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Buckeye Technologies Inc. (BKI)

F1Q09 (Qtr End 09/30/08) Earnings Call Transcript

October 29, 2008, 11:00 am ET

Executives

Daryn Abercrombie – Senior Finance and IR Manager

John Crowe – Chairman and CEO

Steve Dean – SVP and CFO

Kris Matula – President and COO

Analysts

Gail Glazerman – UBS Securities

Napoleon Overton – Morgan, Keegan & Company

Bill Hoffman – UBS Securities

Presentation

Operator

Good day and welcome to the Buckeye Technologies Incorporated First Quarter Earnings Results Conference Call. Today’s call is being recorded. Presently all parties participating in this call will listen to opening remarks made by the Company. After the prepared remarks Buckeye management will analyst’s questions. At this time for opening remarks and introductions I would like to turn the conference over to Daryn Abercrombie, Senior Finance and Investor Relations Manager. Please go ahead, sir.

Daryn Abercrombie

Thank you, Curin. Good morning and welcome to Buckeye’s conference call commenting on our results for the July to September quarter of 2008, our fiscal 2009 first quarter. Today, I am joined in this call by John Crowe, Chairman and Chief Executive Officer; Kris Matula, President and Chief Operating Officer; Steve Dean, Senior Vice President and Chief Financial Officer; and Beth Welter, Vice President and Chief Accounting Officer. After John and Steve make some introductory remarks we will respond to your questions.

Before we get started, however, I’d like to remind you that matters in this call include forward-looking statements that involve risks and uncertainties that may cause the Company’s actual results to differ materially from those projected in such forward-looking statements. For further information on factors that could impact the Company and statements contained herein, please refer to the slides accompanying this presentation as well as the Company’s most recent Annual Report on Form 10-K and quarterly report on Form 10-Q. John?

John Crowe

Thanks Daryn. Good morning. Buckeye had a good quarter considering all that is happening in the world during these uncertain economic times. We stated in August conference call that demand for our Specialty Fibers remained strong and that continued to be the case in the just completed quarter.

We anticipated that in the July-September quarter would be similar to our April-June quarter with improved operating performance, offset by a higher tax rate. We shared our plans to focus resources on improving performance at our Florida wood facility and increasing our Nonwovens’ North American volume.

Both paid off during the just completed quarter. Our Florida wood facility’s operating performance improved and our Nonwoven sales volume returned to the level we expected.

Net sales for the July-September quarter grew by 12% over the prior year to $221 million, a new quarterly record.

Net income for the quarter was $8.9 million, $0.23 per share, compared to t April-June quarter net income of $9.3 million, $0.24 per share, and $13.5 million, $0.34 per share for the same period a year ago. In the year ago quarter, $0.06 of the $0.34 were due to a favorable tax adjustment in Germany. Steve will cover the numbers in more detail during the earnings reconciliation.

Increased selling prices across all of our businesses including a surcharge on wood specialty products implemented in July helped to offset significantly higher raw materials, energy, chemicals, and transportation cost that began at the start of 2008, escalating each quarter. Year-over-year, increases in these items has negatively impacted our gross margin.

We are pleased with the Nonwoven sequential improvement in sales and operating revenue, but with operating income of $3.6 million we still have a significant gap compared to the Nonwoven’s record operating income of $8 million earned in the July-September period last year.

The combination of escalating input cost and the reduction in Nonwoven’s capacity utilization resulted in a year-over-year gross margin decline from 20.6% of sales to 16% of sales in the just completed quarter. However, it is up from the 15.2% gross margin generated in the April-June quarter.

Due to the unprecedented cost escalations we have experienced over the past nine months, in September, we announced and implemented additional price increases of $50 to $75 on cotton specialty products, and a $50 per ton increase on our wood specialty product surcharge effective October 1st. Now, our wood specialty surcharge is $100 per ton.

While oil and natural gas prices have moderated, our cost of raw materials, including wood and some chemicals continue to escalate. It will take time for these costs that have started to decline to reach our bottom line.

Now, Steve will review the supplemental reconciliation charge that we included in our press release. Steve.

Steve Dean

Good morning. I would like to refer you to the supplemental slides that we’ve provided with the webcast this quarter and on the Company’s website and provide you with some further explanations behind our financial results for the quarter.

I plan to focus my comments on comparing our results for the July-September quarter to the April-June quarter, but we have also included several slides with comparisons against the year-ago quarter in the appendix, for your reference.

Starting with Slide number three, you will see a consolidated earnings summary comparing our earnings for the just completed quarter to the April-June quarter. Operating income improved by $2.9 million compared to the April-June quarter.

This improvement was primarily driven by increased sales volume, and improved capacity utilization in the Nonwoven Materials segment as we start to gain back some of the volume that was lost in January in North America. Nonwoven sales were up $4.1 million over the April-June quarter as shipment volume was up 9%.

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