MDCI

Medical Action Industries Inc. (MDCI)

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Medical Action Industries Inc. (MDCI)

F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

November 6, 2008, 10:00 am ET

Executives

Paul Meringolo – Chairman, President and CEO

Charles Kelly – CFO

Richard Satin – VP, General Counsel and Corporate Secretary

Analysts

Matthew Dolan – Roth Capital

Tim Cohen – Fidelity Growth & Income Fund

Mitra Ramgopal – Sidoti

Steve Friedman – Wachovia Securities

Gerry Heffernan – Lord Abbett & Co

Presentation

Operator

Good morning, my name is Arday, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter financial earnings results conference call for Medical Action Industries. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Satin, you may begin your conference.

Richard Satin

Thank you. Good morning and thank you for holding. With me on this call are Paul D. Meringolo, CEO and President; and Charles L. Kelly, Chief Financial Officer of Medical Action Industries. The primary purpose of this call is to discuss our results for the three and six months ended September 30, 2008, which were released this morning.

As you know, we must first touch all of the legal bases by noting that both our commentary and responses to your questions may include forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties discussed in detail in our report on Form 10-K, annual report to stockholders and our quarterly report on Form 10-Q, all of which have been filed with the Securities and Exchange Commission. The company’s actual future results may vary.

It is now pleasure to introduce Paul Meringolo.

Paul Meringolo

Good morning and thank you all for being here today, again. I assume that you’ve all had a chance to see the news release, challenging quarter. We’re going to focus today, again, heavily on the three issues that continue to put some pressure on our margins, higher resin costs, higher costs for Chinese-made products and our efficiency issues at our Tennessee plant during fiscal year ‘09. These are all challenges that we’ve discussed in previous calls and will continue to monitor and discuss them until they are behind us.

Let’s look at second quarter numbers briefly. Net sales $73.8 million, up 2% from the prior year period. Net income $480,000 or $0.03 per diluted share versus $3,268,000 or $0.20 in the prior year period. Like we’ve talked about, the three challenges that I just explained had a Q2 impact of about $6,600,000, a significant amount of money.

Before I get into some of the challenges in more detail, I’d like to mention a few positives. We’ve continued to be successful at raising prices in marketplace. What we’ve seen happen in the last few months with the oil spiking to historic heights, resin followed, we had significant impacts from our resin standpoint and cost. The price increases that we have put in place again have been long-term and have taken a long time to get out of the field and are well behind with the cost of resin was, and for us in inventory still is today. So we’ve talked about that in previous calls and that continues to be the case.

Now from a positive side from those historic highs, oil has dropped dramatically, and we’re starting to see the effects of that decline in oil start to hit our resin suppliers and hit our pricing. Where I believe we are today, those prices of our resin will be at the point where they’ll be at powerful where we’ve raised our prices in the marketplace, so we are very comfortable with that.

Good news is we’re not going to have to spend anymore time today based on current scenario going up to the marketplace and continuing to raise prices. If oil stayed where it was, and resin stayed it where it was, we would have had to go out and do another round of price increases and it would have taken a tremendous amount of effort, time and effort and I am pleased to see this reduction in cost and I am pleased from Medical Action perspective, and I am also pleased from a customer perspective.

Customer base remained sound and strong. I have spent the fair amount of time over last six weeks out in the field working at our end-user customer and sales reps, so I am comfortable with that. I am confident in our ability to continue to address these profitability issues, I think they are short-term and I am excited about what the future has in store.

We’re going to continue to pursue our growth strategies of selling our existing products into new markets; developing new products internally for our existing markets; continuing to enhance our position and develop our strategies for the huge international marketplace.

One last note and less positive this quarter, this past weekend after many months of work we effectively did our next-to-last stage of integrating MediGene [ph] onto our SAP platform and we effectively went live with our Warehouse Management System in Tennessee, this past weekend without a glitch.

It wasn’t easy and it was just great execution from our team lead by Carmine Morello, VP of Information Systems, which I think did a very good job in making sure team was on-track and focused on all the right things and I believe the team in Tennessee did an awesome job in executing.

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