MSA Safety Incorporporated (MSA)

MSA 
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Mine Safety Appliances Company (MSA)

Q1 2009 Earnings Call Transcript

April 30, 2009 10:00 am ET

Executives

Mark Deasy – Director, Global Public Relations

Bill Lambert – President and CEO

Dennis Zeitler – SVP and CFO

Joe Bigler – VP and President, MSA North America

Rob Cañizares – EVP and President, MSA International

Analysts

Edward Marshall – Sidoti & Company

Keith Kostek [ph] – Morgan, Keegan

Richard Eastman – Robert W. Baird

Greg Halter – Great Lakes Review

Walt Liptak – Barrington Research

Dick Ryan – Dougherty & Company

Presentation

Operator

Good morning, ladies and gentlemen. And welcome to the MSA first quarter earnings conference call. At this time, all the participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Mark Deasy. Mr. Deasy, you may begin.

Mark Deasy

Thank you, Kim [ph], and good morning, everybody. As Kim said, I’m Mark Deasy, Communications Director. And on the call with us today are Bill Lambert, President and Chief Executive Officer; Dennis Zeitler, Senior Vice President and Chief Financial Officer; Joe Bigler, President of MSA North America; and, Rob Cañizares, Executive Vice President and President of MSA International.

Our first quarter earnings release was issued this morning at 8:30, and we hope that everybody has had an opportunity to review it. The release is posted on the home page of the MSA Web site, which is at www.msanet.com.

This morning, Bill Lambert will provide commentary on the first quarter. He will be followed by Dennis, who will review our financials. And after Dennis' comments, we will open up the call for questions and plan to adjourn by about 10:45.

Before we begin, I need to remind everyone that the matters discussed on this call, with the exception of historical information, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, including without limitation, all projections and anticipated levels of future performance, involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed here. These risks, uncertainties, and other factors are detailed from time to time and our filings with the SEC, including our most recent Form 10-K, which were filed on February 26, 2009.

We strongly urge you to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can be easily obtained at no charge at www.sec.gov, MSA's Web site, and a number of other commercial Web sites. That concludes our forward-looking statements. So at this point, I will turn the call over to Bill Lambert for his comments on our quarter. Bill?

Bill Lambert

Thank you, Mark, and good morning, everyone. Let me begin by saying thank you for joining us today in our conference call and for your continued interest in MSA. Presumably, all of you have seen our first quarter earnings release and have our financial figures with all comparisons corresponding to the equivalent first quarter of 2008.

In our last investor’s conference call on February, I said that MSA was not immune to the effects of the global recession and that the recession was most definitely having an impact on our business, particularly in markets where you might expect to see it have an impact; markets such as construction, industrial manufacturing, mining and energy sectors, the challenges of reduced US military spending, and even a portion of our fire service market that is dependent on local municipal funding. In these markets, we are feeling the effects of higher unemployment, reduced capital spending, and tighter municipal fiscal policies.

Our first quarter results show the impact of the ongoing economic recession and its effects on our business. Consolidated sales in the quarter were $218 million, decreasing $48 million or 18% over the same period a year ago. However, it's important to keep in mind that over half of this decrease was due to weakening foreign currencies of this quarter versus a year ago.

MSA gross profit as reported, decreased $23.4 million or a 190 basis points when expressed as a percent of sales due to the decreased sales of higher margin product lines. A greater percentage of total sales coming from Europe and international, which tend to be lower gross margin segments, and due to challenges associated with increased unabsorption on our factories due to lower volumes and through play. Reported net income therefore, was $8.8 million decreasing – excuse me, reported net income decreased $8.8 million or 55% on that 18% sales decrease.

In anticipation of a worsening economic environment, we implemented a restructuring program in North America. During the first quarter, we recognized an $8.1 million charge for restructuring, or roughly $0.15 cents per basic share. The majority of this $8.1 million is primarily attributed to the Voluntary Retirement Incentive Program announced in North America. This program resulted in an 8.6% reduction in our salaried workforce, and is expected to provide $5 million in ongoing annual savings.

Comparing quarters between years, we saw significant devaluations of major global currencies in which we do business. On a currency adjusted basis, consolidated sales decreased $24 million over first quarter a year ago or about 10%. Sales decreased most significantly in North America which was down about 24% from a year ago.

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