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Q1 2013 Earnings Call

March 21, 2013 11:00 am ET


Tom Lawrence

Christopher L. Conway - Chairman, Chief Executive Officer and President

David J. Fallon - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance


Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Tim Mulrooney

Brian Sponheimer - Gabelli & Company, Inc.

Stewart Scharf - S&P Equity Research



Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the CLARCOR Inc. First Quarter 2013 Earnings Conference Call. Today's conference call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Tom Lawrence of Dye, Van Mol & Lawrence. Please go ahead, Mr. Lawrence.

Tom Lawrence

Thank you. We appreciate your interest in joining us on CLARCOR's conference call to discuss results for the first quarter of 2013.

By now, everyone should have received a copy of the news release that was distributed yesterday. If anyone does need a copy, it is available on CLARCOR's website at, or you can call Charnell Thomas at (615) 244-1818 and she will send you a copy immediately.

Before I turn the call over to Chris Conway, CLARCOR's Chairman, President and CEO, I'll remind you that all statements made in the news release and during this conference call, other than statements of historical fact, are forward-looking statements. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The company believes that its expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the company's actual results, performance or achievements, or industry results, to differ materially from the company's expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition, the company's past results of operations do not necessarily indicate its future results.

Finally, we wanted to let people know that the information and statements made during the call are made as of the date of the call, March 21, 2013. Those listening to any replay should understand that the passage of time by itself will diminish the quality of the statements. Also, the contents of the call are the property of the company, and the replay or transmission of the call may be done only with the consent of CLARCOR.

It's now my pleasure to turn the call over to Chris Conway for his opening remarks.

Christopher L. Conway

Thank you, Tom. Good morning, and thank you for joining us today. With me are David Fallon, our Chief Financial Officer; and David Janicek, our Corporate Controller. After a few opening remarks, I'll turn it over to David Fallon to review our financial results in more detail. After David's remarks, I'll discuss the quarter from an operational perspective and discuss our outlook and our guidance before we open it up to questions.

We reported a record diluted earnings per share of $0.47 for the quarter after the close of trading yesterday. This was in line with our guidance coming out of the fourth quarter. Net sales and operating profit were flat for the quarter compared to last year's first quarter. While we saw increased sales in our natural gas business and our distribution business, the rest of our companies were flat to slightly down against a continuing backdrop of economic concerns in Europe and Asia, and the U.S. economy continued to remain sluggish, which reflected in many of our businesses. Nevertheless, we continue to invest in new product and market development and expect growth to result as we add products and continue to make operational improvements in our businesses.

I'll talk more about some of these investments after David reviews our financial results in more detail. Now I'll turn it over to David.

David J. Fallon

Thanks, Chris. Before reviewing our financial results, I'll remind everyone that our first quarter is almost always our lowest sales and earnings quarter due to the inclusion of the December holidays and the winter seasonal impact in some of our product markets. This year's first quarter was no exception.

While considering this seasonal impact, our first quarter results were in line with our expectations heading into the quarter and rather consistent with our financial performance from the first quarter of 2012. Consolidated sales, operating profit and operating margin remained relatively steady with last year's financial results, while our first quarter diluted earnings per share increased to a record-high first quarter $0.47 per share. This was aided by an income tax benefit from the extension of the R&D tax credit this past January.

Looking at some of our consolidated first quarter financial metrics, our operating margin remained relatively flat as a 1.7 percentage point reduction in gross margin was offset by a 1.6 percentage point reduction in selling and administrative expenses as a percentage of net sales.

Half of the gross margin percentage reduction was due to product mix and lower absorption at our Engine/Mobile segment and half was driven by a higher mix of natural gas vessels versus higher-margin aftermarket filters at our Industrial/Environmental segment. In addition, our first quarter included the shipment of a rather large natural gas vessel order at an unusually low margin, which we accepted to gain future access to the higher-margin aftermarket business flowing from this project.

Our consolidated selling and administrative expenses remained relatively flat with the fourth quarter of 2012 but declined $4.2 million from last year's first quarter. Approximately $2.5 million of this reduction was due to the accounting requirement in last year's first quarter to immediately expense stock-based and other compensation to our former Chairman instead of amortizing it over a vesting period. The remainder of the reduction was related to higher incentive compensation and bad debt expense last year, in addition to the settlement of a legal matter in last year's first quarter.

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