AAON

AAON, Inc. (AAON)

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AAON (AAON)

Q1 2013 Earnings Call

May 09, 2013 4:15 pm ET

Executives

Norman H. Asbjornson - Chairman, Chief Executive Officer, President, President of AAON Canada Inc, President of AAON Properties Inc and President of AAON Coil Products Inc

Scott M. Asbjornson - Chief Financial Officer and Vice President of Finance

Analysts

Joseph Mondillo - Sidoti & Company, LLC

Presentation

Operator

Good afternoon, everyone. My name is Karla, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter report conference call. [Operator Instructions] I would now like to introduce you to your host, Mr. Asbjornson.

Norman H. Asbjornson

Good afternoon. Welcome to AAON's First Quarter Report for the Year 2013.

Before I go any further, I'd like to read the forward-looking disclaimer. To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995.

As such, it is subject to the occurrence of many events outside AAON's control could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the annual report on Form 10-K, quarterly report on Form 10-Q.

And now I would like to introduce Scott Asbjornson, who is our CFO, and will take over the call for a while.

Scott M. Asbjornson

Welcome, everyone. In addition to myself and Norm, we also have attending this conference call our new Chief Accounting Officer, Rebecca Thompson. I'll start off going over the comparative results of the 3 months ended March 31, 2013 to March 31, 2012. Revenues were up 2.9% to $66.8 million from $65 million. Revenues increased due to gains in market share in the nonresidential and replacement markets and as a result of price increases introduced in 2012. Gross profit increased 13.3% to $15.3 million from $13.5 million. As a percentage of sales, gross profits were 22.9% in the quarter just ended compared to 20.8% in 2012. The improvement in gross profits can be attributed to changes in pricing with a comparatively stable cost structure.

Selling, general and administrative expenses increased 16.5% to $7 million from $6 million in 2012. As a percentage of sales, SG&A was 10.4% of total sales in the quarter just ended and 9.2% in 2012. The increase in SG&A is primarily due to hiring of new employees, increased advertising expense related to a sales show, increased professional fees to our external auditors and other consultants and increases in employee compensation.

Operating income increased 10.3% to $8.3 million or 12.5% of sales from $7.6 million or 11.6% of sales. Our effective tax rate decreased from 39.9% to 14.6%, largely due to an Oklahoma investment credit and changes in federal tax laws. We expect the rate for the remaining quarters of 2013 to be approximately 34.5%.

Net income increased 56.3% to $7.1 million or 10.7% of sales from $4.6 million or 7% of sales. Diluted earnings per share increased by 61.1% to $0.29 per share from $0.18 per share. Diluted earnings per share were based on 24,641,000 shares versus 24,772,000 shares in the same quarter a year ago.

Moving to the balance sheet. We see that we had a working capital balance of $61.4 million. Cash and investments increased $6.7 million to a total of $26 million during the quarter. The investments have maturities ranging from 2 months to 2 years. Our current asset ratio was approximately 2.8:1. Our capital expenditures were approximately $997,000. Shareholders' equity per share is $5.92. We paid no dividends in the first quarter compared with cash dividends of $5.8 million in December 2012.

I'd now like to turn the call back over to Norm, who will discuss our results in further detail, along with the new products and the outlook for the remainder of the year.

Norman H. Asbjornson

Thank you. Despite a difficult environment in the big commercial and industrial building market, sales were up 2.9% for the quarter compared to the first quarter of 2012. Sales increased due to our ability to gain market share, plus a small price increase during the year of 2012. We have also been redesigning products and attacking different market segments. The market is also broken down between replacement and new construction.

At the present time, we have a continuation of what has occurred in the past couple of years of the replacement market becoming dominant in our environment. It might be noted here that in the market as a whole, replacement market probably has been dominant over new construction for a few years. But in our case, we used to be more heavily into the new construction than replacement market. At the present time, we believe our replacement market share, the market percentage of our total is approximately 55%, with 45% under new construction.

We had, in the past, a significant upturn in the geothermal market, which we participate in, in a little different matter than most people assume in the geothermal. The geothermal market typically is dominated by a very standardized product, typically in the 2 tons through to 5 tons in capacity size. The manner in which we attack the geothermal market is through condensing units for air handling units, larger package units set up to do variable air volume and rooftop units in all of their configurations. So geothermal market means a little different to us than it does to the rest of the geothermal market.

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