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Met-Pro Corp. (MPR)

F2Q10 (Qtr. End 7/31/09) Earnings Call Transcript

August 21, 2009 11:00 pm ET

Executives

Kevin Bittle - Manager Creative Services

Ray De Hont - Chairman, President and CEO

Gary Morgan - VP Finance, CFO, Secretary and Treasurer

Analyst

William Bremer - Maxim Group

Richard Verdi - Sturdivant & Company

Chris Noon - Brean Murray

Jinming Liu - Ardour Capital

Presentation

Operator

Good morning, my name is Laurie and I will be your conference operator. At this time, I would like to welcome everyone to the Met-Pro Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions). Thank you.

I will now turn the call over to Kevin Bittle, Manager of Creative Service. Please go ahead, sir.

Kevin Bittle

Good morning, and welcome to Met-Pro Corporation's Earnings Call for the second quarter of our fiscal year 2010, which ended July 31, 2009. My name is Kevin Bittle and I am with the company's Creative Services Department. With me on our call this morning are Ray De Hont, our Chairman and Chief Executive Officer; and Gary Morgan, our Senior Vice President of Finance and Chief Financial Officer. Shortly you'll hear comments from both of these individual. But before we begin, I'd like to make a few comments.

I'd like to remind you that any statements made today with regard to our future expectations may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to our Annual Report for the fiscal year ended January 31, 2009, that was filed with the SEC for important factors that among others could cause our actual results to differ from any results that might be projected, forecasted or estimated in any of our forward-looking statements.

And with that, I will now turn the call over to Ray. Ray?

Ray De Hont

Thank you, Kevin. Good morning everyone and welcome again from Harleysville, Pennsylvania. Earlier this morning, we released our financial results for the second quarter. I hope all of you have had a opportunity to review them.

Entering the current fiscal year, we felt that the global economic swamp would present challenges to our first step of the year financial results and our performance in the second quarter is consistent with those expectations.

This year we are also bearing the added burden of additional pension, health insurance and stock compensation costs. As a result, both net sales and earnings in the quarter were down from the second quarter of last year.

On a more positive note, during the second quarter we were able to sustain solid gross margins, generate significant cash flow, strengthen our balance sheet and implement operational and strategic improvements to more effectively leverage our resources.

Demand in our various industrial, municipal and other markets around the world remain weak through the second quarter and that could be seen in our net sales. Our markets tend to lag overall economic activity as capital spending inevitably falls after any economic slowdown is identified.

In the short run, buyers can temporarily postpone replacing, improving or repairing equipment, but in the long run making these investments is ultimately unavoidable, but in the long run, making these investments is ultimately unavoidable.

Despite the fairly significant drop in net sales this quarter, gross margins were still a solid 34% due mostly to the various efficiency initiatives implemented over the past several years, including facility consolidations, global sourcing, more effective logistics and lean manufacturing, as well as the ability of our flexible manufacturing strategy to quickly adjust cost to match our level of business activity.

For example, the implementation of more efficient procurement processes help decrease our relative cost to materials by 380 basis points this quarter. Building on the success of these initiatives, we have expanded our lean manufacturing program more broadly throughout the organization and are implementing a long planned improvement to our ERP system. Both investments will make us better prepared for the recovery and are expected to provide significant returns over the long haul.

We are also undertaking a restructuring of our product recovery and pollution control technology segment. By shifting to a matrix organization structure, our product recovery and pollution control technology segment will be better able to leverage its extensive engineering, project management and sales resources across its various product lines.

We believe this will not only improve operations, but will create additional capacity and expertise to pursue new growth opportunities in markets where we currently have limited penetration or no presence at all.

We also have the advantage of an extremely strong balance sheet. In the second quarter, cash flows from operating activities were $4.2 million, bringing our total cash flows from operating activities to $10.1 million through the first six months of fiscal 2010. At July 31st, cash was at an all time high of $29.2 million.

Keep in mind that our cash is net of over $11 million in cash distributed to shareholders in the form of stock repurchases and dividends during the past 12 months.

With credit market still tight and with the economic swarm pressuring earnings throughout our industry, our historically conservative financial management practices have provided us with the resources we believe will be useful in facilitating our long-term growth strategy both from an organic and an acquisition perspective.

Though bookings in the second quarter are down from a year ago, they are up sequentially from the first quarter; while bid activity has seen a marked improvement. In addition to a better rhythm to our routine orders and enquiries, we are now starting to see more of the larger $2 million to $5 million opportunities and even a large $20 million opportunity that have been really seen in over a year. While we are optimistic, there are no assurances that any of these opportunities will result in orders.

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