Hardinge, Inc. (HDNG)

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Hardinge, Inc. (HDNG)

Q2 2008 Earnings Call Transcript

August 7, 2008 11:00 am ET


Rick Simons – President, CEO and COO

Ed Gaio – CFO

Doug Tifft – SVP, Administration


Bob Schenosky – Jefferies & Co.

Brian Rafn – Morgan Dempsey Capital Management

Sheldon Grodsky – Grodsky & Associates

Gary Linhoff – Iron Works Capital

Robert Kosowsky – Sidoti

Tom Spiro – Spiro Capital



Good day, everyone. And welcome to the Hardinge conference call second quarter. 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 and the Form 10-K filed with the Securities and Exchange Commission.

Today's call leaders are Rich Simons, President and Chief Executive Officer, and Edward Gaio, Vice President and Chief Financial Officer. Gentlemen, you may now begin.

Rick Simons

Thank you. Good morning, everyone. We're pleased you can join us today. As Elaine mentioned with me are Ed Gaio, our Vice President and Chief Financial Officer, and Doug Tifft, our Senior Vice President, Administration. Ed is on hand to comment on our results and to answer any of your detailed questions regarding our financial statements. Doug is available to answer any human resource or other operational questions that might come up.

During the call this morning, we will comment on our second quarter results and update you on some key operational programs. We'll then give you an opportunity to ask questions. First I'll comment on our reported second quarter performance compared to the same period of 2007.

Our net income for the second quarter of 2008 was $448,000 or $0.04 a share. Weighted average shares were $11.379 million, up 8% in comparison to 2007, resulting from the company's follow-on stock offering in April of '07.

Included in net income for the quarter was $2.2 million of one-time costs including $1.9 million in severance costs in the U.S. and the UK in addition to $300,000 of legal and consulting costs related to the company's fiscal restructuring of its international operations. Those two items had an unfavorable impact of $0.19 per share.

The company also recorded a provision for uncertain tax positions of $300,000 or $0.03 per share. Without these unusual items, our earnings per share would have been $0.26 a share.

However, on a comparable basis, our results continue to be disappointing and compare unfavorably to last year's strong second quarter which generated net income of $6 million or $0.57 per share. On a year-to-date basis, we have a net loss of $282,000 or $0.02 per share. This compares to net income of $11.3 million or $1.18 per share as reported for the first half of 2007.

The one-time event in this most recent quarter and the unusual charge related to currency exposures, which were discussed in the first quarter's earnings release had an unfavorable impact on year-to-date net income of $3.9 million or a $0.37 per share. While these items are real costs to the company, we offer these numbers only to allow you to consider our performance on a more normalized basis.

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

Net sales for the quarter were $96.6 million, an increase of 8% versus prior year. However, excluding the impact of translating foreign subsidiary financial statements, sales were virtually flat with the prior year. To explain these numbers on a regional basis, sales in North America were $30.5 million, a decline of 7% versus prior year.

We anticipate the balance of 2008 for the North American region to continue to be difficult as a result of the transition issues related to the development of a direct sales channel and the impact of an overall economy, which seems to be headed towards or is already in a recession.

The transition issues we mentioned have to do with the learning curve required to get our new direct sales force up to speed on the benefits of our broad product line and to learn their territories. Most of this team was hired in the fourth quarter of last year and are still in the learning process.

These new salesmen have replaced salesmen from our past distributors who, although were not performing to our expectations, were established in their markets and had knowledge of our products. Our transition will continue into the second half of the year and unfortunately, it's happening at a time when there appears to be a slowdown in ordering by our traditional customer base.

We are also seeing a slowdown during the past couple months in the activity levels in North America. There remains to be seen if this is economically driven or is the usual pause before the IMTS Show in September.

In Europe, net sales are $44.8 million or 16% above the prior year. This increase in net sales was influenced by good performance in continental Europe, primarily in our grinding product line, stable performance in milling and turning products and the favorable effect of financial statement translation. Convertibly, we continue to see an economic slowdown in the UK which is an important market for us.

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