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Q1 2014 Results Earnings Conference Call

May 05, 2014 04:15 PM ET


Norman Asbjornson - President and CEO

Scott Asbjornson - Chief Financial Officer

Rebecca Thompson - Chief Accounting Officer


Joe Mondillo - Sidoti & Company

Jon Braatz - Kansas City Capital

DeForest Hinman - Walthausen & Co.



Good afternoon, ladies and gentlemen. Welcome to AAON First Quarter Sales and Earnings [for Q] Conference Call. There will be a question-and-answer period, after management's presentation. This call will last approximately 45 minutes. As a reminder this conference is being recorded. I would now like to turn the meeting over to Mr. Asbjornson. Please go ahead, sir.

Norman Asbjornson

Good afternoon, thank you for attending our first quarter review. Prior to going forward I need to read a 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 that 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 and the Quarterly Report on Form 10-Q.

I would like now to turn the conversation over to Scott Asbjornson, our Chief Financial Officer. Scott?

Scott Asbjornson

Welcome to our call I would like to begin by discussing the comparative financial results of the three months ended March 31, 2014 to March 31, 2013. Net sales were up 14.3% to $76.4 million from $66.8 million. The increase in net sales was the result of the increase in the number of units sold, our product mix, price increases put in place at the end of the first quarter of 2013. Gross profit increased 42.7% to $21.8 million from $15.3 million. As a percentage of sales, gross profit was 28.6% in the quarter just ended compared to 22.9% in 2013.

The improvement in gross profit can be attributed to decreases in raw material costs increases and prices and manufacturing efficiencies. Selling, general and administrative expenses increased 9.5% to $7.6 million from $7.0 million in 2013. As a percentage of sales however, SG&A decreased to 10.0% of sales in the quarter just ended from 10.4% in 2013.

The increase in dollars of SG&A is primarily due to higher profit sharing expense, as a result of higher operating income before income taxes and increases in headcount as well as compensation changes.

In addition warranty expense increased due to higher sales as compared the same period in 2013. Income from operations increased [70.8%] to $14.2 million, or 18.6% of sales, from $8.3 million or 12.5% of sales. Our effective tax rate increased from 14.6% to 31.3% largely due to benefits related to the R&D credit and the Indian employment credit for tax years 2012 that were recorded in the first quarter of 2013. We expect our effective tax rate for the full year of 2014 to be 34.0%.

Net income increased 37.6% to $9.8 million or 12.9% of sales from $7.1 million or 10.7% of sales. Diluted earnings per share increased by 36.8% to $0.26 per share from $0.19 per share. Diluted earnings per share were based on 37,075,000 shares versus 36,962,000 shares in the same quarter a year ago.

At this time, I’ll turn it over to Rebecca Thompson, our Chief Accounting Officer to discuss our balance sheet.

Rebecca Thompson

Looking at the balance sheet, you’ll see that we had a working capital balance of $96.4 million. Cash and investments increased $3 million to $52.9 million during the quarter. The investments have maturities ranging from 1 to 13 months. Our current ratio is approximately 3.3:1. Our capital expenditures for the quarter were $3.6 million. We expect our budget for 2014 to be approximately $13 million. Shareholders’ equity per diluted share is $4.64 at March 31, 2014, compared to $4.43 at December 31, 2013. We paid no dividends in the first quarter of 2014 or ‘13. However, the Board of Directors of AAON has approved 30% increase in its semi-annual cash dividend from $0.10 per share to $0.13 per share, starting with the next dividend payable on July 1, 2014 to stockholders of record on June 12, 2014.

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

Norman Asbjornson

Thank you. Despite difficult environment some weather delays, our net sales were up 14.3% for the quarter compared to the first quarter of 2013. If I look at what happened from November 2013 through March 2014 and compare that with March of 2013, I find that even though March-to-March is up a little over 3% in dollars according to government statistics on the building types which we supply equipment to, there was a heavy point that started out in November of 2013 and declined through the month of March 2014. So what I am saying again is we had a good bulge in the market back in 2013 and it declined a little bit and entered [many] things. So whether that is a trend line or not or just a normal slowdown, what it does tell me also is that we didn’t suffer as much in the whole building trade, we didn’t suffer as much from weather as what it was reported to be happening and what was seemingly happening to us in January, we were able to in February and March basically overcome that difficulty but there was a little in January from our standpoint but not from the industry as a whole.

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