Chris Conway, CLARCOR’s Chief Executive Officer, commented, “We experienced headwinds across our top-line in the second quarter, as sales growth in several markets including our global natural gas filtration market were more than offset by the negative effects of foreign currency exchange rates and softness in several markets including our U.S. heavy-duty engine aftermarket filtration business, our China first-fit OEM heavy-duty engine filtration business and our Packaging segment. However, our execution remained strong as we improved our operating margin to 17.2% from 16.9% in the second quarter of last year. Our 34.5% gross margin percentage was consistent with last year—our highest second quarter gross margin percentage in the last twenty years. Our selling and administrative expenses as a percentage of net sales declined 0.3 percentage points as we continued our culture of managing administrative expenses while supporting profitable growth. We anticipate this execution to continue throughout 2012 as we expect our full year operating margin to improve from the record 16.1% operating margin from last year.
“Our second quarter results were impacted by reduced domestic heavy-duty engine filter volume sold through our aftermarket independent distributors. Sales through these distributors—our primary domestic sales channel—were approximately flat with the second quarter of 2011 after growing approximately 17% in the first quarter of 2012 from the first quarter of 2011. Based upon discussions with our distributors and other industry participants, we believe that the slower growth was indicative of slowing industry demand. To highlight the decline in order activity from the first to second quarter, our sales to independent distributors in February 2012 increased 23% from the prior year while our March 2012 sales declined 3% from March of 2011. Despite this slowing industry demand, we believe we have maintained or increased our market share through the first six months of 2012 as we have added net independent distributors. In addition, we recently developed and launched two significant OEM aftermarket programs previously held by competitors. These two programs should support our domestic heavy-duty engine filter market beginning in the third quarter of 2012 and going forward.
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