Mine Safety Appliances Co. (MSA)
Q3 2008 Earnings Call
October 27, 2008 10:00 am ET
Mark Deasy - Communications Director
William M. Lambert - President and Chief Executive Officer
Dennis L. Zeitler - Chief Financial Officer
Joseph A. Bigler - Vice President of NA Sales and President of MSA North America
Roberto M. Canizares - Executive Vice President and President of MSA International
Edward Marshall - Sidoti & Company
Walt Liptak - Barrington Research
Brian Ruttenbur - Morgan Keegan
Brian Butler - Friedman, Billings, Ramsey & Co.
Richard Eastman – Robert W. Baird
Greg Halter - Great Lakes Review
Rick Ryan – Dougherty & Co.
Previous Statements by MSA
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Good morning everybody and welcome to our earnings conference call for the third quarter of 2008. I'm Mark Deasy, Communications Director, and with me today are Bill Lambert, President and Chief Executive Officer; Dennis Zeitler, Senior Vice President and Chief Financial Officer; Joe Bigler, President of MSA North America; and joining us once again from Berlin is Rob Canizares, Executive Vice President and President of MSA International.
Our third quarter earnings release was issued this morning at 8:30 and we hope everyone has had an opportunity to review it. The release is posted on the homepage of our website, www.msanet.com.
This morning, we'll begin with Bill, who will provide our commentary on our third quarter. Bill will be followed by Dennis, who will review our financials and after Dennis, we'll open up the call for questions and planned to adjourn by about 10:45 am.
Before we begin I would like to remind everyone that the matters discussed on this call, with the exception of historical information, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements including, without limitation, all projections and anticipated levels of future performance, involve risks, uncertainties, and other factors that may cause our actual results to differ materially from those discussed here. These risks, uncertainties and other factors are detailed from time to time in our filings with the SEC, including our most recent Form 10-Q, which was filed on July 28, 2008. We strongly urge you to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can be easily obtained at no charge at www.sec.gov, our own website, and a number of other commercial websites. That concludes our forward-looking statement.
So, at this point, I will turn the call over to Bill Lambert for his comments.
William M. Lambert
Good morning everyone. Let me begin by saying thank you, again, for joining us today on this conference call and for your interest in MSA. Presumably all of you have seen our third quarter earnings release and have our financial figures with all comparisons being with the equivalent period in 2007.
I characterize our performance in this quarter as solid with sales and earnings growth in each of our three geographic segments. Consolidated sales in the quarter increased $38.0 million over third quarter 2007, or 15%, reaching a record $286.0 million in sales.
On a currency-adjusted basis consolidated sale increased nearly $30.0 million over third quarter a year ago, which is an increase of 11%.
As reported, European sales increased 24% and international sales increased 22% during the current quarter versus third quarter a year ago, and sales in North America were up 9%.
Net income increased 7% on the 15% sales increase but I think it is important to note net income in the third quarter last year was favorably impacted by the sale of land in our Cranberry Woods office park, which resulted in $6.5 million in after-tax income being recognized last year.
Excluding this non-operating gain from the sale of land last year, net income increased $7.7 million this year, or 75% over a year ago.
Looking at the segments, and also excluding currency effects, sales increased nicely over last year in all three geographic segments. North America was up 8%, Europe up 9%, and international up 18%.
Selling, general, and administrative expenses were up 9% in the quarter, about $5.5 million but when expressed as a percent of sales they were down 140 basis points from a year ago. Nearly half of the $5.5 million increase in SG&A is in currency exchange effects related to the stronger Euro and the Brazilian real versus a year ago.
North America showed good cost control this quarter, as did our European operations. Overall, we saw gross margins improve to 45.3%, up from 43.8% quarter-to-quarter, which is a 150 basis point improvement. We saw improved gross margins in all three of our segments, North America up 150 basis points, Europe up 110 basis points, and international up 230 basis points.
Project Magellan is showing gross margin improvement in the product lines which have been moved as part of this project. For example, our North American fire helmet product line gross margin is up 360 basis points year-to-date, year-over-year, which is encouraging to see and according to our plans.
Additional fire helmet margin improvement is expected to be seen in the fourth quarter as our October 1, 2008, price increase goes into effect.