Chris Conway, CLARCOR’s Chief Executive Officer, commented, “Our third quarter financial results were below our internal expectations heading into the quarter primarily due to lower than expected sales of heavy-duty engine filtration products in the domestic aftermarket and China. In addition, softness in other markets contributed to our shortfall compared with expectations including sales of air filtration products to the swine industry and sales of packaging products. Lower sales in these markets were partially offset by higher than expected operating results in several markets within our Industrial/Environmental Filtration segment including our natural gas filtration business both in the U.S. and abroad. However, our overall lower than expected sales, coupled with the impact of a higher effective income tax rate, drove our lower than expected earnings.
“Although third quarter sales of heavy-duty engine filters in the domestic aftermarket increased sequentially from the second quarter of 2012, sales did not meet our expectations and slightly declined from the third quarter of 2011. Based upon continued discussions with our distributors and other industry participants, we believe our sales levels are consistent with slowing industry demand primarily in the over-the-road truck market—which represents about two-thirds of our domestic aftermarket—indicative of a slowdown in the U.S. economy which has grown less than 2.0% in the first half of 2012 and is projected to expand at a similar rate in the third quarter. We believe that the U.S. trucking industry has been negatively impacted by this slow growth as evidenced by declining diesel fuel consumption and a 5% reduction in truck tonnage from an all-time high in December 2011. We believe we have maintained our market share through the first nine months of 2012, and we anticipate a rebound in our base domestic business when the U.S. economy accelerates. Moreover, we continue to make strides in our efforts to expand our domestic aftermarket share as we have added distributors on a net basis and have expanded our product offerings through the first nine months of 2012. Further share gains in the domestic and foreign aftermarket are evidenced by the launch of aftermarket programs through OE dealers in the third quarter that were held previously by competitors. Although we anticipate that the full sales potential of these programs will not be realized until the second half of 2013, it is an example of the positive strides we are making to further develop our markets. Although third quarter sales of heavy-duty engine filters in China were lower than our expectations heading into the quarter, these sales were higher than last year’s third quarter due to the procurement of a new OE aftermarket program from a large local diesel engine manufacturer. We believe we continue to be well-positioned to capitalize on China’s projected long-term first-fit and aftermarket heavy-duty engine filtration growth.
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