reductions in selling prices which caused material costs as a percentage of net sales to increase by approximately 23.9% during the first quarter of 2009 compared to the first quarter of 2008. The increase in material costs as a percentage of sales led to an approximately $9 million reduction in income from operations, including a $2.0 million lower-of-cost-ormarket inventory valuation charge. Operating margin was also negatively impacted by 3.0% points due to fixed costs (in cost of sales and selling, general and administrative expense) being spread over fewer sales due to the significant decline in net sales for the quarter ended March 31, 2009, compared to the comparable period of 2008. The Processed Metal Products segment also incurred a $0.3 million increase in bad debt expense due to the write-off of amounts receivable from a customer which filed for bankruptcy.

The Companys $204.0 million of Senior Subordinated 8% Notes (8% Notes) were issued in December 2005 at a discount to yield 8.25%. Provisions of the 8% Notes include, without limitation, restrictions on indebtedness, liens, and distributions from restricted subsidiaries, asset sales, affiliate transactions, dividends and other restricted payments. Dividend payments are subject to annual limits of $0.25 per share and $10 million. Prior to December 1, 2008, up to 35% of the 8% Notes were redeemable at the option of the Company from the proceeds of an equity offering at a premium of 108% of the face value, plus accrued and unpaid interest. After December 1, 2010, the 8% Notes are redeemable at the option of the Company, in whole or in part, at the redemption price (as defined in the Senior Subordinated 8% Notes Indenture), which declines annually from 104% to 100% on and after December 1, 2013. In the event of a Change in Control (as defined in the Senior Subordinated 8% Notes Indenture), each holder of the 8% Notes may require the Company to repurchase all or a portion of such holders 8% Notes at a purchase price equal to 101% of the principal amount thereof. At March 31, 2009, we had $201.4 million, net of discount, of our 8% Notes outstanding.

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