Hardinge, Inc. (HDNG)

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Hardinge, Inc. (HDNG)

Q1 2008 Earnings Call

May 8, 2008 11:00 am ET


Pat Ervin - President and Chief Executive Officer

Rick Simons - Senior Vice President and Chief Operating Officer

Edward Gaio - Vice President and Chief Financial Officer


Bob Schenosky - Jefferies & Company

Bruce Baughman - Franklin Templeton

Sheldon Grodsky - Grodsky & Associates

Brandon Austin - Sprott Securities, Inc

Gary Linhoff - Iron Works Capital



Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the industry, markets and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company’s Annual Report in Form 10-K filed with the Securities and Exchange Commission.

Today’s call leaders are Pat Ervin, President and Chief Executive Officer; Rick Simons, Senior Vice President and Chief Operating Officer; and Edward Gaio, Vice President and Chief Financial Officer. Gentlemen, you may begin.

Pat Ervin - President and Chief Executive Officer

Thank you. Good morning everyone. We are pleased you could join us today. With me I have Ed Gaio, our Vice president and Chief Financial Officer and Rick Simons, our Senior Vice President and Chief Operating Officer. During the call this morning, we will comment on our first quarter results and update you on some key operational programs. We’ll then give you an opportunity to ask questions.

I will first comment on our reported first quarter performance compared to the same period of 2007. Let me start by saying that the weakening of the US dollar against the currencies in our key international operations had a profound impact on our operations and the translation of our financial statements into US dollars. The identifiable impacts of these changes were unfavorable to net income by $2.3 million or $0.20 per share. This includes $0.3 million favorable due to the translation of foreign subsidiary financial statements offset by $0.8 million and lower margins on products produced or sourced in one currency and sold in another, and $1.8 million in unrealized or realized transaction losses. These changes cloud some of our comparisons, and Ed and I will do our best to separate out these issues so that we can concentrate on true operational issues affecting the company.

If our explanations are not sufficient, please feel free to ask for further clarification in the question-and-answer portion of our call. The currency movement that has had the most significant impact on our financial statements was the strengthening of the Taiwan dollar and the Swiss franc against the US dollar.

The Taiwanese dollar strengthened suddenly in late February/early March and by the end of the quarter had strengthened by almost 7%. Due to commercial reasons, we sell our products manufactured in Taiwan, which account for more than 30% of our worldwide machine sales in US dollars. Similarly, the Swiss franc strengthened by almost 13% during the quarter. Approximately 85% of our sales made in Swiss grinding operations are carried out in Swiss francs. So, there was less of an impact on the income statement as a result of this change. However, the impact of translating their results into US dollars for consolidation has been significant.

As we comment on individual line items in our financials, we will provide comparisons with and without the impact of these currency movements. Ed will comment later on the actions we have taken or plan to take to mitigate the impact of currency movements in the future.

Our net loss for the quarter of 2008 was $700,000 or $0.06 per share. Weighted average shares were $11,323,000, up 28% in comparison to 2007 resulting from the company’s follow-on stock offering in April of 2007. Excluding the impact of the currency rate movements in the income statement, we would have had net income of $1.6 million or $0.14 per share. On a normalized basis, our results are disappointing and compare unfavorably to last year’s very strong first quarter, which generated a net income of $5.3 million or $0.61 per share.

Let me discuss in more depth the key drivers of performance on the quarter compared to prior year. I will comment on orders, sales and operational initiatives, and then I will turn the call over to Ed to comment on some gross profit, selling, general and administrative expenses, and our balance sheet. After our comments, we will open up the call to questions.

Net sales for the quarter were $85.6 million, a decrease of 2% versus prior year. Excluding the impact of translating foreign subsidiary financial statements, sales declined by $8.1 million or 9%. On a regional basis, sales in North America were $28.6 million, up 3% versus prior year despite the economic environment that is not favoring capital spending.

Although shipments in the first quarter were above 2007 levels, we’ve recognized that based on order levels and economic climate, the balance of 2008 for the North American region will continue to be difficult.

In Europe, net sales of $37.6 million were 9% below prior year. This decrease in net sales was primarily a result of an economic slowdown in the UK where the company has a significant presence, in addition to lower volume in Germany as a result of our decision to transition market coverage in certain product segments from distribution to direct selling. Overall, business activity in Continental Europe remains at high levels.

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