ST. LOUIS, March 4 /PRNewswire-FirstCall/ -- Spartech Corporation
(NYSE: SEH) announced today operating results for its 2009 first
quarter. First Quarter 2009 Financial Summary -- Net sales were
$249.2 million compared to $335.1 million in the first quarter of
2008 representing a decrease of 26% which was primarily
attributable to weak end market demand partially offset by higher
selling prices and sales mix changes. Sales volumes were down 32%
in the first quarter of 2009 compared to the first quarter of the
prior year reflecting extended customer shutdowns and supply chain
destocking in November and December along with the significant
underlying demand declines in the transportation, building and
construction, and recreation and leisure markets. -- Despite the
decline in sales volume, operating losses excluding restructuring
and exit costs were $1.8 million compared to $1.4 million for the
first quarter of 2008 reflecting the benefits realized from the
financial improvement initiatives implemented. Gross margin per
pound increased significantly from 7.3 cents to 10.5 cents as a
result of cost reduction and efficiency initiatives, selling price
increases, and improvements in our product sales mix. The reported
operating loss of $2.6 million compared to $1.6 million in the
first quarter of 2008. -- The diluted loss per share was $0.17
including the impact of restructuring and exit costs compared to
$0.12 in the first quarter of 2008. Excluding restructuring and
exit costs, the loss per diluted share for the first quarter of
2009 was $0.15 compared to $0.11 in the first quarter of 2008.
Strategic Progress The Company continues to make substantive
progress on its strategic plan that was developed early in 2008.
This road map resulted from portfolio assessments, new business
strategies, asset restructurings, organizational upgrades and
redesign, business process reengineering, improvements in margin
and mix, and a major cost reduction initiative focused on building
a low cost-to-serve model. Throughout fiscal 2008 we accomplished
measurable savings and initiated numerous structural cost
reductions to reduce our fixed cost footprint and strengthen our
competitive position and cash flow. Our financial turnaround
initiatives announced in fiscal 2008 totaled $50 million in
earnings improvement from permanent structural actions. These
actions and related annual cost savings consisted of resizing the
Company's cost structure and labor force ($20 million),
consolidating three plant operations ($7 million), enhancing
margins on unprofitable business ($20 million), and beginning to
centralize our procurement function ($3 million). Our results in
the first quarter of 2009 reflect this $50 million of annual
benefits from these initiatives. These permanent, structural
actions helped to offset much of the impact of the current
challenging demand environment. We believe these actions have
created a highly leveragable cost structure that will enable us to
improve profitability in the short term at lower volumes and better
position the Company for greater earnings potential when volumes
improve over the longer term. Spartech continues to aggressively
implement its strategic plan and has initiated other actions since
our last quarterly report to further structurally reduce costs as
well as short term measures to improve the results of the Company
during the current economic environment. The following actions have
been taken: -- Operational and Organizational Restructuring - In
February and March 2009, we eliminated approximately 260 additional
jobs across the businesses including the closure of a portion our
Donchery Sheet extrusion operation in France. These actions will
reduce manufacturing costs approximately $7 million and general and
administrative expenses $4 million annually and cost approximately
$2 million in restructuring and exit costs primarily related to
severance. -- Short Term Cost Reduction Measures - In addition to
the structural cost reductions, we continue to take actions to
achieve further cost reductions and align our cost structure to the
current demand levels. These actions include: optimizing the use of
flex time across most operations, temporary plant shutdowns,
temporary pay cuts across the organization, and other expense and
capital spending controls. Annual savings from these actions total
approximately $11 million and are designed to further enhance 2009
cash flows and provide greater flexibility in taking longer term
actions to support our strategy. These actions are supportive of
improving our short term results while demonstrating our ability to
execute the initiatives and related investments to realize our
longer term potential. We continue to monitor the dynamic changes
occurring in the current market and are prepared to adjust actions
and take further initiatives to improve cash flows and reduce costs
as conditions warrant. Overview Spartech's President and Chief
Executive Officer, Myles S. Odaniell stated, "We continue to manage
through a very challenging economic environment that has been
negatively impacted by depressed demand in the end markets we
serve. Our seasonally weak first quarter was further impacted by
broad-based customer shutdowns and destocking in November and
December. Our margins have faired well and we continue to realize
steady progress with structural cost reduction efforts and
improving mix. We believe achieving relatively the same operating
earnings as the prior year, under the significant end market demand
weakness in this quarter, is a testament to our resolve and ability
to implement our strategy and execute earnings improvement
initiatives." Mr. Odaniell continued, "We continue our focused
efforts to resize our Company's cost structure to ensure that
Spartech is profitable even with recession level end market demand.
This is consistent with our strategy of building a highly
leveragable low cost-to-serve model. The financial improvement
initiatives at Spartech, which were initiated in 2008, have
positioned us to better manage through today's challenging market
conditions while we build a solid foundation for long-term success.
We continue to take actions to stay ahead of these challenges and
initiate additional actions to reduce our cost structure both in
response to current market conditions, but also to capitalize on
unique improvement opportunities existing at Spartech."
Consolidated Results Net sales for the first quarter of 2009 were
$249.2 million compared to $335.1 million in the first quarter of
2008 representing a decrease of 26%. This change was caused by a
decline in underlying sales volume (-32%), partially offset by an
increase from price/mix changes (+6%). The underlying sales volume
decline related largely to lower sales to the automotive,
recreation and leisure, and residential construction markets. The
reported operating loss was $2.6 million for the first quarter of
2009 compared to an operating loss of $1.6 million in the prior
year first quarter. This $1.0 million decrease was primarily the
result of $0.6 million of higher restructuring and exit costs and
the decline in sales volume from weak demand offset by aggressive
cost reduction actions. Conversion costs for the first quarter of
2009 totaled $65.8 million compared to $83.0 million in the same
period last year. The 21% decrease represented the impact of
reductions in variable costs on the lower volume, plus the benefit
of the structural cost reductions implemented during 2008. Gross
margin per pound sold was 10.5 cents in the first quarter of 2009
compared to 7.3 cents in the first quarter of 2008. This gross
margin per pound increase of 3.2 cents reflected the benefit of
conversion cost savings from our cost reduction initiatives,
improvements in our product sales mix, and sales price increases.
Selling, general and administrative expenses were essentially flat
in the first quarter of this year compared to the first quarter of
last year. Interest expense decreased to $4.7 million in our first
quarter of 2009 compared to $5.1 million in 2008 due to lower
average debt levels from the $65 million of debt pay downs in the
second half of 2008. Our effective tax rate was impacted by the
operating loss incurred at our operation in France during the
quarter, which is not benefited for tax purposes. We estimate our
2009 tax rate to be approximately 38-39%. Segment Results Custom
Sheet & Rollstock--The sheet segment continued to be impacted
by weak volume demand, but made progress on its cost reduction
initiatives. First Quarter ------------- (In Millions) 2009 2008
---- ---- Net Sales $113.6 $147.4 ====== ===== Operating Loss $0.0
($1.8) ==== ===== Operating Earnings (Loss), excluding
Restructuring and Exit Costs $0.1 ($1.6) ==== ===== The net sales
decrease of 23% reflected a 27% decrease in volume net of a 4%
increase from price/mix changes. The volume decline was due
primarily to continued weakness in the residential construction,
transportation, and recreational vehicles sectors of our end
markets. The improvement in operating earnings represents the
impact of price increases and lower manufacturing costs from our
cost footprint optimization and labor cost reductions, partially
offset by the impact of significant sales volume declines. Gross
margin per pound sold increased to 7.9 cents in the first quarter
of 2009 compared to 3.6 cents in the first quarter of the prior
year. Packaging Technologies--Net sales decreased, but operating
earnings improved. First Quarter ------------- (In Millions) 2009
2008 ---- ---- Net Sales $55.0 $65.7 ===== ===== Operating Earnings
$6.2 $4.8 ==== ==== Operating Earnings, excluding Restructuring and
Exit Costs $6.5 $4.8 ==== ==== The net sales decrease of 16% in the
first quarter was attributable to the net effect of a 7% decrease
from packaging related volume, 14% decrease from non-packaging
related volume (largely related to automotive customers served by
the Packaging Technologies operations), and an 5% increase from
price/mix. The increase in operating earnings reflects improved
sales mix and margins, lower costs related to the Mankato
consolidation completed in 2008, and our cost reduction
initiatives. Color & Specialty Compounds--Net sales decreased
with the substantial weakness in end markets served by this
segment, particularly the automotive sector. First Quarter
------------- (In Millions) 2009 2008 ---- ---- Net Sales $68.4
$104.8 ===== ====== Operating Earnings (Loss) ($0.4) $2.2 =====
==== Operating Earnings (Loss), excluding Restructuring and Exit
Costs ($0.1) $2.2 ===== ==== Net sales in the first quarter
decreased 35%, 40% from underlying volume decreases net of a 5%
increase from price/mix. The decrease in volume related to lower
sales of compounds to the domestic automotive and construction
markets which represented approximately half of this segment's
sales in 2008. The increase in price/mix primarily reflects the
improvement in mix from the reduction in sales to lower margin
markets. This segment's decrease in operating earnings was a result
of the volume decline net of improved mix and a 26% reduction in
manufacturing costs. Engineered Products--Net sales and operating
earnings both decreased with lower volumes. First Quarter
------------- (In Millions) 2009 2008 ---- ---- Net Sales $12.1
$17.2 ===== ===== Operating Earnings $1.1 $1.6 ==== ==== Operating
Earnings, excluding Restructuring and Exit Costs $1.1 $1.6 ====
==== Volume for the first quarter of 2009 was down 36% from the
2008 comparative quarter due to the timing of seasonal lawn and
garden sales compared to the prior year. Operating earnings
decreased due to the net effect of lower volumes partially offset
by an increase in gross margin per pound due to mix. Cash Flow
Performance Free cash flow (cash flow from operations less capital
expenditures) represented a use of $4.9 million in the first
quarter of 2009 compared to a source of $1.3 million in the first
quarter of 2008. This $6.2 million decrease in free cash flow
resulted from lower earnings and a 1% increase in working capital
as a percentage of sales in the current year quarter. As of the end
of the first quarter of 2009, we had $281.4 million of total debt
compared to $274.7 million at our fiscal year end. Outlook We are
experiencing weak end market demand in all major markets,
particularly the transportation, recreation and leisure, and
residential construction markets. We will continue to execute on
our structural cost reduction actions and financial improvement
initiatives to reduce costs and maximize cash flows. We expect a
turbulent economic environment for the foreseeable future and we
are prepared to adjust actions as conditions warrant. Our operating
plans assume the recessionary effects will continue through 2009
and that volumes will be weak through this period. Our aggressive
cost reduction efforts and financial discipline are focused on
effectively managing through this challenging market. We expect to
emerge from this environment a stronger and better positioned
company to support future long-term profitable growth.
Restructuring and Exit Activities Restructuring and exit costs
totaled $0.8 million in the first quarter of 2009 and $0.2 million
in the prior year first quarter. These costs (primarily related to
severance and the movement of production lines) were incurred to
substantially complete the consolidations of our Mankato, Minnesota
and St. Clair, Michigan facilities. In February and March 2009, we
eliminated approximately 260 additional jobs across the businesses
including the closure of a portion of our Donchery Sheet extrusion
operation in France. These actions will result in approximately $7
million of lower manufacturing costs and $4 million of lower
general and administrative expenses and cost approximately $2
million in restructuring and exit costs primarily related to
severance. We are continuing to focus on reducing our manufacturing
cost footprint and optimizing our production facilities. In our
further efforts to reduce our cost footprint, we are streamlining
our Donchery Sheet extrusion operation in France. We are taking
action to reduce fixed costs and adapt to the current competitive
environment by discontinuing the manufacture of products that no
longer fit the market needs. However, we will maintain and grow our
Donchery Compound manufacturing capability to serve the market and
customers that remain as an important part of our business in
Europe. Spartech Corporation is a leading producer of engineered
thermoplastic sheet materials, thermoformed packaging, polymeric
compounds and concentrates, and engineered product solutions. The
Company has facilities located throughout the United States,
Canada, Mexico, and Europe with annual sales of approximately $1.4
billion in fiscal 2008. Safe Harbor For Forward-Looking Statements
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
"Forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 relate to future events
and expectations, include statements containing such words as
"anticipates," "believes," "estimates," "expects," "would,"
"should," "will," "will likely result," "forecast," "outlook,"
"projects," and similar expressions. Forward-looking statements are
based on management's current expectations and include known and
unknown risks, uncertainties and other factors, many of which
management is unable to predict or control, that may cause actual
results, performance or achievements to differ materially from
those expressed or implied in the forward-looking statements.
Important factors which have impacted and could impact our
operations and results include: (a) further adverse in economic or
industry conditions, including global supply and demand conditions
and prices for products of the types we produce; (b) our ability to
compete effectively on product performance, quality, price,
availability, product development, and customer service; (c)
material adverse changes in the markets we serve, including the
packaging, transportation, building and construction, recreation
and leisure, and other markets, some of which tend to be cyclical;
(d) further adverse changes in the domestic automotive markets,
including potential bankruptcies of one or more of the major
automobile manufacturers or suppliers; (e) our inability to achieve
the level of cost savings, productivity improvements, gross margin
enhancements, growth or other benefits anticipated from our planned
improvement initiatives; (f) our inability to achieve the level
productivity improvements, synergies, growth or other benefits
anticipated from acquired businesses and their integration; (g)
volatility of prices and availability of supply of energy and of
the raw materials that are critical to the manufacture of our
products, particularly plastic resins derived from oil and natural
gas, including future effects of natural disasters; (h) our
inability to manage or pass through to customers an adequate level
of increases in the costs of materials, freight, utilities, or
other conversion costs; (i) restrictions imposed on us by
instruments governing our indebtedness, the possible inability to
comply with requirements of those instruments, and inability to
access capital markets; (j) possible asset impairment charges; (k)
our inability to predict accurately the costs to be incurred, time
taken to complete, operating disruptions therefrom, or savings to
be achieved in connection with announced production plant
restructurings; (l) adverse findings in significant legal or
environmental proceedings or our inability to comply with
applicable environmental laws and regulations; (m) adverse
developments with work stoppages or labor disruptions, particularly
in the automotive industry; (n) our inability to develop and launch
new products successfully; (o) possible weaknesses in internal
controls; and (p) our ability to successfully complete the
implementation of a new enterprise resource planning computer
system and to obtain expected benefits from our system. SPARTECH
CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS (Unaudited and dollars in thousands, except per share
data) Three Months Ended ------------------ January 31, February 2,
2009 2008 ---- ---- Net sales $249,150 $335,106 Costs and expenses
Cost of sales 226,668 311,997 Selling, general and administrative
expenses 23,089 23,139 Amortization of intangibles 1,168 1,333
Restructuring and exit costs 827 224 --- --- Total costs and
expenses 251,752 336,693 ------- ------- Operating loss (2,602)
(1,587) Interest, net of interest income of $37 and $121,
respectively 4,712 5,146 ----- ----- Loss before income taxes
(7,314) (6,733) Income tax benefit (2,222) (3,243) ------ ------
Net loss $(5,092) $(3,490) ======= ======= Net loss per common
share Basic $(.17) $(.12) ===== ===== Diluted $(.17) $(.12) =====
===== Dividends declared per common share $.050 $.135 ===== =====
SPARTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED
BALANCE SHEETS (Dollars in thousands, except share data) January
31, November 1, 2009 (Unaudited) 2008 --------- ---- Assets Current
assets Cash and cash equivalents $2,159 $2,118 Trade receivables,
net of allowances of $5,820 and $4,550, respectively. 131,512
176,108 Inventories 90,968 96,721 Prepaid expenses and other
current assets 27,214 24,665 ------ ------ Total current assets
251,853 299,612 Property, plant and equipment, net of accumulated
depreciation of $307,271 and $297,876, respectively 272,211 280,202
Goodwill 145,498 145,498 Other intangible assets, net of
accumulated amortization of $14,288 and $13,148, respectively
31,588 32,722 Other long-term assets 4,145 4,385 ----- ----- Total
assets $705,295 $762,419 ======== ======== Liabilities and
Shareholders' Equity Current liabilities Current maturities of
long-term debt $20,076 $20,428 Accounts payable 106,207 155,594
Accrued liabilities 34,892 42,676 ------ ------ Total current
liabilities 161,175 218,698 Long-term debt, less current maturities
261,341 254,226 Other long-term liabilities Deferred taxes 56,373
56,516 Other long-term liabilities 6,074 6,189 ----- ----- Total
liabilities 484,963 535,629 Shareholders' equity Preferred stock
(authorized: 4,000,000, par value $1.00) Issued: None - - Common
stock (authorized: 55,000,000, par value $0.75) Issued: 33,131,846;
Outstanding: 30,562,027 and 30,563,605, respectively 24,849 24,849
Contributed capital 203,381 202,656 Retained earnings 46,968 53,588
Treasury stock, at cost, 2,569,819 shares and 2,568,241,
respectively (56,389) (56,389) Accumulated other comprehensive
income 1,523 2,086 ----- ----- Total shareholders' equity 220,332
226,790 ------- ------- Total liabilities and shareholders' equity
$705,295 $762,419 ======== ======== SPARTECH CORPORATION AND
SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands) Three Months Ended
------------------ January 31, February 2, 2009 2008 ---- ---- Cash
flows from operating activities Net loss $(5,092) $(3,490)
Adjustments to reconcile net loss to cash (used for) provided by
operating activities: Depreciation and amortization expense 11,143
11,885 Provision for bad debt expense 2,492 1,614 Deferred taxes
(1,832) (1,153) Stock-based compensation expense 725 1,383 Other,
net 392 194 Change in current assets and liabilities (9,875)
(3,896) ------ ------ Net cash (used for) provided by operating
activities (2,047) 6,537 ------ ----- Cash flows from investing
activities Capital expenditures (2,895) (5,241) Business
acquisitions - (708) --- ----- Net cash used for investing
activities (2,895) (5,949) ------ ------ Cash flows from financing
activities Bank credit facility borrowings, net 6,360 12,376
Borrowings on bonds and leases, net 155 177 Cash dividends on
common stock (1,529) (4,144) Issuance of common stock - 2,812 Stock
options exercised - 15 Treasury stock acquired - (9,667) --- ------
Net cash provided by financing activities 4,986 1,569 ----- -----
Effect of exchange rate changes on cash and cash equivalents (3)
144 Increase in cash and cash equivalents 41 2,301 Cash and cash
equivalents at beginning of year 2,118 3,409 ----- ----- Cash and
cash equivalents at end of quarter $2,159 $5,710 ====== ======
SPARTECH CORPORATION AND SUBSIDIARIES (Unaudited and dollars in
thousands, except share data) Within this press release we have
included operating loss and net loss per dilutive share excluding
restructuring and exit costs, which are non-GAAP measurements and
believe they are meaningful to investors because they provide a
view of the Company's comparable operating results. Such non-GAAP
measurements are not recognized in accordance with generally
accepted accounting principles (GAAP) and should not be viewed as
an alternative to GAAP measures of performance. The following
reconciles GAAP to non-GAAP measures. Three Months Ended
------------------ January 31, February 2, 2009 2008 ---- ----
Operating loss (GAAP) $(2,602) $(1,587) Restructuring and exit
costs 827 224 --- --- Operating loss excluding restructuring and
exit costs (non-GAAP) $(1,775) $(1,363) ======= ======= Net loss
(GAAP) $(5,092) $(3,490) Restructuring and exit costs, net of tax
532 156 --- --- Net loss excluding restructuring and exit costs
(non-GAAP) $(4,560) $(3,334) ======= ======= Net loss per share
(GAAP) $(.17) $(.12) Restructuring and exit costs per share, net of
tax .02 .01 --- --- Net loss per share excluding restructuring and
exit costs (non-GAAP) $(.15) $(.11) ===== ===== DATASOURCE:
Spartech Corporation CONTACT: Myles S. Odaniell, President and
Chief Executive Officer, or Randy C. Martin, Executive VP and Chief
Financial Officer, both of Spartech Corporation, +1-314-721-4242
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