CLARCOR Inc. (CLC)
Q2 2008 Earnings Call
June 18, 2008 11:00 am ET
Tom Lawrence - Dye, Van Mol & Lawrence
Norman E. Johnson - Chief Executive Officer and President
Bruce A. Klein - Chief Financial Officer
Richard Eastman - Robert W. Baird & Co.
Matt McGarry - Central Asset Management
David Lebowitz – Burnham Securities
Andrew Deangelis - KeyBanc Capital Markets
John Wasshausen – Wasshausen & Co.
Gregory M. Macosko - Lord, Abbet & Co.
Previous Statements by CLC
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We appreciate your interest in joining us on CLARCOR’s conference call to discuss results of the second quarter and first half of 2008. By now everyone should have received a copy of the press release that was distributed yesterday. If anyone does need a copy it is available on CLARCOR’s website at www.clarcor.com or you can call Bonnie Cash at (615) 244-1818 and she will send you a copy immediately.
Before I turn the call over to Norm Johnson, CLARCOR’s Chairman and CEO, I remind you that all statements made in the press release, and during this conference call, other than statements of historical fact are forward-looking statements. These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
The company believes that its expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the company’s actual results, performance or achievements or industry results to differ materially from the company’s expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition the company’s past results of operations do not necessarily indicate its future results.
Finally, we wanted to let people know that the information statements made during the call are made as of the date of the call, June 18, 2008. Those listening to any replay should understand that the passage of time by itself will diminish the quality of the statements. Also the contents of the call are the property of the company and the replay or transmission of the call may be done only with the consent of CLARCOR.
It is now my pleasure to turn the call over to Norm Johnson for his opening remarks.
Norman E. Johnson
With me are Bruce Klein, our Chief Financial Officer and Kim Moore, our Corporate Controller.
Let me begin by saying the diversification moves we made to increase our presence in process liquid markets, and more specifically, oil and gas, as well as expanding geographically, drove our results this quarter.
I am sure you have already seen our sales are up 14%, operating profits increased 19%; revenues were 18% more than the second quarter of last year, and our operating margin improved from 13.4% to 14% of sales. We are very pleased with these results, which were primarily driven by our Peco acquisition, as well as increased sales to aerospace, dust collector, and railroad markets.
There is no doubt we are in challenging times, as evidenced by oil and gas prices and inflationary pressures on raw material costs. In spite of these challenges we were able to improve margins. We are fortunate 80% of our sales are recurring revenue. Our products are needed in any economic environment. We serve the growing, some might say booming, oil, gas, and aerospace markets and we can raise prices to offset material increases. I believe our company is better positioned than most for increased sales and profits in this and any other economic environment.
There is no doubt the high price of oil is having an impact on truck tonnage and us. For our domestic engine business both sales and operating profits were flat compared to last year, but margins were maintained. This shows our ability to offset costs with productivity and raise prices where needed, as well as the ability to increase overall profits with the diversification moves we have made.
In a lot of ways this was an unusual quarter. The quarter began with our Peco plant in Texas being damaged by a severe hail storm. In the middle of the month we had two factories in Greensboro, North Carolina, hit by tornadoes, and the quarter ended with a tornado in Kearney, Nebraska, which did some minor damage to our Baldwin facility and knocked out power for a couple of days, causing us to miss several days of shipping.
We had no injuries and no significant damage in any of these facilities. Our people did an outstanding job in getting the plants running in a short time period, but we did incur $750,000 of costs related to insurance deductibles plus the loss of productivity and other costs incurred from the storms.
In spite of all these challenges, we were able to deliver another record quarter. Based on some comments I have seen regarding our earnings release, I think the point we intended to make regarding costs increases and inflation was misinterpreted. There is no doubt costs are rising for us, and every other company in our industry. What we said is we can offset these cost increases with improved productivity and price increases. We improved margins this quarter and we will get an additional bang in future quarters as our HVAC business contributes to profitability.