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Xerium Reports Increased Sales Volume, Orders And Adjusted EBITDA

YOUNGSVILLE, N.C., March 4, 2014 (GLOBE NEWSWIRE) -- Xerium Technologies, Inc. (NYSE:XRM), a leading global provider of industrial consumable products and services, today announced its Q4 and full year 2013 results.

-- Q4 2013 Adjusted EBITDA increased 16.8% on steady sales and strong cost reduction
  • Q4 2013 constant currency sales were slightly above Q4 2012. Rolls sales improved 6.4%, primarily due to strength in North America while machine clothing sales declined 3.2%, primarily due to market decline in Europe.
  • Q4 2013 Adjusted EBITDA was $24.1 million. This is an increase of $3.5 million or 16.8% versus Q4 2012, and is primarily driven by a steady market and strong cost reduction. Cost reduction added $4.7 million in year-over-year Adjusted EBITDA in the quarter. See "Non-GAAP Financial Measures" below.
  • Q4 orders were strong for machine clothing and the Company has a large backlog going into Q1 2014 for these products. It is customary in the industry to receive blanket order commitments for specific machine positions at year-end. While orders are a good leading indicator of sales, actual production hours by our customers will be the best driver of sales.
  • The macro environment was slightly weaker than expected at the end of 2013, with weakness in the North American containerboard market, the largest market segment in the global market. Producer inventories rose in Q3 2013 and the industry (the Company's customers) was disciplined to idle machine output to balance demand and inventory. This correction is still holding in Q1 2014 with certain swing production now idle for greater than 80 days. This is an indication that GDP-based activity and industrial production was weaker than expected. This is consistent with information released on this topic by industry participants and other trade sources. Furthermore, the severe weather in North America in Q1 2014 is expected to exacerbate this issue.
  • The Company increased its inventory positions in 2013 as it embarked upon a global raw material substitution project that resulted from its 2013 global bid-out of procured raw materials. Savings are expected to result in 2014 and inventories are expected to be reduced back down to normal levels in 2014.

-- Full year 2013 Adjusted EBITDA grew 20.3% driven by steady sales and strong cost reduction
  • Full year 2013 sales were $546.9 million, an increase of $9.2 million, or 1.7% versus 2012 on a constant currency basis. This sales growth resulted primarily from the reduction of rolls backlog in North America and Europe and a small amount of global market growth. Xerium believes that the global market grew between 0% and 1% in 2013. See "Segment Information" and "Non-GAAP Financial Measures" below.
  • Full year 2013 Adjusted EBITDA was $107.3 million, an increase of $18.1 million or 20.3% over Adjusted EBITDA of $89.2 million in 2012. Steady sales and strong cost reduction drove the majority of the increase, with a slight increase in sales volume. Cost savings were partially offset by the reinstatement of incentive compensation and wage increase regimens.
  • Full year 2013 rolls sales outperformed machine clothing sales with an increase of $8.6 million or 4.6%, excluding currency. Machine clothing sales were flat between 2012 and 2013.
  • A bright spot in the Company's sales profile continues to be mechanical services. Full year mechanical services sales grew 14% in 2013 as customers seek an increasing level of sophisticated product offerings and service from the Company. This is consistent with the growth of the Company's Smart Roll and Rezolve products. Both of these products emphasize machine automation and are high level value-adds for Xerium's customers. The Company is aggressively expanding its capabilities in this area including:
  • the expansion of service facilities in its plant in Ruston, LA (underway);
  • the implementation of a Smart Roll production center in China;
  • the market introduction of next generation SMART 6.0 products, allowing the Company to service all suction roll covers, which is important to tissue producers;
  • the market introduction of the next generation of Rezolve 2.0, which provides papermakers a tool to improve machine efficiency and operating cost by giving an integrated view of the operation of their machine clothing and rolls;
  • the equipping of all North America field sales engineers with Xerium's advanced engineering toolbox to perform state-of-the-art onsite service checks on paper machines;
  • the hiring of machine experts in China to provide more sophisticated machine service; and
  • the installation of the Company's equipment from its France rolls plant into its two plants in China. This will allow the Company to manufacture more sophisticated rolls covers, drill patterns and cover grooving in this important market.
  • Asian market growth and Asian sales continue to be a bright spot for the Company as well. Full year Asia sales grew 3.9%, which the Company believes is in line with market growth. The Company believes it is one of the market share leaders for tissue products in Asia, and in China specifically. The Company is implementing a new plant in Bacheng, China to make high-end press felts to continue this growth vector for the Company. Construction is underway and will hit run-rate output toward the end of 2015. It will be a material advancement in that region's Adjusted EBITDA.
  • 2013 orders were $550.0 million, up 7.2% or $36.9 million versus 2012. In machine clothing, we are seeing increased orders in the Americas and in Asia, partially offset by a decrease in orders in Europe. Rolls and mechanical services orders are continuing at a steady pace. Going forward, we do not anticipate any change in the Company's annual orders, sales, or backlog trends from the last 5 years.

-- Cost reductions drove the majority of the Company's 2013 Adjusted EBITDA improvement, and will drive the Company's 2014 Adjusted EBITDA expected improvement. New sales growth programs will begin to kick in beginning in the second half of 2014.
  • Cost reduction efforts delivered an incremental $4.7 million of Adjusted EBITDA in Q4 of 2013 and an incremental $23.5 million of Adjusted EBITDA in 2013. In 2014, the Company intends to reduce gross costs by another $20 million and by another net $10 million over 2013 in 2015 and 2016.
  • Gross profit margins trended higher in 2013 versus 2012 and SG&A rates trended lower also due to cost reduction activities. Plant efficiency programs, which are waste reduction, procurement programs, productivity and logistics programs, accounted for approximately 40% of the 2013 cost reduction savings while restructuring programs accounted for 60% of the 2013 cost reduction savings. The Company has plans to continue this improvement in 2014 versus 2013.

-- The future outlook remains the same
  • According to RISI, the leading trade publication, approximately 70% of global industry's growth will be in Asia over the next 5 years. Xerium has multiple initiatives underway to grow in Asia (for rolls, machine clothing and service) and become more competitive in Asia for all of its main product and service offerings. Xerium is expanding output and capabilities in all 4 of its Asian plants and is building a 5 th Asian plant located near Shanghai, China. The Company is also adding sophisticated rolls & service engineers in China. China is the largest trade market in the world for paper and board production.
  • Printing, writing and newsprint grades of paper continue to decline due to digital substitution. GDP grades of paper and board are increasing in all regions in line with GDP and industrial production. Xerium has multiple new product and new capacity initiatives underway to be able to fully participate in GDP growth and industrial production growth. Tissue and personal care products continue to grow globally and the Company has strong products in these grades of paper production. Non-woven fabrics continue to gain share against woven fabrics and the Company has strong products for these machines. Fiber cement siding and backerboard continues to grow in popularity globally and the Company has a very competitive product line for the machines and companies that make these products.
  • Geographically, the Company grew sales in Asia (3.9% or $4.0 million) and in the Americas (2.0% or $5.1 million) between 2012 and 2013. Europe sales remained flat with an increase of $3.1 million in rolls sales, offset by a decrease in machine clothing sales of $3.1 million.
  • Q1 2014 market conditions are tentative including North American containerboard. This is one of the largest market segments in the world and greater than 75% of the market is supplied by 4 producers. In their recent public comments, they have all provided guidance for a flat 2014 environment with a soft Q1 start to the year, exacerbated by the recent severe weather.
  • According to public commentary released by the top global paper & board producers, it appears that global industry dynamics are little changed.
  • Printing, writing and newsprint papers are declining globally, especially in Europe;
  • Board and packaging will grow with GDP, but will vary when GDP varies;
  • South America pulp market is a growth market;
  • Tissue is a global growth market;
  • Asia is a growth market;
  • Fiber cement siding and backerboard is a growth market;
  • Nonwoven fabric production is a growth market; and
  • Mechanical services, the extension of machine capabilities of installed machines, conversion of machines to paper and board grades that have better prospects, and value-added machine automation is a growth market.
  • Xerium's ability to secure growth in these market segments is largely an internal matter, dependent upon its product and service offerings, capacity positioning and human resource expertise. Xerium is not a full product and service provider in all market segments. The Company is expanding its dedicated output capacity in certain geographies and correcting its product and service deficiencies with 11 new product programs and a comprehensive service expansion. These are all complex, multi-year efforts.
  • Xerium's longer term plan is balanced between base market maintenance, focused sales growth and continuous cost reduction. Forward investments taken in 2013 and Q1 2014 will give additional sales and Adjusted EBITDA benefit beginning at the end of 2014 and continuing into 2015 and 2016.

Harold Bevis, Xerium's President and Chief Executive Officer said:

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