Third Quarter Results:
Engine/Mobile Filtration Segment
Net sales at our Engine/Mobile Filtration segment declined 2% from the third quarter of 2011. Lower net sales included a 1% reduction in the U.S.—due to lower heavy-duty engine filter aftermarket sales—and a 3% reduction in foreign sales. Foreign sales actually increased 2% when adjusted for changes in foreign currency exchange rates. Higher heavy-duty engine filter sales in Mexico, North and South Africa and a rebound in China from last year’s third quarter were partially offset by lower heavy-duty engine filter sales in Europe.
Operating profit at our Engine/Mobile Filtration segment declined 6% from the third quarter of 2011 primarily from the 2% reduction in sales and a 0.9 percentage point decline in operating margin to 22.4%. Lower operating margin was partially due to lower absorption of fixed manufacturing costs from lower sales in addition to higher material costs as a percentage of sales primarily due to product mix.
Industrial/Environmental Filtration Segment
Net sales at our Industrial/Environmental Filtration segment increased 5% from the third quarter of 2011. These higher net sales included 2% sales growth domestically and 11% sales growth outside the U.S. This increase in foreign sales, which was 20% when adjusted for changes in foreign currency exchange rates, was due to an increase in natural gas vessel and aftermarket filter sales based upon sales growth in several international markets including Asia and Canada. This increase excludes the impact of our second quarter acquisition of Modular Engineering.
Operating profit at our Industrial/Environmental Filtration segment grew 15% from the third quarter of 2011. Our 11.4% third quarter operating margin increased 1.1 percentage points from last year’s third quarter as we were able to leverage fixed manufacturing and administrative costs with higher net sales.
Net sales at our Packaging segment declined 7% from the third quarter of 2011 and fell short of our expectations heading into the third quarter. Similar to the first two quarters of 2012, the reduction from 2011 was primarily driven by lower smokeless tobacco packaging and confection packaging sales. The 26% reduction in operating profit and the 2.3 percentage point reduction in operating margin compared with the third quarter of 2011 were primarily the result of lower sales.