Blount International, Inc. (BLT)
Q3 2008 Earnings Call Transcript
November 5, 2008, 1:00 pm ET
Calvin Jenness – SVP and CFO
James Osterman – Chairman & CEO
Mark Rupe – Longbow Research
Curt Woodworth – JP Morgan
Previous Statements by BLT
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Thank you. And good morning, everyone. This call is being broadcast live on the Internet and recorded for future transmission and use by Blount and third-parties. Participants in the call, including the Q&A session, agree that their likeness and remarks may be stored and used as part of the earnings call.
Before Jim and I summarize the company's performance, I would like to remind everyone that the statements made in the course of this conference call regarding the company's or management's intentions, hopes, beliefs or expectations for the future are forward-looking statements as defined in the Securities Litigation Reform Act of 1995. Those statements involve risks and uncertainties that could cause actual results to differ materially.
Now I'd like to turn the call over to Jim Osterman, our Chairman and CEO.
Thanks, Cal. Good morning, everyone, and thanks for joining us to review the results of the third quarter of 2008. We are very pleased by our financial performance in the third quarter. We achieved record levels of sales and operating income, as demand for our saw chain products reached unprecedented levels. Unit volume growth was the largest contributor to the record-setting performance, as storm activity in the United States contributed to a 27% increase in domestic sales from last year’s third quarter, excluding the effects of the Carlton acquisition.
International sales were up as well from last year by 20% on a comparable basis. Given these financial results, we have increased our full year financial outlook. Our comparable sales order backlog was 11% above the level at the end of the third quarter of last year, an indication that we should see additional year-over-year growth in the fourth quarter.
Additionally, the recent appreciation in the US dollar will be beneficial from a profit standpoint for the company in the fourth quarter. However, despite these positive indicators, we are somewhat cautious as we approach 2009, given the probability of the worldwide recession as well as the effects of the stronger US dollar on international customer orders.
Let me now cover a few of the third quarter operating highlights for our core business, the Outdoor Products segment. The Outdoor Products segment accounted for 95% of the company’s sales in the third quarter. Segment sales were $166 million and were $44 million above last year’s third quarter. Approximately one-third of the increase reflects sales from the Carlton acquisition. Comparable year-over-year sales were up 23.1% in the third quarter. The majority of the sales increase was volume related, and foreign currency fluctuations along with higher selling prices also had a positive impact.
Base unit volume sales was achieved primarily through the growth of woodcutting product sales and both domestic and international markets. Segment domestic sales were up 29.5 from last year’s third quarter, excluding the effects of Carlton sales. This is an improvement from the first half of 2008 when domestic sales declined year-over-year by 2.6%. The storm activity in the US Gulf Coast was a contributor to the change in trend as customer inventories were somewhat light.
International sales growth was 23.3% in the third quarter, excluding Carlton, and reflects volume gains, the benefit on sales of a weaker US dollar, and pricing actions we had taken earlier this year. Currency translation contributed approximately $2.8 million to the top line in comparison to last year’s third quarter. Excluding the effects of the Carlton acquisition, sales to OEMs were up 18% as compared to last year’s third quarter. Comparable sales to the replacement market increased by 25% from the third quarter 2007.
Sales of concrete cutting equipment were down about 2.6 from last year’s third quarter and through nine months are off about 5% from last year, as weaker demand in the domestic market continued. Segment order backlog was $98.7 million at quarter-end or down about 20% from the record level outstanding at the end of the second quarter. Comparable segment order backlog, excluding the Carlton business, was 10% higher than last year as of quarter-end.
Contribution to operating income from the October product segment was $34.1 million, a record level. Segment margin of 20.5% of sales, an increase from last year’s third quarter level of 19.4% and the 17% operating margin recorded in the first half of 2008. The improvement in margin can be attributed to the benefit of unit volume increases and associated leverage on our manufacturing facilities and overhead expenses. The impact of our selling price actions this year helped to offset the effect of higher raw material cost and an unfavorable foreign currency fluctuation.
The raw material increase is predominantly for steel, as suppliers have increased prices to us throughout the year. In the third quarter, we estimate that the impact of higher steel cost and the segment contribution was a negative $1.1 million with the nine-month total being $2.2 million. We expect the year-over-year impact of higher steel cost will increase further in the fourth quarter, as the higher priced raw materials roll through our inventory.