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PSS World Medical Inc. (PSSI)

F1Q10 Earnings Call

July 23, 2009 8:30 AM ET

Executives

Robert C. Weiner - Vice President, Investor Relations

David A. Smith - Chairman and Chief Executive Officer

David M. Bronson - Executive Vice President and Chief Financial Officer

Gary A. Corless - Executive Vice President, Chief Operating Officer

Kevin P. English - Senior Vice President, Supplier Operations

Scott Helfrich – Vice President, Strategic Sales Development

Analysts

John Kreger - William Blair & Company

Atif Rahim – JP Morgan

Richard Close - Jefferies & Co.

Robert M. Willoughby - Banc of America-Merrill Lynch

Glen Santangelo – Credit Suisse

Larry Marsh – Barclays Capital

Eric Coldwell – Baird

Alex Beckler - Goldman Sachs

John Ransom - Raymond James & Associates, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the PSS World Medical’s first quarter fiscal year 2010 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer question. (Operator Instructions). As a reminder, this conference is being recorded Thursday, July 23, 2009. It is my pleasure to introduce Robert Weiner. Please go ahead sir.

Robert C. Weiner

Good morning everyone. Thank you for joining our fiscal year 2010 first quarter call. Today on the call, our speakers are David Smith, Chairman and CEO; Gary A. Corless, Chief Operating Officer; and David Bronson, Executive Vice President and CFO.

We issued our fiscal year 2010 first quarter press release last evening. The release and our Financial Workbook for our first quarter are available on our website at www.pssworldmedical.com. The Financial Workbook contains GAAP and non-GAAP financial measures that provide greater detail into each business and the overall operation.

Now, I'll read the forward-looking statement. During this call, we may make a number of forward-looking statements regarding revenue, gross margin, operating expenses, operating margins, earnings per share and other matters that are not historical facts.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from what is expressed or forecasted. For a list and descriptions of certain of these risks and uncertainties, we refer you to the forward-looking statement disclosures in today's press release and to the other information provided in our most recent Form 10-K and other SEC filings, copies of which are available from the SEC, from our Investor Relations section on the website or from us in Investor Relations.

The company wishes to caution listeners of this call, and its replay not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and as such speak only as of the date made. The company also wishes to caution listeners that it undertakes no duty to update or is under no obligation to update or revise forward-looking statements.

We may reference certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You will find these reconciliation charts at the end of our Financial Workbook and in our Form 8-K on our web site and submitted to the SEC. Thank you for that.

Let me take a minute now to alert our listeners to upcoming investor events where our team will be speaking and meeting with investors. Next week, we will be in Kansas; Texas, Salt Lake City; on August 10 and 11, we'll be meeting investors in Minneapolis and Toronto; and the week of August 24, we’ll be in Europe; and finally in September, we will be at the Robert Baird Smith conference. Please let us know if you would like to schedule a meeting.

For our call today, we will follow our formal remarks by Q&A session, as prompted by the operator.

I'm now pleased to turn the call over to David Smith, PSS World Medical's Chairman and CEO.

David A. Smith

Thanks Rob. Good morning everybody. Two things to tell you first before I get started: First, I may not quite be the same person as you normally hear on the call; I had a foreign body come join me last night all night. I can’t wait to go see one of our customers. A little color on that is I don’t know if I have food poisoning or something worse, so I will find that out here in another hour or two. As far as color goes, the second point is that I think we are going to be able to provide real color to some of the holes that we had in investor day. To give you some facts and details, and some real articulation of the tactics that we were reticent to tell you at investor day, until we had the programs rolled out to our people until we saw some traction on the streets. So, I think it will be an interesting call. We will give you some of those. We will also talk to you about how we are not raising guidance this quarter, and when we will analyze that for that decision. We are going to talk about why we believe why we are winning and the things that I think are sustainable in those items that are causing us to win. Some highlights for the quarter, and then I will talk to you about what’s going on in the national scene including Washington and reform and swine flu. Then, Gary Corless will talk to you about how this plays out on the street with customers and our people, and David Bronson will give you a financial report and financial analysis of the quarter. So with that, let’s get started.

We started this year with a confirmation of our 20% EPS goal with most of our strategies intact. However, supporting tactics and goals were completely reset as a result of the changing environment. The tactical course correction and volume of internal changes caused serious concern and stress in our leadership. At the end of the day, we relied on our people, our culture, our core strengths including the company’s past ability to turn on a dime without losing sight of our principles and mission.

So, our first real tactical change as a result was to go in the opposite direction of our competition because we believe they fundamentally got it wrong. They laid off or fired thousands, cut services, and distracted their people, so instead of laying off or firing, our goal is to save 300 jobs, and our people really get that.

The second area of change in tactics is that we believe our customers are absorbing the blunt trauma of spiraling administrative cost, complexity of building and shrinking reimbursement. Because we have created a sales force bandwidth with customer innovation and automation, a line compensation to strategies, and developed timely solutions to customer problems, our tactics to achieve two times market sales growth have changed. The adjustment is to reach thousands of new customers leveraging our strength and competitors weaknesses while we strengthen existing customers with the same solution; a big change for us.

The third change in tactics is to create a 3500-person army moving as one together, leading innovation and efficiency through our lean initiative, changing the fundamental cost structure of our business model in response to the new economic realities. Our goal here is to deliver 20% earnings growth through efficiency and teamwork against the economic headwinds of slower revenue fundamentals.

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