A.T. Cross Company (ATX)
Q3 2008 Earnings Call
October 22, 2008 5:00 pm ET
Laurie Chute – Investor Relations
David Whalen – President, Chief Executive Officer, Director
Kevin Mahoney – Chief Financial Officer
Patrick Flavin - Flavin, Blake & Co
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It is now my pleasure to turn the floor over to Ms. Laurie Chute of Integrated Corporate Relations. Please go ahead ma’am.
Thank you, Paul. Before we begin, I would like to take a moment to read the Safe Harbor Statement. Statements contained on this call that are not historical facts, are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the expected growth of international market, the expected success of Cross Accessory Division brand extensions, the continued success of Cross Accessory Division shop-in-shops, the continued optimization of the Cross China plant, and the expected continued growth of the Cross Optical Group.
In addition, words such as “believes,” “anticipates,” “expects,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements including the amended 2008 revenue and earnings per share guidance are subject to risks and uncertainties, including, but not limited to, consumers’ reaction to both divisions’ new products, including brand extensions under the Cross name. The Company’s ability to identify strategic, value-added acquisition targets, consumers’ willingness to participate an essential product given the economic climate in the Optical Divisions ability to maximize and develop our need brand in the same manner of the Cross brand.
Additional discussions of factors that could cause actual results to differ materially from management’s expectations are contained in the Company’s filings under the Securities Exchange Act of 1934, including, but not limited to, the annual report on form 10-K for the year ended December 29th, 2007, and other filings made periodically by the Company. The Company undertakes no obligation to update this forward-looking information.
I would now like to turn the call over to Dave Whalen, President and Chief Executive Officer. Please go ahead, Dave.
Thanks, Laurie. Good afternoon, and thank you for joining us as we talk about our third quarter results and the progress we are making against our specific goals and our outlook for the remainder of the year. With me today is Kevin Mahoney, our Chief Financial Officer.
As outlined in our press release today, our third quarter results were positive and we continue to make progress against our specific goals. As we stated in today’s press release just very recently, as the global financial crisis has intensified, we have began to see weakness in present of the Cross Accessory Division market that had been relatively strong for us this year. Given the fact that this spend has developed just as we head in the last segment’s important Holiday Season, we have taken across this approach as it relates to our 2008 full year earnings guidance. This is outlined in the press release. I will get into that later in my comments.
First, however, I want to review our third quarter results were positive from a number of perspectives and our progress against our specific goal. From an operating perspective, I believe our two segments performed quite well this quarter. In what was a very challenging environment, our sales grew 11% and we grew our operating profits. We also made important progress on the integration of our Native Eyewear acquisition by studying that brand up with the same driver of success but it was held at Costa Del Mar. The more time we spend with native customers, the more excited we are about the opportunity we have with that brand.
For the first nine months of the year, our revenue grew 14%, our operating income increased by over 50% and our operating cash flow improved by more than $15 million from the same period in 2007. This performance is further confirmation that our brands are strong, our strategies are sound and our execution is excellent.
Now, I want to review with the strategies and the progress we are making against the season 2008 and Kevin will go into more detail on our third quarter financial results. There are four core strategies to grow share of the value. First, we will grow the Cross brand in the Accessory Division by reshaping our approach for the quality writing instrument market and by developing compelling new brand extensions. We are making good progress here as 10% of our 2008 prospect at revenues will be derived from brand extensions. It is up from 7% in 2007.
In terms of the segment performance this quarter, the prospect may continue to depend on we have seen this year. Revenue increased 18% in international market but declined nearly as much in United States. Much of the United States decline occurred in the month of September and moved as economic crisis intensified. In particular, we have seen declines in our business gifts status that have been quite severe. That said we are not expecting to see much improvement in our United States business in Q4. The market is sluggish all year, and in France, we are using expenses in the region to protect our profit.