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Buckeye Technologies, Inc. (BKI)

F2Q09 Earnings Call

January 27, 2009 11:00 am ET


Daryn Abercrombie – Senior Finance and Investor Relations Manager

John Crowe – Chairman and Chief Executive Officer

Steve Dean – Senior Vice President and Chief Financial Officer

Kris Matula – President and Chief Operating Officer

Beth Welter – Vice President and Chief Accounting Officer


Gail Glazerman – UBS Securities

Napoleon Overton – Morgan, Keegan & Company



Welcome to Buckeye Technologies Incorporated second quarter earnings results conference result. (Operator Instructions). At this time for opening remarks and introductions I would like to turn the call over to Mr. Dan Abercrombie of Buckeye.

Daryn Abercrombie

Thank you, [Martin]. Good morning and welcome to Buckeye's conference call commenting on our results for the October to December quarter 2008, our fiscal 2009 second quarter. Today I'm joined on 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 read our Safe Harbor statement. The matters discussed in this call include forward-looking statements that involve risks and uncertainties that may call 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 slide 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. The October-December period was a challenging quarter for Buckeye. In late October the worldwide recession began to have an impact on the demand for some of our products. While the demand for most of our high end specialty wood products was solid and remains solid, demand for specialty cotton fibers has weakened significantly. Demand for our [airlaid] non-wovens product was also down primarily due to customer inventory reduction and the normal seasonal weakness in Europe during December.

We took market downtime at our Foley facility primarily in fluff pulp and at our Memphis and Americana plants in the cotton pulp during the quarter to match production to shipments and to control working capital. We are committed to matching production with sales to insure we minimize our cash investments and inventories.

Primarily due to weak volume demand our net sales of $184.7 million for the October-December quarter were down to 12.4% over the prior year quarter and down 16.6% when compared to our record July-September quarter. Net income for the quarter was $2.6 million, $0.07 per share compared to net income of $13.8 million, $0.35 per share for the same period last year and $8.9 million, $0.23 per share, in a sequential comparison.

As I said earlier the demand for our high-end specialty wood products has held up well aside from some weakness in fluff pulp in the auto filtration markets. But our cotton business has felt the impact of the recession primarily in the LCD, ethers, plastics and nitrates markets.

At the mid-point in our fiscal year our revenue is $406 million compared to $408 million for the same period last year. The growth we delivered in the first quarter has been offset by the impact of this quarter's weaker shipments.

Reduced capacity utilization had a significant impact on our margin reducing mid-year gross margin to 14.4% compared to last year's mid-year gross margin of 20.2%. Year-to-date earnings of $11.5 million, $0.30 per share compares to net earnings of $27.3 million, $0.70 per share the same period last year.

The recent steep decline in the price of our stock has created a significant gap between the book and market value of our equity. This significant gap has been raised as an indicator that potential goodwill impairment exists for the just-completed quarter. As such we are performing an interim goodwill impairment test that we expect to have completed by the first week in February.

In the event that it is determined that goodwill is impaired a non-cash charge will be required which will reduce reported net income and earnings per share for the quarter. The total goodwill balance subject to impairment as of December 31, 2008 is $140 million pre-tax. This impairment test is being prompted by our low stock price. While we do not believe the quality of our assets or our long-term business prospects have meaningfully changed we will likely be unable to reconcile the significant gap between the current market price and book value of our shares.

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

Steve Dean

I would like to refer you to the supplemental slides that we provided with the Webcast and on the company's Website and provide you with some further explanations behind our financial results for the quarter.

I'll plan to focus my comments on comparing our results for the October-December quarter to the July-September quarter, but we have also included several slides with comparisons against the year-ago quarter in the Appendix for your reference. These financial results do not include any potential non-cash goodwill impairment charge that may be reported in our financial results when we file our 10-Q on February 9th.

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