Blount International, Inc. (BLT)

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Blount International Inc. (BLT)

Q1 2010 Earnings Call

May 4, 2010, 01:00 pm ET

Executives

Josh Collins - President and CEO

Calvin Jenness - SVP and CFO

Analysts

Eileen Gamboa - Post Advisory

Alan Robinson - Royal Bank of Canada

Presentation

Operator

Good morning or afternoon as the case may be for each of you. And welcome to the Blount International Incorporated teleconference, with President and Chief Executive Officer, Mr. Josh Collins, and Mr. Calvin Jenness, Senior Vice President and Chief Financial Officer. My name is Maureen and I will be your facilitator today.

The conference will begin with a brief overview of the first quarter 2010 results and the company's updated 2010 outlook, 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. Jenness. Mr. Jenness, you may begin.

Calvin Jenness

Thank you, Maureen, and good day, everyone. This call is being broadcast live on the internet and recorded for future transmission and used by Blount and third parties. Participants on the call, including the Q&A session, agree that their likeness and remarks may be stored and used as part of their earnings call.

Before Josh and I 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 as defined by the Securities Litigation Reform Act of 1995. Those statements involve risks and uncertainties that could cause actual results to differ materially.

Now, I'd like to turn the call over to Josh Collins, our CEO.

Josh Collins

Thanks Cal, thanks for all of you for joining us today. First, I'll spend a few minutes discussing the highlights of the first quarter. Then, I'll have Cal cover some of the financial details. Then, I will conclude our prepared remarks by covering our revised outlook for 2010 and some overall observations about our strategic directions.

The performance over this past quarter has been encouraging on a number of fronts. Order intake have increased significantly. We are achieving good operating leverage on our manufacturing facilities, with the increased volume. We have seen the return of customers and markets that have experienced significant volume decline during the 2009 economic recession.

Consistent with the pattern, we experienced in the last half of 2009, we continued to see strong sales and profit, with overall operating income reaching the highest level since the third quarter 2008. Sales were up over 17% in the first quarter of 2010 compared to last year's first quarter.

The first quarter operating margins were solid at nearly 16% of sales, as we achieved good cost performance for plant efficiencies and lower steel costs year-over-year.

Additionally, we generated positive free cash flow and paid down debt in the first quarter, which is traditionally a quarter in which the company borrows cash rather than generating cash. Customer orders have continued to improve, as this year has progressed. We have seen backlog increase to the highest level since September 2008. Backlog has increased each month in the first quarter 2010.

This trend has increased our optimism with regard to the sustainability of the business recovery that began in the second half of 2009. Our rejuvenated new products efforts began contributing in the first quarter, as we recorded the first sales of our new PowerSharp Chain Sharpening System and continued to see sales growth as -PowerGrid Chain we introduced in 2009.

Exciting to see our investment in new products begin to pay-off, we are encouraged by the order patterns we've seen for these new products to-date.

Cash flow in the first quarter of 2010 was strong relative to the first quarter last year and better than our typical first quarter experience in general. We generated positive free cash flow of $2.5 million, and further reduced debt in the quarter.

Our financial leverage is well within our comfort range at this point, less than 2.5 times net debt to EBITDA. All in, we're definitely encouraged by our first quarter results.

Cal will now cover some of the specifics related to the financial performance of the company. Cal?

Calvin Jenness

Thanks, Josh. Overall, we turned in solid financial results from the first quarter of 2010. Our first quarter gross profit margin was in line with fourth quarter of 2009, as our production facilities with better utilized and more efficient with increased volumes.

First quarter 2010, operating income was $21.8 million, representing an operating margin of 15.9% of sales and an increase of $14.2 million from last year's first quarter. EBITDA, as defined by our senior credit agreement, was $28.8 million, a more than $10 million improvement over the first quarter of 2009, and $97.6 million for the trailing 12 months ended March 31st, 2010.

Overall, leverage was 2.9 times EBITDA and our net leverage ratio was 2.4 times EBITDA. Our EBITDA margin was 21.1% of sales for the first quarter. Our core business, the outdoor products segment, has quarterly sales of $133.1 million, up 19.5% from the first quarter of 2009. The $21.7 million increase year-over-year increase in the first quarter sales was primarily the result of higher unit volumes.

Sales volumes were up $24.8 million in the first quarter of 2010 compared to 2009. Currency exchange rates added another $1.6 million to 2010 first quarter sales, while a reduction in average pricing reduced sales by approximately $4.7 million. The reduction in average pricing was primarily driven by an increase in sales volumes to original equipment manufacturers, and higher volume customers, as well as a shift in product mix to slightly lower priced products.

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