Albany International Corporation (AIN)

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Albany International Corp. (AIN)

Q4 2008 Earnings Call

February 18, 2009 09:00 AM ET


Joseph G. Morone - Chief Executive Officer and President

Michael C. Nahl - Chief Financial Officer and Executive Vice President


Jason Ursaner - CJS Securities

Paul Mammola - Sidoti & Company

Ned Borland - Next Generation Equity Research

Will Nasgovitz - Heartland Fund



Welcome to the Fourth Quarter Earnings Call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Wednesday, February, 18, 2009 will be webcast and recorded.

I would now like to turn the conference over to our host, President and Chief Executive Officer, Dr. Joseph Morone. Please go ahead, sir.

Joseph G. Morone

Thank you, Sean. Good morning, everyone and welcome to the Albany International Q4 2008 earnings call. As always, I'll open with a commentary, and then our Executive VP and CFO, Michael Nahl will provide some amplifying comments and then we'll get into Q&A.

Before we start, let me just give you a quick overview of how we're looking at this release, because we know this is a very complex quarter. It's going to take you quite a bit of time to work your way through the numbers. Please take as much time as you need on the call with questions, and we'll take as much time as necessary to answer those questions.

We are confident that when you work through all the numbers and work through the details of this very complex release, as you'll come to the same place that we're at, and where we're at is something like this; number one, we are confident that we are taking the steps necessary to deal with this recession and to leave us going into 2010 in a very strong position.

Number two, our timing on our restructuring has not changed. We have been talking about a three-year restructuring process that ends this year. We are still talking about a restructuring process that ends this year. We are still looking at clean numbers by the end of the year, good cash flow by the end of the year.

What has changed because of the recession is the scale of the restructuring that we'll go through this year. But that means that the magnitude of the cost savings and the magnitude of the cash generation potential of this company by the time we get through the restructuring and are into 2010 is all the greater, all of which means we expect to go into 2010 in a strong position, even if the recession continues into 2010. And if there is any kind of an upturn, I think you are going to see the kind of results that really excite.

So that's the overall message and the difficulties that I think you'll have in this quarter is working through all of the numbers to get to that message but that's... I thought it was important to give you a sense of how we're feeling by having faced the brunt of the recession as we look forward.

So let me turn to my written comments and then we'll go to Michael and then will go to the Q&A.

In our Q3 2008 earnings release, I said that 'we are making good progress towards the development of our cash and grow portfolio of businesses and despite the recession, we continue to expect that by this time in 2010, the cash and grow portfolio would have been fully implemented.'

One quarter later, after experiencing the full brunt of the global recession in November and December, these expectations remain largely unchanged. Assuming the sales environment that we experienced in November and December persists through 2009, we still expect to enter 2010 with restructuring behind us. Our portfolio of business is well on its way to being fully optimized, CapEx running at or below depreciation and with increasingly strong cash flow.

Sales in Q4 were down 11% compared to 2007. We think this result somewhat understates the full effect of the global recession since October was a relatively healthy sales month. November and December were much slower, as was January. If this pattern persists, sales for 2009 would be down by 13% to 15%, compared to 2008 and since Q1 and Q2 of '08 had very strong sales, the year-over-year declines in the first half of '09 would be even greater.

Q4 earnings were affected by the goodwill impairment, the Eclipse Aviation bankruptcy and other items described in the first paragraphs of the release. Excluding those items, EBITDA for Q4 '08 improved compared to Q4 '07 as our continuing efforts of cost reduction helped to offset the 11% decline in sales.

In addition, net cash provided by operating activities for the quarter increased 24% compared to Q4 '07, also reflecting progress in those companywide initiatives. While we believe that these results are a clear indication of the progress we are making, it is important to keep in mind that the Q4 results were helped by strong sales early in the quarter and favorable currency effects and do not reflect the full impact of the recession. And so, despite the strong results, we started in Q4 to accelerate our restructuring and cost reduction efforts.

Table three in the release demonstrates how we are approaching the challenge of minimizing the full effect of the recession. Our overarching objective is to emerge from this recession as a fundamentally more profitable company. Our primary focus is on structural, permanent reductions in cost. In essence, we are accelerating the remaining major steps in our global restructuring process, and simultaneously, initiating additional cost reduction measures that under ordinary circumstances, we would have pursued more gradually, over a period of several years. The impact on earnings from these actions will grow as the year progresses and should be fully realized by the end of the year.

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