A. Schulman reports 28% increase in fiscal Q2 net income to US$9.1M despite $2.1M of one-off charges; sales down 2.5% to $495.9M as 7.8% drop in volumes offset 5.8% increase in selling prices
April 4, 2012
- Net income increased to $9.1 million, or $0.31 per diluted share, compared with $7.1 million, or $0.23 per diluted share, last year
- Excluding certain items, second-quarter net income was $11.2 million, or $0.38 per diluted share, compared with $12.1 million, or $0.39 per diluted share, last year
- Gross profit per pound, excluding certain items, rose 6% to 14.2 cents compared with 13.4 cents for the same period last year
- On a non-GAAP basis, the Company expects full-year net income for fiscal 2012 to exceed fiscal 2011 net income
A. Schulman, Inc. (Nasdaq-GS: SHLM) announced today earnings for the fiscal 2012 second quarter ended February 29, 2012. The Company reported net income for the second quarter of $9.1 million, or $0.31 per diluted share, compared with net income of $7.1 million, or $0.23 per diluted share, for the comparable period last year. The translation effect of foreign currencies negatively impacted net income for the quarter by $0.5 million.
The fiscal 2012 second quarter included certain after-tax charges of $2.1 million primarily related to restructuring expenses and acquisition-related costs. Last year's second quarter included certain after-tax charges of $5.0 million primarily related to restructuring expenses, asset impairments, and acquisition-related costs. Excluding these charges, net income for the fiscal 2012 second quarter was $11.2 million, or $0.38 per diluted share, compared with net income of $12.1 million, or $0.39 per diluted share, for the prior-year period.
Net sales for the fiscal 2012 second quarter were $495.9 million compared with $508.3 million for the same period last year. The decrease of $12.4 million in net sales was primarily a result of the $11.7 million negative impact of foreign currency translation. Volume was 458.7 million pounds in the second quarter of fiscal 2012, down 7.8% from 497.3 million pounds reported last year. The decrease in volume was partially offset by a 5.8% increase in the average selling price per pound.
The Company uses the following non-GAAP financial measures of net income excluding certain items, net income per diluted share excluding certain items and EBITDA excluding certain items. These financial measures are used by management to monitor and evaluate the ongoing performance of the Company and to allocate resources. The Company believes that the additional measures are useful to investors for financial analysis. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Please see the table in this release for reconciliation of non-GAAP measures to the nearest comparable GAAP results. Results in the following discussion are presented on a non-GAAP basis excluding certain items.
Gross profit for the quarter was $65.1 million, compared with $66.8 million last year. Foreign currency translation adversely impacted gross profit by $1.5 million. Overall gross profit per pound for the quarter was 14.2 cents, a 6% increase compared with gross profit per pound of 13.4 cents in the second quarter of fiscal 2011, reflecting improved pricing and product mix.
Selling, general and administrative (SG&A) expense for the fiscal 2012 second quarter decreased $0.4 million compared with the same period in the prior year. While foreign currency translation favorably impacted SG&A expense by $0.8 million, incentive compensation expense increased by $0.7 million compared with the second quarter of fiscal 2011.
Second-quarter operating income was $16.4 million, a decrease of $1.3 million compared with last year. Foreign currency translation had a negative impact of $0.7 million on operating income.
Net sales for the six months ended February 29, 2012 increased $9.5 million to $1.013 billion compared with $1.004 billion in the prior year. Selling price per pound increased 10.4%, which was partially offset by an 8.6% decrease in volume. Foreign currency translation adversely impacted consolidated net sales by $10.0 million.
For the fiscal 2012 year-to-date results, the Company reported net income of $22.7 million, or $0.77 per diluted share, compared with net income of $16.4 million, or $0.52 per diluted share, for the same period last year. Excluding the effect of certain items including restructuring-related charges, asset impairments and acquisition-related costs, year-to-date net income was $26.5 million, or $0.90 per diluted share, compared with $22.7 million, or $0.73 per diluted share, a year ago.
"Traditionally, our second quarter tends to be less profitable than the first quarter due to the holiday season, but beyond that, the first half of fiscal 2012 has been challenging given the economic environment in Europe," said Joseph M. Gingo, Chairman, President and Chief Executive Officer. "Despite these factors, our experienced global team has remained focused on successfully maintaining our market leadership position and controlling costs, resulting in improved operating income despite volume declines."
Europe, Middle East and Africa ("EMEA") – In the fiscal 2012 second quarter, EMEA net sales were $332.6 million, a decrease of 6.7% compared with the prior-year period. The decrease in net sales resulted from 8.8% lower volumes in the second quarter compared with the prior-year period due to the economic climate in Europe. This was partially offset by an increase of 2.3% in price per pound. Foreign currency translation negatively impacted net sales by $10.5 million.
EMEA gross profit was $40.1 million in the second quarter of fiscal 2012, a decrease of $7.4 million from the prior-year period. This decrease was primarily related to decreases in volume and a decrease of 7.3% in gross profit per pound. Foreign currency translation negatively impacted EMEA gross profit by $1.2 million.
EMEA operating income for the fiscal 2012 second quarter was $15.3 million, a decrease of $6.4 million compared with the fiscal 2011 second quarter. The decrease in operating income was primarily due to the decrease in gross profit offset by an improvement in selling, general and administrative expense cost control. Foreign currency translation negatively impacted operating income by $0.5 million.
The Americas – In the fiscal 2012 second quarter, net sales for the Americas were $129.6 million, a 9.4% increase compared with the prior-year period. The increase in net sales was a result of $4.1 million of incremental fiscal 2012 net sales from acquisitions completed during the prior year and a 15% increase in price per pound. Price per pound improvement was primarily attributable to higher prices in the specialty powders and masterbatch product families. Volume decreased by 7.3 million pounds in the second quarter of fiscal 2012 compared with the prior period, primarily related to lower volume in the masterbatch product family, which was partially offset by increased volume in the engineered plastics product family. Foreign currency translation negatively impacted net sales by $2.3 million.
Gross profit was $19.6 million for the quarter, an increase of $3.7 million from the comparable period last year. The increases in gross profit and gross profit per pound of 23.5% and 29.2%, respectively, were primarily in the specialty powders and engineered plastics product families. The Company was able to improve margins in light of rising raw material costs by improving product mix and implementing operational efficiencies. The fiscal 2011 acquisitions contributed $0.6 million of incremental fiscal 2012 gross profit. Foreign currency translation negatively impacted gross profit by $0.5 million.
Operating income for the quarter was $5.3 million compared with $3.3 million last year. Operating income increased primarily due to improved gross profit per pound, which was partially offset by an increase in selling, general and administrative expenses. Foreign currency translation negatively impacted operating income by $0.4 million.
Asia Pacific ("APAC") – In the fiscal 2012 second quarter, APAC net sales were $33.7 million, an increase of $0.4 million compared with the same prior-year period. Foreign currency translation favorably impacted net sales by $1.1 million. The favorable increase of 14.2% in selling price per pound was partially offset by an 11.3% decrease in volume.
Gross profit for APAC for the three months ended February 29, 2012 was $5.4 million, an increase of $2.1 million compared with last year. The increase in gross profit and gross profit per pound were primarily due to reduced costs – resulting from previous restructuring initiatives that have improved the cost structure – and a focus on products with higher technical requirements.
APAC operating income for the quarter was $2.5 million compared with $0.4 million last year. The increase in profitability was principally due to the increase in gross profit and a slight decrease in selling, general and administrative expenses.
Liquidity, Cash Flow From Operations and Working Capital
Working capital was 71 days at the end of the fiscal 2012 second quarter, flat with 71 days at the end of the fiscal 2012 first quarter.
At the end of the fiscal 2012 second quarter, the Company's net debt, defined as total debt minus cash and cash equivalents, was $143.6 million compared with $40.4 million at the end of the fiscal year 2011. The change in net debt of $103.2 million during the first six months of fiscal 2012 was primarily the result of using $62.8 million of net cash consideration to acquire Elian SAS, $10.0 million in dividend payments, net share repurchases of $21.2 million and $19.2 million in capital expenditures, offset by cash flow provided by operations of $12.7 million.
Upon completion of the acquisition of Elian, the Company's leverage at February 29, 2012 is 1.14, and net available funds from credit lines and notes is $201.5 million.
Fiscal 2012 Business Outlook
"We are pleased with our first-half results, which were accomplished under challenging conditions. With our demonstrated ability to shift to higher-value products and control costs, we expect full-year net income for fiscal 2012 to exceed the levels we posted during fiscal 2011," Gingo said.
"Our experienced management team continues to execute our long-term strategic plan. Our strong operating profit per pound is the result of our successful restructuring initiatives we have implemented in recent years, as well as the dedication of our associates."
Gingo continued, "Our leverage and availability under our credit facility remain strong, and we expect these metrics to improve as we progress through the year, allowing for a continued focus on our acquisition strategy. In addition, our strong balance sheet allows us to create further value for our shareholders through potential share appreciation and a prudent return of cash. Based on these strengths and our confidence in the future cash generation ability of the business, our Board decided to increase our dividend by 11.8% to $0.19 per share on a quarterly basis or $0.76 per share annually, as announced on March 29, 2012. This increase represents an annual yield of approximately 2.8% and, coupled with our aggressive acquisition strategy, demonstrates our excitement about the future of A. Schulman."
Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2012 second-quarter earnings can be accessed at 10:00 a.m. Eastern Time on April 5, 2012, on the Company's website, www.aschulman.com. An archived replay of the call will also be available on the website.
About A. Schulman, Inc.
A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. The Company's customers span a wide range of markets such as packaging, consumer products, industrial and automotive, among others. The Company employs about 3,100 people and has 36 manufacturing facilities globally. A. Schulman reported net sales of $2.2 billion for the fiscal year ended August 31, 2011. Additional information about A. Schulman can be found at www.aschulman.com.