Blount International, Inc. (BLT)

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Blount International, Inc. (BLT)

Q1 2013 Earnings Call

May, 07, 2013, 01:00 pm ET

Executives

Josh Collins - Chairman & CEO

Calvin Jenness - SVP & CFO

David Dugan - Director, Corporate Communications & IR

Analysts

Robert Kosowski - Sidoti & Company

Steve Barger - KeyBanc Capital Markets

Larry De Maria - William Blair

Robert Kosowsky - Sidoti & Company

Presentation

Operator

Good morning, or afternoon, as the case may be for each of you, and welcome to the Blount International, Inc., teleconference with Mr. Josh Collins, Chairman and Chief Executive Officer; Mr. David Willmott, President and Chief Operating Officer; Mr. Calvin Jenness, Senior Vice President and Chief Financial Officer and Mr. David Dugan, Director of Corporate Communications and Investor Relations.

My name is Emily and I will be your facilitator today. The conference will begin with a brief overview of the first quarter 2013 results and the company's outlook for 2013, followed by a question-and-answer session. All lines have been placed on-mute to prevent any background noise. (Operator Instructions)

At this time, I would like to turn the call over to Mr. Dugan. Mr. Dugan, you may begin.

David Dugan

Thank you, Emily, and good day, everyone. Before we summarize the company's performance, I would like to remind everyone that the statements made in the course of this conference call regarding the company’s or management’s intentions, hopes, beliefs, guidance ranges or other expectations for the future are forward-looking statements. Those statements involve risk and uncertainties that could cause actual results to differ materially.

Please refer to the cautionary statements detailed in this morning's press release and our Form 8-K and SEC filings. Additionally, we have supplemented our first quarter news release with a presentation that can be found along with the news release on our website at www.blount.com.

At this time, Josh and Cal will give us an overview of the first quarter of 2013.

Josh Collins

Thanks, David, and thank you all for joining us on today’s call. The first quarter 2013 results were in line with our overall expectations reflecting the continued challenges of European and economic conditions and slower demand in South America which we believe is partially timing of order patterns versus last year.

Our sales for the first quarter were up 3% compared to the first quarter of 2012 with our FLAG segment sales increasing about 2% and FRAG segment sales improving by 4.5% on a year-over-year basis. Overall, we saw some strengthening in North America and Asia with sales improving 6% in North America and nearly 18% in Asia. However, demand in Europe and Russia continues to be soft with sales in the region down approximately 4% on a year-over-year basis.

Our onward position continues to reflect mostly stable demand. The total onward position of $180 million compares to nearly $200 million at December 31, 2012. Our FLAG order board of about $163 million represents approximately 90% of the total and was down about 3% from December 31, 2012. FLAG order board declined by about 20% compared to the March 31, 2012 position as we improved our delivery of back ordered items and demand in Europe continue to be weak as we expected. FRAG orders in hand are down about $15 million February December 31, 2012 reflecting typical seasonal fluctuations as well as the late strength in North America.

EBITDA and operating income results were in line with our expectations for the quarter. However, we do not currently see a change in marketing conditions that will cause us to adjust our outlook for the balance of the year. Our operating income for the quarter increased by $5.6 million compared to the first quarter of 2012. Our profit improvement was mostly driven by improved volumes in both the FLAG and FRAG businesses as well as lower comparable first quarter 2012 results which were impacted by the consolidation of our warehouse and assembly operations in SpeeCo in Kansas City, Missouri. We held SG&A spending lower in the first quarter of 2013 as well which also added to profit in the quarter compared to last year.

I will now turn the call over to Cal to cover some specifics related to the financial performance of the company including more detail on our overall cost structure and its impact on our first quarter profitability. After that I will wrap up with our 2013 outlook.

Calvin Jenness

Thanks Josh. As a reminder, we posted a presentation to our website this morning in addition to our press release that outlines profit and cash flow drivers for the first quarter of 2013 compared to the first quarter of 2012 along with other operating metrics.

FLAG sales were up 2.2% versus a year ago although profit in the FLAG business declined. Sales volumes increased driven by the strength in Asia and North America as Josh mentioned a minute ago. Compared to first quarter of 2012, Asia sales for this segment were up 16.6% and sales in North America were up 12%. Partially offsetting this strength segment sales in Europe and Asia were down 5.5% and South America saw an 18% decline. Additionally, sales experienced a currency exchange rate headwind of about $1.2 million. Finally, average pricing declined mostly as a result of channel mix with the higher proportion of OEM sales versus replacement product sales.

Sequentially, segment sales in Europe and Russia improved by 5% and down slightly in South America compared to the fourth quarter of 2012. From a profit perspective first quarter 2013 FLAG segment contribution to operating income declined by $3.2 million compared to the first quarter of 2012. The benefits of $2.2 million in higher volumes, $1.3 million of lower steel cost and $400,000 of reduced administrative spending were more than offset by foreign currency fluctuations, product and channel mix shifts and a lower capacity utilization rate.

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