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Xerium Technologies' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Stocks in this article: XRM

You can see from our decline in margins that while we have continued to hammer away on our structure, actually increasing sales per employee by 6.6% in Q3 versus last year's Q3 and worked hard to pass along as much of our cost increases as we can, we've not been able to offset all of the pressures with either cost reductions or increased pricing. I expect this pressure will evade slightly, with decline in oil prices but the lag time between oil prices at the wellhead and the price of yarn seems to be about 9 months. Rubber, the other major commodity we purchased, has seen no decline in pricing and it is negatively impacting our roll cover businesses.

Our margins are also impacted by our increasing revenue derived from emerging markets such as Asia.

In 2005, only 12.6% of our revenue came from Asia. In contrast, through Q3, as you can see on Slide 6, 18.6% of our 2011 revenue has been derived from Asia. This growth is the result of our strategic initiative to increase our revenue in this fast growing market to increase customer engagement by expanding our sales and applications engineering resources resident in the region, while utilizing our existing factories to produce the products.

In 2005, most of our Asian revenue came from Japan, Korea and Australia. Now a meaningful percentage comes from China and Indonesia. Well, this is a great business and we're happy to have it as the developed markets remain in the doldrum. Because we import into the region from higher cost factories elsewhere in the world and have to absorb much of the freight and logistic expense, our margins are lower from these sales than our realized for the same or similar products in the mature markets.

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