Albany International Corp. (AIN)
Q1 2008 Earnings Call
May 5, 2008 9:00 am ET
Joseph Morone – President, Chief Executive Officer
Michael Nahl – Executive Vice President, Chief Financial Officer
Mark Connelly – Credit Suisse
Arnie Ursaner – CJS Securities
Paul Mammola – Sidoti & Co
Ned Borland – Next Generation Equity Research
John Emrich – Iron Works Capital
Previous Statements by AIN
» Albany International Q4 2008 Earnings Call Transcript
» Albany International Q4 2007 Earnings Call Transcript
» Albany International Corporation Q2 2008 Earnings Call Transcript
Thank you Laurie, good morning everyone, welcome to the Albany International Q1 2008 earnings call. As always I’ll start the call with a commentary and then I’ll turn it over to Michael Nahl our Executive Vice President and Chief Financial Officer who will make some amplifying comments about our balance sheet and cash flow. And then we’ll turn the call over to your questions.
Q1 2008 results were depressed by a slowdown in all of our North American operations except for engineered composites. By far the largest affect was in PMC. Despite continuing strength in market share, the successful conclusion of several important contract negotiations in 2007 and unusually strong orders, sales in North America were down 12.9% compared to the same period in 2007.
This decline in PMC sales reduced operating income by an estimated $3.5 million. There are a number of reasons for this decline, the most significant of which was the impact of the general economic slowdown on an already weakened paper industry. In most publication grades, paper mill operating rates dropped well below their 2007 levels. At the same time some mills ran their paper machine clothing longer than is customary and the net affect was lower consumption of paper machine clothing.
The weakness in PMC sales was most pronounced in the third month of the quarter, just as it was in Q4 2007. We saw further evidence of this economic weakness in sales of engineered fabrics to the US building products and fiber cement industries, sales of PrimaLoft products to the US home furnishing retail market and sales of doors to some construction sensitive market segments in the US.
Apart from this economic weakness in North America, there were no significant deviations from our expectations for Q1. Each of the emerging businesses performed to plan. Albany engineered composites increased net sales by 43% compared to Q1 07, made excellent progress in manufacturing efficiencies and continues on trend towards becoming profitable in Q3.
Fueled by continuing growth in the European market, doors had another strong quarter in both sales and orders. And engineered fabrics were strong across the board, except for its North American construction oriented product lines. As for the three year process of internal restructuring launched in Q3 2006, it continued on plan in Q1 with the announced closures of the Mansfield, Massachusetts and Montgomery, Alabama operations.
The affects of this process are beginning to become apparent. Combined headcount in North American and European PMC is down 11%. Gross margins are increasing in the PMC product lines where the most significant restructuring has already taken place, dryers in the Americas and press in Europe.
And average cost of finished goods inventories in those product lines are declining. Meanwhile, several new products in the R&D pipeline are approaching market trials or had successful initial trials during the quarter. The expansions in Asia and South America remain on schedule and we are progressing toward the toughest and most important milestone in our SAP implementation, the July 2008 go-live for the North American PMC and engineered fabrics operations.
We thus remain on trend toward the strong cash generation that we have been projecting for 2009. Looking forward to Q2 and the balance of 2008, the economic slowdown in North America coupled with the possibility of a European slowdown later in the year, adds an element of uncertainty to our short term outlook.
Orders are strong across all of our businesses, market share in PMC is strong and getting stronger and based on current orders, we expect our PMC pricing to be stable in Europe through the rest of 2008. And even though the increases in oil prices are putting upward pressure on our materials costs, we expect to mitigate the affect of those increases through the balance of the year.
With all these positive factors at work, we would ordinarily be optimistic about the prospects for the next few quarters, but the continuing economic weakness in North America tempers our optimism about the short term outlook. Finally, yesterday we announced that we have agreed to sell our filtration business which manufactures filtration products for a variety of industrial processes, most notably power generation.
We have reached the point in the growth of our emerging businesses where we are starting to make choices in how we allocate capital among them. While the filtration business has very appealing growth prospects, it’s basis for competitive advantage and thus for long term sustainable profitable growth is not as tightly connected to Albany’s core competencies as that of our other emerging businesses.
We will use the proceeds of the sale to fund planned capital expenditures outside of the US and for general working capital purposes. Michael.
Thank you Joe. First a reminder that our comment about forward-looking statements contained in our news release applies equally to the contents of this conference call. Joe mentioned in his comments that we remain on trend towards the strong cash generation that we’ve been projecting for 2009.