Blount International, Inc. (BLT)

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Blount International, Inc. (BLT)

Q2 2013 Earnings Conference Call

August 7, 2013 13:00 pm ET

Presentation

Executives

David Dugan - Director, Corporate Communications & IR

Josh Collins - Chairman & CEO

David Willmott - President & COO

Calvin Jenness - SVP & CFO

Analysts

Robert Kosowsky - Sidoti

Steve Barger - KeyBanc Capital Markets

Larry De Maria - William Blair

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 Laura and I will be your facilitator today. The conference will begin with a brief overview of the second 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, Laura 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 risks and uncertainties that could cause actual results to differ materially.

Please refer to this cautionary statements detailed in this morning’s press release and our Form 8-K and SEC filings. Additionally, we have supplemented our second quarter results 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 second quarter of 2013 along with our outlook for 2013.

Josh Collins

Thanks, David, and thank you all for joining us on today’s call. In the second quarter, we continue to be challenged by global economic conditions…

Operator

Pardon me, this is the operator, please standby. Pardon me, this is the operator, thank you for standing by. We seem to have lost connection with the speaker location. I will place your lines back on hold until we are able to reconnect the speakers. Thank you again, please standby.

Once again thank you for standing by. The Blount International conference will resume shortly. Thank you for standing by.

Thank you for continuing to wait. The speakers have been reconnected to the conference. Please go ahead.

Josh Collins

Okay. This is Josh again. I’m going to start at the beginning since I’m not sure exactly where we lost you. In the second quarter we continued to be challenged by global economic conditions. We experience lower demand in all of our regions. The sales for the second quarter were down 8% compared to the second quarter of 2012. The FLAG segment sales down about 9% and FRAG down about 5.5% compared to second quarter 2012.

We experienced weakness in North America and Asia during the second quarter. The sales down 10% in North America and nearly 12% in Asia compared to the second quarter of 2012. North America was impacted by a late start to the 2013 spring season and Asia was impacted by excess channel inventory.

Demand in Europe and Russia continues to be soft with sales in the region down approximately 2% compared to the second quarter of 2012 due to ongoing economic conditions. Our on order position reflect softer demand. The total on order position of $173 million compared to nearly $200 million at December 31, 2012.

Our FLAG order board of about $156 million represents approximately 90% of the total. The FLAG order board was down about 7% from December 31, 2012 and declined by about 9% compared to the June 30, 2012 position, as we improved our delivery of back ordered items. Excluding back ordered items; FLAG open orders were flat compared to June 30, 2012. FRAG orders in hand are down about $3.5 million from June 30, 2012 mostly due to improved throughput of SpeeCo products in our Kansas City distribution and assembly center.

EBITDA and operating income results were lower than our expectation for the quarter. Our operating income for the quarter decreased by $4.6 million compared to the second quarter 2012. The profit decline was primarily driven by the lower sales volumes in both the FLAG and FRAG businesses and higher FLAG manufacturing cost on lower plant capacity utilization. We held SG&A spending lower in the second quarter 2013, which also partially offset the sales volume impact.

In our news release this morning, we announced that we will consolidate our two saw chain plants in Portland, Oregon. The plant that was purchased with the 2008 acquisition of Carlton Company will be consolidated into our larger Portland-base saw chain manufacturing facility as well as FLAG production facilities in China, Brazil and Canada.

The consolidation will enhance operational efficiencies and reduce costs, while balancing production capacity with near-term market demand. The consolidation of the two facilities will reduce our overall workforce by approximately 200 people or nearly 5%.

Additionally, we believe the consolidation will provide more timely delivery by moving our manufacturing closer to our customers, which is consistent with our long-term regional manufacturing strategy. For more details please reference news release issued today.

I will now turn the call over to Cal to cover some specifics related to the financial performance of the company and details related to the material weakness mentioned in our news release issued this morning. After that I will wrap up with our 2013 outlook.

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