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Flow International Corporation (FLOW)
F4Q08 Earnings Call
July 9, 2008 11:00 am ET
John S. Leness – General Counsel, Corporate Secretary
Charles M. Brown – President, Chief Executive Officer
Douglas P. Fletcher – Chief Financial Officer, Vice President
Sid Parakh – McAdams Wright Ragen
Chuck Murphy – Sidoti and Company
Chad Bennett – Northland Securities
Alan Robinson – RBC Capital Markets
Mark Tobin – Roth Capital Partners LLC
Todd Wilson – Rock Point Advisors
James D. Padgett – The Boston Company
» Flow International on China's Economy and Auto Market (1Q06 Conf Call Quotes)
» Micron Technology Inc. F1Q10 (Qtr End 12/03/09) Earnings Call Transcript
John S. Leness
With me this morning are Charley Brown, Flow’s president and CEO, and Doug Fletcher, Chief Financial Officer.
This call will include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. During the call we will provide selected financial and performance results for the fourth quarter of fiscal 2008. Any statements about future events, trends, risks, and plans should be considered as forward looking. These are based on current expectations only. Actual results may differ from these forward-looking statements and are subject to risks and uncertainties as are detailed in our filings with the Securities and Exchange Commission.
Flow takes no obligation to update any forward-looking statements, whether as a result of new information on future events or otherwise.
With that introduction I’ll turn the call over to Charley Brown.
Charles M. Brown
We are pleased to report an excellent quarter and year in both revenue growth and improved profitability for Flow.
First I will comment on the results for the quarter and then the year, after which Doug will go through the financials in more detail. I will then offer some additional comments prior to addressing your questions.
For the fourth quarter ending April 30h our revenues were $63.3 million representing 21% growth versus last year; 15% organically and 6% from foreign exchange rate changes. System sales grew 23% while spare parts grew 17%.
Breaking down the systems sales further, our core standard system revenue for North America was up 18% for the quarter. Our standard system sales in Europe and Latin America each were up over 30% in Q4. In local currencies our standard system sales in Europe increased by 25%. These results were aided by the continuing roll out of the 87K product line. In Asia standard systems continued their return to historical levels with a 68% increase versus year ago.
Our consumables or spare parts business globally grew 17% for the quarter with consistent performance around the world. Our aerospace business grew 8% in the quarter finishing the year down 36% comprising about 5% of our business for the year. This has been a weak year for our aerospace business due to the delays of equipment purchases supporting major commercial airframe programs.
Our applications business segment sales in local currency were down 19% for the quarter and up only 3% for the full year. The impact of the weak domestic auto industry and our decision to exit the unprofitable non-water automation business impacted revenue in the quarter and for the full year. I will discuss the applications segment and our aerospace business in more detail in a few minutes.
Since early in fiscal 2008 we have communicated that revenue for the year would grow at least 10%, that operating profit would be three to four times higher than fiscal 2007, and that it would represent between 6% and 7% of sales. During our last earnings call we updated our revenue outlook to at least 12% growth. We reiterated our three to four times operating income growth projection and we also said that we expected to hold operating expenses to less than the prior year.
So how did we do against those targets? We delivered each of them as anticipated. Revenue growth for the year was 14% of which 10% was organic and 4% was from foreign exchange. Operating profit was right in the middle of the dollar range and at the high end of the margin range. Operating expenses were 1% below the prior year.
Flow benefits from having a diversified revenue profile that is spread across geographies and end users. Roughly one half of our revenue comes from customers outside the US and no single customer makes up more than 5% of total revenue. Additionally, we have a strong recurring revenue stream from spare parts that made up 28% of revenue in fiscal 2008. Our balanced portfolio allowed us to achieve this double-digit revenue growth this year with some businesses performing very well, notably North America, Europe, Latin America, while others were flat or declining, applications, aerospace, and Asia.
On a quarterly basis our revenue can be impacted by the timing of product launches, large contracts, or the relative strength of our businesses. During fiscal 2008 we were up about 9% in the first two quarters and then we jumped to 19% in the third quarter and 21% in the fourth quarter, all totalling 14% for the year.
From a profitability standpoint we have reigned in SG&A expenditures while still investing in critical infrastructure, including our new information systems project. SG&A declined 560 basis points year over year as a percent of sales. Gross margins were down 240 basis points in the first half of the year, but up 55 basis points in the second half. In total, operating income for the year was 6.9% of sales versus 2.2% in 2007.