CLARCOR Inc. (CLC)

CLC 
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CLARCOR Inc. (CLC)

F3Q08 Earnings Call

September 18, 2008 11:00 am ET

Executives

Tom Lawrence - Dye, Van Mol & Lawrence

Norman Johnson - Chief Executive Officer and President

Bruce Klein - Chief Financial Officer

Analysts

Kevin Maczka - BB&T Capital Market

Richard Eastman - Robert Baird

David Lebowitz - Verizon

John Mantel - Royal Capital

Jeff Hammond - KeyBanc

Adam Brook - Sidoti & Co

Presentation

Operator

Welcome to the CLARCOR Inc. third quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the conference over to Tom Lawrence of Dye, Van Mol & Lawrence.

Tom Lawrence

We appreciate your interest in joining us on CLARCOR’s conference call to discuss results for the third quarter and first nine months 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, September 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 Johnson

With me are Bruce Klein, our Chief Financial Officer and Kim Moore, our Corporate Controller.

From an operating perspective we are very please with this quarters result. Sales were up 16%, operating profit increased 18% and earnings before taxes 13%. We expected similar results in the fourth quarter which Bruce will review in more detail in just a bit. Operating margin of 14.9% was an all hike for the third quarter, and margins for the industrial environmental segment improved to 7.5% compared to 5.8% last year. This was achieved despite CLCA not yet leading its profit target which we had expected.

Unfortunately the EPS comparison this year was a lot tougher, since in 2007 we had a one-time tax credit of $0.08 per share, which makes quarterly comparisons a challenge, even with some of the best operating results we achieved in any other quarter.

In any event, our business has performed well, is evidenced by the numbers I just mentioned and I believe it illustrates our ability to grow in any economic environment. As we have said many times, we served more end used markets than any other filter company and 80% of sales are recurring revenue.

In today’s economic environment, some segments are doing better than others, which are primarily related to the end markets being served. Fortunately, not every market or country is in a recession and some of our businesses are doing very well now and will continue to do so driving our future increased result.

We still have the opportunity to increase our operating margins from the record level we generated this quarter with the improvements, which will come from CLC Air or to maintain these margins and invest even more in growth programs, which will result in more top line growth, the bottom line increasing with either alternative.

Our recurring revenue business generates consistent earnings growth and cash flow in good and bad economy. We have significant growth opportunities around the world, in fact more than we’ve ever had as we serve more end used market. Probably, even more important, we have the ability to fund them and the organization to manage them. We believe CLARCOR is stronger than ever. Bruce will now review the financials then I will discuss these opportunities in our outlook for the future.

Bruce Klein

I want to talk about various financial matters this morning, and first address raw material costs. Raw material price increases certainly has impacted in our cost this quarter, as they have had in the first six months of this year as well.

Even though we have softening, recently in oil and certain commodity prices, this has not affected our material purchasing cost as you had. So, we expect this to change at least price decreases hold. For the year-to-date compared to our cost at beginning of the year, purchase prices for raw materials have increased by over $10 million. That is to say our cost of sales would have been more than $10 million less, than it was if raw material cost will stay the same throughout the year.

In fact that our gross margins have actually increased from last year is really due to three factors; first we acquired Peco at beginning of the fiscal year and its gross margins were higher than CLARCOR’s were last year. Second, we have converted sales flow and attached it to most, but not all of our raw material cost increases.

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