Schweitzer-Mauduit International, Inc. (SWM)

SWM 
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Schweitzer- Mauduit International (SWM)

Q1 2008 Earnings Call

May 08, 2008 10:30 am ET

Executives

Peter J. Thompson - Chief Financial Officer

Wayne Deitrich - Chief Executive Officer and Chairman of the Board

Mark Spears - Corporate Controller

Analysts

Jonathan Lichter - the Sidoti & Company

Presentation

Operator

Good morning. My name is Demetrius, and I will be your conference operator today. At this time, I would like to welcome everyone to the Schweitzer-Mauduit 2008 Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session after the speakers' remarks. (Operator Instructions)

Thank you, Mr. Thompson, you may begin your conference.

Peter J. Thompson – Chief Financial Officer

Thank you, Demetrius Good morning; I am Peter Thompson, Chief Financial Officer of Schweitzer- Mauduit International. With me are Wayne Deitrich, our Chief Executive Officer and Chairman of the Board, Mark Spears, our Corporate Controller and several other Executive Officers of the Company. Thank you for joining us for review of our first quarter 2008 financial results. Which were file with the United States Securities and Exchange Commission and Form 10-Q yesterday evening. I will be leading our conference call today.

Various comments or remarks that we may make during today’s conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the results suggested by these comments for a number of reasons.

Such factors are discussed in more detail in the company’s Securities and Exchange Commission report, including the company’s 2007 annual report.

Certain financial measures that will be discussed during this call exclude restructuring expenses. Financial measures which exclude this item have not been determined in accordance with accounting principles generally accepted in the United States, and are therefore non-GAAP financial measures.

I will now review the highlights of the first quarter of 2008; Wayne will then provide additional discussion of key factors impacting our results. We reported a first quarter 2008 net loss of $1.2 million compared to the net income of $4.2 million during the first quarter of 2007. The diluted loss per share was $0.08 compared with diluted earnings per share of $0.27 in the prior year quarter.

Restructuring expenses decreased earnings per share during the first quarters of 2008 and 2007 by $0.09 and $0.11 respectively. Excluding restructuring expenses, diluted earnings per share $0.01 for the first quarter of 2008 declined relative to $0.38 for the first quarter of 2007. Net sales were $189.8 million during the first quarter of 2008 and 11.5% increase over the prior year quarter.

Approximately 60% of the increase, or $11.4 million, was due to favorable foreign currency exchange rate impact, while the balance was primarily due to an improved mix of products sold Operating profit was zero during the first quarter of 2008 versus an operating profit of $9.1 million in the prior year quarter. Excluding pre-tax restructuring expenses, operating profit was $2 million during the first quarter of 2008 compared with $11.8 million during the first quarter of 2007.

The lower operating profit was primarily due to $8.3 million from inflationary cost increases, especially energy, $5.3 million from startup costs related to the rebuild of a paper machine at PdM, and $4 million from unfavorable foreign currency impact, partially offset by an improved mix of products sold and increased sales volumes.

Excluding restructuring expenses from each Unit's first quarter 2008 results, the comparison to prior year quarterly results follows; the French segment's operating profit was $700,000, a decrease of 8.9 million, the U.S. segment's operating profit was $5.8 million an increased of $1 million and Brazil's operating loss was $1.7 million compared with an operating profit of $200,000. Interest expense increased to $2.4 million during the first quarter of 2008 from $1.3 million in the prior year quarter due to higher outstanding debt levels. Other income and expense net was an expense of $1.6 million versus income of $100,000 for the first quarters of 2008 and 2007 respectively primarily due to foreign currency transaction losses in the current period. We recorded an income tax benefit during the first quarter of 2008, reflecting an effective income tax rate of 65% compared with an income tax provision of 24% in the prior year quarter. The difference in effective tax rate was primarily due to the loss in 2008 versus income in 2007, the favorable tax impact of our foreign holding company structure and the geograhic mix of taxable earnings.

Minority interest in earnings of subsidiaries decreased from $1.7 million to $200,000 in the current year quarter due to our January 2008 purchase of the 28% minority interest of LTR Industries, our French reconstituted tobacco leaf business.

Net cash used in operations totaled $8 million for the first quarter of 2008 compared with $10.1 million provided by operations in the prior year quarter. Our current period operating net cash flow was negatively impacted by a $12.1 million increase in operating working capital and a lower and a lower operating result.

Capital spending was $18.6 million and $9 million during the three month period ended March 31, 2008 and 2007 respectively. The increase in capital spending was primarily due to $7.2 million incurred at PdM for a paper machine rebuild and improvements to the bobbin slitting process.

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