Albany International Corp. (AIN)
Q2 2010 Earnings Call
August 05, 2010 09:00 am ET
Michael Burke - SVP & CFO
Joe Morone - CEO
Jason Ursaner - CJS Securities
Mark Connelly - CLSA
Ned Borland - Hudson Securities
Paul Mammola - Sidoti & Company
Previous Statements by AIN
» Albany International Corp. Q1 2010 Earnings Call Transcript
» Albany International Q4 2008 Earnings Call Transcript
» Albany International Q4 2007 Earnings Call Transcript
Ladies and gentlemen, thank you for standing by, and welcome to the second quarter earnings call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Thursday, August 5, 2010, will be webcast and recorded.
I would now like to turn the conference over to Senior Vice President and Chief Financial Officer, Michael Burke, for introductory comments. Please go ahead.
Thank you, operator, and good morning, everyone.
As a reminder for those listening on the call, please do refer to our detailed press release issued last night regarding our quarterly financial results and with particular reference to the Safe Harbor notice contained in the text of the release about our forward-looking statements and the use of certain non-GAAP financial measures and associated reconciliation of GAAP.
And for purposes of this conference call, those same statements also apply to our verbal remarks this morning. And for a full discussion, please refer to that earnings release as well as our SEC filings, including our 10-K.
Now, I'll turn the call over to Joe Morone, our Chief Executive Officer, who has some opening remarks, before we do go to the Q&A. So, Joe?
Good morning, everyone. Welcome to our Q2 2010 earnings call. There is a lot of material in our release, and I know you have a lot of question. So we'll get to them fast, but let me just quickly run through, for you, what we view as the highlights of the quarter.
In sum, this was an outstanding quarter for Albany International. Sales were 7% ahead of Q2 '09 and 6% ahead of Q1 2010. We've said in our previous releases several times that we expect to enjoy significant fixed cost leverage, and you really see it this quarter.
More than 50% of the increase in sales between Q1 and Q2 dropped through at EBITDA which was $42 million and excluding GAAP based restructuring $43 million. Cash from operations was $44 million. Gross margins were very strong. PMC was nearly at 42%. So this is a very strong quarter.
You can't help it notice in the release that we're going to a great deal of detail about currency and that because it had a big effect in this quarter. EBITDA was nearly $7 million higher than it would have been as of no change in currency during the quarter. Most of that effect was due to the sharp drop in the value of euro during the quarter.
Now most of that drop has reversed itself in Q3, so you have to watch out in Q3 for the reverse effect on profitability from currency. But given the overall results and given the effects of currency, how do we think about the normalized EBITDA run rate coming out of the quarter like this?
Well, here is how we think about it, we start at $43 million of EBITDA, that's the 42 excluding GAAP based restructuring so $42 million then subtract out to currency effect, that puts us at 36 and then depending on how much of those $3 million of lingering cost associated with restructuring you chose to add back like a 1.5 million of equipment relocation which should end soon, you get to the upper 30s. So the way we think of this is for this level of revenue, if there was no changes in currency we should be in the 36 to $39 million of EBITDA of normalized run rate.
We had said in Q1 that Q2 is usually free of seasonal effect so that Q2 sales and order levels should give a pretty good indication, pretty good snapshot of the post recession short-term sales environment and we've tried to lay that out for you in the release. To make a long story short the sales and order patterns in Q2 suggests steady sales in PMC going forward and additional growth endorse in EF and robust growth both the short-term and long-term for AEC. The important caveat here is historically has an important seasonal effect in Q3 in almost all of our businesses except for AEC because of those summer shutdowns in Europe. So you will have to watch out for that.
Finally in Q2 we've passed several and noteworthy milestones, first as we described in the release we refinanced our revolved with a five year unsecured agreement which in combination with a swap leaves us with a blended rate of 3.55% so thanks to Michael and his team. Now that contract PMC contract negotiation that we've been referring to has progressed very well and we should sign a formal long-term agreement shortly. And finally and very importantly for the long-term growth prospects of our composites business in separate talks at the recent Farnborough Air Show both the CEO of Airbus and the COO each separately stated that the business case to reengineering the A320 a single line aircraft is favorable and they expect to make a formal decision to reengineer later this year. So, overall a very good quarter promising outlook with the important caveat about the seasonal effects in currency.