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Meade Instruments Corp. (MEAD)

F3Q08 Earnings Call

January 14, 2008, 5:00 pm ET

Executives

Brandi Piacente – Investor Relations

Steven L. Muellner – President, Chief Executive Officer, Director

Paul E. Ross – Chief Financial Officer, Senior Vice President of Finance

Analysts

Jim Barrett – C. L. King & Associates, Inc.

Scott Lewis – Lewis Capital Management

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the Meade third quarter 2008 earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded Monday, January 14, 2008. I would now like to turn the call over to Brandi Piacente, Investor Relations for Meade. Please go ahead.

Brandi Piacente – Investor Relations

Thank you and good day to everyone. Welcome to today’s conference call. Joining us on the call are Steve Muellner, President and Chief Executive Officer; and Paul Ross, Chief Financial Officer.

Before we begin, as usual, we would like to remind everyone of the cautionary language regarding forward-looking statements contained in today’s news release, which also applies to any such statements made during this conference call. During the course of this call the company may make forward-looking statements regarding future events or the financial performance of the company. We wish to caution you that such statements are just predictions and actual events or results may differ materially.

For a list of risks and uncertainties that may affect future earnings, please refer to the company’s various reports filed with the US Securities and Exchange Commission. Investors should not place undue reliance on such forward-looking statements and the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Now I will turn the call over Steve Muellner. Please go ahead, Steve.

Steven L. Muellner – President, Chief Executive Officer, Director

Thank you, Brandi. And thank you to everyone for joining us this afternoon. Today it is my pleasure to report, what we consider to be, very positive results for our third quarter, with revenues of $51.4 million and significant improvement in pro forma operating profit and net income.

We saw particular strengths on the revenue line from our entry level telescope business and we have seen good sell-through through to the young consumers as well. Rifle scope revenue continued to accelerate as predicted and we enjoyed some nice, new product revenue especially from mySKY.

Our pro forma operating profit of $3.7 million reflects our continued vigilance in reducing our operating costs as part of our on going turnaround efforts, and represents a fairly dramatic improvement over the prior year.

The expected last major cost savings step of the turnaround involves the closure of our US manufacturing operation and the transfer of production to lower cost locations. We first announced this initiative in a November press release, and I would like to spend a few minutes now explaining the significance of this move.

First, it is the final step in our global headcount realignment. While we had over 500 employees just a couple of years ago, we expect to have about 250 global employees once we complete the closure of our US manufacturing operation. A large portion of these employees will now be at our Mexican manufacturing center. Our Irvine, California facility will remain our corporate headquarters housing the company’s sales, marketing, and administrative functions. And we ultimately expect to employ less than 100 employees in the US. For the foreseeable future we expect to maintain our finished goods distribution in Irvine. We will maintain a little over 100 employees at our Mexico location, which will house telescope manufacturing, assembly, and repair. Meade Europe, our wholly owned subsidiary in Germany will comprise the balance of our employee count.

We had previously stated that our goal as part of this latest restructuring was to save about $10 million annually in costs, and a significant portion of these savings will be realized at the gross margin level. The bulk of the savings stem from reduced labor expenses, as cost in Mexico tend to run about one-third that of the US equivalent position.

In addition and in conjunction with this move, we have optimized our high-end telescope SKU line-up resulting in less than one for one headcount transfer. We have put together a production transition plan and have communicated appropriate timelines for each product to our customers. For our most popular high-end products, such as the 8-inch LX90 line, we expect to experience very little interruption, if any. And by mid-year, we should be meeting customer demand on nearly all SKU’s of the market leading LX90 and LX200 ranges of products.

With Q3 and the majority of our fiscal 2008 revenues now behind us followed by this last major restructuring step, we expect fiscal 2009 to be the first clean year of operation as a fully restructured company. Of course there continues to be some execution risks associated with the production transfer, but we do believe that all major structural changes necessary to right the company have now been enacted.

Once these structural changes are behind us, our focus will turn to growing the company from its newly profitable base with better deliveries of current and new product introductions. I will discuss this growth strategy more in a few moments, but first I would like to turn the call over to Paul to review the financial details of Q3, Paul.

Read the rest of this transcript for free on seekingalpha.com