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Medical Action Industries Inc. (MDCI)

F1Q09 (Qtr End 06/30/08) Earnings Call Transcript

August 7, 2008 10:00 am ET

Executives

Richard Satin – VP of Operations and General Counsel

Paul Meringolo – Chairman, CEO and President

Charles Kelly – CFO

Analysts

Matthew Dolan – Roth Capital

Mitra Ramgopal – Sidoti

Gerry Heffernan – Lord Abbett & Co.

Steve Friedman – Wachovia Securities

Presentation

Operator

Good morning. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Medical Action Industries’ first quarter financial results conference call. (Operator instructions) It is now my pleasure to turn the floor over to your host, Richard Satin; sir you may begin your conference.

Richard Satin

Thank you, Cheryl. Good morning and thank you all for holding. With me on this call are Paul D. Meringolo, CEO and President and Charles L. Kelly, Chief Financial Officer of Medical Action Industries. The primary purpose of this call is to discuss our results for the three months ended June 30, 2008, which were released this morning. As you know we must first touch all of the legal bases by noting that both our commentary and responses to your questions may include forward-looking statements.

These forward-looking statements are subject to a number of risks and uncertainties discussed in detail in our report on Form 10-K, Annual Report to Stockholders and our Quarterly Report on Form 10-Q, all of which have been filed with the Securities and Exchange Commission. The company's actual future results may vary.

I would like now to introduce Paul D. Meringolo.

Paul Meringolo

Good morning and thank you all for being here today. I assume that you have all had a chance to see the news release and so we are pleased with the quarter from a sales growth perspective with revenues growing more than 10% first quarter this year versus the first quarter last year. More than half of that growth has come from increased unit volume while a portion of it is from mix as well as price increases instituted over the past year. Let’s look briefly at the first quarter numbers.

Net sales for the first quarter reached a record $77,395,000; an increase of $7,149,000 or 10% over the $70,246,000 in net sales reported for 3 months ended June 30, 2007.

Net income for the first quarter was $2,546,000 or $0.16 per basic and diluted share, as compared with $3,512,000 or $0.22 per basic and diluted share reported for the prior year period.

We continue to feel the effects on gross margins from – as we spoke on last conference calls from increased cost of resin, increased cost of material sourced from China, and some of the efficiency issues that we are having in our Tennessee plant. In the first quarter the effects from those three totaled about $4.7 million. On the positive side, we continue to be pleased with the sales growth in that quarter, of course all of our major product categories. We have as we spoke last quarter we have hired a new – an additional VP of sales as well as our new CFO Chuck Kelly coming onboard. And we are pleased with the progress Perry [ph] is making with the sales team and structure as well as the progress Chuck is making in leading the financial functions of this business. So, it is two great (inaudible) for the business that we are very exited about.

From a sales side again we remain exited. There are a plethora of opportunities out there for us and we continue to work diligently on capturing those either in our current market or the existing markets outside of the hospital market, alternate care, international, veterinary that we try very hard to have deeper penetration in those markets.

From an expense side, we have continued to manage that rather effectively. Although we had a 10% top line growth our SG&A held pretty flat for the quarter, and even with the addition of senior sales executives. So, we are – we remain focused on making sure that we are prudent in how we spend our money both from a cost of goods sold and a capital side – capital equipment side but also from an expense side.

Let us just talk about some of the challenges we faced in the quarter and had been facing in previous quarters. And again I will break it up into a couple of different pieces and let’s just talk about cost of goods sold and if we take a look at resin I am sure I don’t have to educate everybody on what is going on in the plastics market. We continue to see higher cost of raw materials due to oil prices. First quarter cost impact on the P&L was about $1.7 million. Since our last call we have continued to see some increases in cost of resin. We have tried to manage them best as possible. As you can see from the balance sheet we have had some inventory tick up that has to do with some of the hedging that we tried to do by buying ahead of these increases. Right now we think we are in a fairly good position from an inventory perspective and hopefully resin will adjust down as well as oil has done over the last few weeks. That is what our hope is.

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