Albany International Corporation (AIN)

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Albany International Corp. (AIN)

Q3 2010 Earnings Call

November 4, 2010 09:00 am ET

Executives

John Cozzolino - VP, Corporate Treasurer & Strategic Planning

Joe Morone - President & CEO

Analysts

Jason Ursaner - CJS Securities

Mark Connelly - CLSA

Ned Borland - Hudson Security

Paul Mammola - Sidoti & Company

Jason Ursaner - CJS Securities

Presentation

Operator

Ladies and gentlemen, thank you, for standing by. Welcome to the Third Quarter Earnings Call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Thursday, November 4, 2010 will be webcast and recorded.

I would now like to turn the conference over to Vice President and Acting Chief Financial Officer, John Cozzolino, for introductory comments. Please go ahead.

John Cozzolino

Thank you, operator and good morning, everyone. As a reminder for those listening on the call, please refer to our detailed press release issued last night, regarding our quarterly financial results with particularly reference to the Safe Harbor notice contained in the text of the release about our forward-looking statements and the use of certain non-GAAP financial measures and associated reconciliation of GAAP.

And for purposes of this conference call, those same statements also apply to our verbal remarks this morning. And for a full discussion, please refer to that earnings release as well as our SEC filings, including our 10-K.

Now, I will turn the call over to Joe Morone, our Chief Executive Officer, who’ll provide some opening remarks, before we go to Q&A. Joe?

Joe Morone

Good morning, everyone. Thanks, John. Welcome to Albany International’s Q3 2010 Earnings Call. Q3 was another good quarter for the company. If you take out the effects of currency, the $6.7 million of revaluation gain in Q2 and the $7.6 million of revaluation loss in Q3, you get basically comparable quarters; the same EBITDA in Q3 as in Q2 and roughly, the same sales, despite summer seasonal effects.

Q3 was particularly strong for PMC; gross margins hit 44%, operating income margin 25%, sales were steady from Q2 to Q3, despite the summer. Orders were strong; backlog has grew and actually hit their high for the year. And perhaps most important, pricing continue to be stable. We successfully concluded another important contract negotiation and there are no other major contracts pending for two years. The net effectible that is, we are feeling better about the short term outlook for price stability, than we have at any time since basically Q2 of 2006.

Turning to A2, Albany Engineered Composites were still on track, to double sales from Q3 ‘09 levels by the end of 2011 or early 2012 and making excellent progress on new product development that Q3 press release on the ceramic matrix composite substrate for Boeing engine nozzle was just one example. And we continue to prepare for the LEAP-X program, as we our recent announcement of the site selection for new plant in New Hampshire suggests.

On the profitability front, the losses in AEC continued in Q3, but we made good progress in turning operation around and we’re working closely with our customers to finish that effort. And our advanced composites operation in Rochester continuous to perform well and we’re still expecting Albany Engineered Composites to be EBITDA positive in 2011, operating income positive in 2012, the cash flow positive, but middle of the decade.

As for our other three businesses as expected, the top line in doors is clearly improving with the economy, sales and order backlogs are well ahead of Q3 ‘09 and we expect towards to hit its usual seasonal high point in Q4. Engineered Fabrics was hit very hard by the summer slow downs, remarkably weak August, at here too we’re expecting a normal seasonal rebound in Q4 and PrimaLoft continues to perform exceptionally well, although it hits its seasonal low of Q4.

So overall, if you control for the impact of currency revaluation, this is another strong quarter, despite the seasonal effects and what we see based on Q3 type trends and historical seasonal patterns, we see an outlook for Q4 and beyond, that’s encouraging across the board.

So, that’s a quick summary. Why don’t we turn right away to your questions? Operator?

Question-and-answer session

Operator

(Operator Instructions). We’ll go to the line of Jason Ursaner at CJS Securities. Please go ahead.

Jason Ursaner - CJS Securities

So, EBITDA or adjusted EBITDA, I just want to make sure that I’m understanding it right. After all the adjustments, based on your commentary and John’s commentary, it sounds as if excluding all the effects of currency, if we looked at it on a steady state rate, EBITDA is essentially in line with Q2.

Joe Morone

Yes.

Jason Ursaner - CJS Securities

So, my question is if EBITDA is holding steady on flat revenue, but flat revenue for the quarter is a pretty strong performance when I incorporate Q3 seasonality.

Joe Morone

Yes.

Jason Ursaner - CJS Securities

I think the question is, with another quarter to evaluate sort of new normal across your various operations, is a 50% incremental EBITDA margin on revenue growth from here, a target we should still be kind of holding you accountable to?

Joe Morone

Yes, we think so. Yes.

Jason Ursaner - CJS Securities

And then I guess, from there is the seasonal effect of Q3, do you think that, that’s masking accelerating trends or was there really just no seasonal effect this year?

Joe Morone

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