Brush Engineered Materials Inc. Q1 2010 Earnings Call Transcript

Brush Engineered Materials Inc. Q1 2010 Earnings Call Transcript
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Brush Engineered Materials Inc. (BW)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET

Executives

Michael Hasychak – VP, Treasurer and Secretary

John Grampa – SVP, Finance and CFO

Dick Hipple – Chairman, President and CEO

Jim Marrotte – VP and Controller

Analysts

Avinash Kant – D.A. Davidson & Co.

Anthony Sorrentino – Sorrentino Metals

Rob Young – Wm Smith & Co.

Michael Roomberg – Jefferies & Company

Phil Gibbs – KeyBanc Capital Markets

Presentation

Operator

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Greetings and welcome to the Brush Engineered Materials, Inc. first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Michael Hasychak, Vice President, Treasurer and Secretary for Brush Engineered Materials, Inc. Thank you. Mr. Hasychak, you may now begin.

Michael Hasychak

Good morning. With me today is Dick Hipple, Chairman, President and CEO; John Grampa, Senior Vice President, Finance and Chief Financial Officer; and Jim Marrotte, Vice President and Corporate Controller.

Our format for today’s conference call is as follows. John Grampa will comment on the first quarter 2010 results and the outlook and Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for questions. A recorded playback of this call will be available until May 14th by dialling area code 877-660-6853, account number 286 and conference ID 349171. The call will also be archived on the company’s Web site beminc.com. To access the replay, click on Events and Presentations on the investor page.

Any forward-looking statements made in this announcement including those in the outlook section and during the question-and-answer portion are based on our current expectations. The company’s actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release issued this morning.

And now I’ll turn it over to John Grampa for comments.

John Grampa

Thank you, Mike. Good morning everyone. Thanks for taking the time to join us today. Today’s agenda is unchanged from that of past calls. I’ll review the key financial points for the quarter and then comment on the outlook. Following my comments, Dick will review the state of the markets. Following Dick’s market update, we’ll open the call for your questions.

For those who have not had a chance to review the press release in any detail, I’ll start by reiterating the numbers. I’ll cover the factors affecting the reported growth, isolating the effect of organic growth, metal prices, the acquisition that closed in the fourth quarter of 2009 and the second acquisition which closed early in the first quarter of 2010. I’ll also review the charges taken in the quarter, which as you know were previously announced. I’ll follow that up with a review of the balance sheet, then a review of how the acquisitions affected reported margins and sales, and finally I’ll review the outlook for the second quarter and the year.

Let’s begin with a summary of the press release. Sales for the quarter were more than double that of the first quarter of the prior year, an increase of 118%, reaching $295 million level which is a company record. Reported net income for the quarter on a GAAP basis was much improved and at $0.33 a share. As we had previously announced, the EPS for the quarter was negatively affected by charges totalling $0.12 a share. Excluding these items, the operating run rate for the quarter was $0.45 a share.

In the release, we also increased our guidance on the outlook for the year from that provided just a few weeks ago. Due to stronger margins and a continuing improvement in order entry levels, we raised our earnings per share guidance by $0.30 to $0.35 a share to the range of $1.45 to $1.75 a share from our previous guidance of $1.15 to $1.40 a share. The reported sales increase compared to the prior year was due to three factors; one, a significant increase in demand for the company’s materials, especially from the consumer electronics-oriented markets; two, metal price increases; and three, the recent acquisitions.

Metal price increases, which is that portion of both precious and non-precious metal price increases that the company generally passes on to customers, accounted for approximately $19 million of the $160 million reported sales growth compared to the prior year. The acquisitions accounted for approximately $60 million of growth and organic growth was about $80 million or 60% higher than a year earlier.

Sequentially, comparing to the fourth quarter of last year, sales were up 37% or about $80 million. About $3 million of that was metal price, $54 million was from the acquisitions and about $23 million was organic growth.

As I noted earlier, the charges taken in the quarter were previously announced; the charges included restructuring costs, a loss on an imbedded derivative, acquisition-related expenses and a negative impact of the new federal healthcare bill. Approximately $0.07 of the $0.12 of charges is due to the change in the deductibility of Medicare Part B reimbursements resulting from the new federal healthcare bill.

While the company will certainly continue to seek opportunities to lower costs and become more effective, at this time we do not expect restructuring charges in the second quarter of the year.

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