Xerium Technologies (XRM)
Q4 2011 Earnings Call
March 14, 2012 9:00 am ET
Kevin McDougall - Executive Vice President and General Counsel
Stephen R. Light - Chairman, Chief Executive Officer and President
Clifford E. Pietrafitta - Chief Financial Officer and Executive Vice President
Kevin J. Cohen - Imperial Capital, LLC, Research Division
Richard Kus - Jefferies & Company, Inc., Research Division
Nicholas Ware-Fredriksson - Henderson Global Investors Limited
Previous Statements by XRM
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Ladies and gentlemen, welcome to the Xerium Technologies Fourth Quarter 2011 Financial Results Conference Call on March 14, 2012. [Operator Instructions] I will now hand the conference over to Kevin McDougall, Executive Vice President and General Counsel. Please go ahead, sir.
Thank you, and welcome to Xerium Technologies Fourth Quarter 2011 Financial Results Conference Call. Joining me this morning are Stephen Light, the CEO, Chairman and President of Xerium Technologies; and Cliff Pietrafitta, Executive Vice President and Chief Financial Officer. Stephen will start the discussion this morning with an update on our progress, and then we'll provide further financial details with respect to the quarter. Subsequently, we will open up the lines for questions.
Xerium Technologies financial results for the quarter were announced in a press release after market closed on Tuesday, March 13, 2012. Notification of this call was broadly disclosed, and this conference call is being webcast using the link on the Investor Relations homepage on our website at www.xerium.com. We have also posted a slide presentation on our website, which we will refer to during this conference call.
I'd also note that we'll make comments today about future expectations, plans and prospects of the company such as our general expectations for 2012. These statements constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those described in Tuesday's press release and our slide presentation and in our SEC filings. The forward-looking statements represent our view as of today, March 14, 2012, and we specifically disclaim any obligation to update these forward-looking statements.
Lastly, on this call, we plan to discuss supplementary non-GAAP financial measures, such as adjusted EBITDA that are key metrics for our credit facility covenants and that we use internally to assess liquidity and financial performance, and therefore, believe will assist you in better understanding our company. Reconciliations of these metrics to the comparable GAAP numbers are available on our press release and in our materials, which are each posted in the Investor Relations section of our website at www.xerium.com.
With that, I'd like to turn the call over to Stephen
Stephen R. Light
Thanks, Kevin. Good morning, ladies and gentlemen. Thanks for joining us this morning to discuss Xerium's fourth quarter and, full year results for 2011. This morning, I'm going to speak mostly about the full year. And Cliff and I will take your questions on our quarter and year, once we finish our prepared remarks.
2011 can best be reviewed as 2 separate periods, each with markedly different customer demand dynamics. The first half of 2011 was characterized by month-over-month increases in paper production tonnage in all regions, with significant strength in Europe. In fact, through the end of the first quarter, according to the Confederation of European Paper Industries, or CEPI, European paper tonnage had increased over the same period in 2010 by 2.6%. And according to Bracelpa, South American tonnage had increased by 1% over the same period in 2010. North America was also strong in the first half, where newsprint exports to Europe buoyed tonnage production. While Asian data is more difficult to acquire, our internal estimates placed production growth well above 5%.
As a consequence, we enjoyed the strong first half bookings shown on Charts 3, 4, and 5 of the presentation we released last night. Our consolidated bookings for the first half year totaled $298.3 million, a 4.5% increase from 2010 second half of $285.4 million. Backlog grew by $10.9 million for the second half -- from the second half of 2010 through the first half of 2011.
The first half of 2011 was distinguished by customers, not only making increasing amounts of paper, but they were also replenishing their inventories of paper machine clothing that had been depleted during the recession. And they were performing required roll recoverings in mechanical service work that had been deferred during the same period.
Paper machine clothing and industrial textiles accounted for 63% of total bookings while Rolls and mechanical services accounted for the remaining 37%. The change in our historical Rolls segment mix of 37% of revenue versus our typical 34% was primarily related to 2 factors. The first was very strong growth in our Chinese roll covering business, resulting from our initiative to broaden our product offering there to include more types of covers, more new products and the addition of spread roll recovering, which should not have been a product we offered in China, but which accounts for more than 22% of our total Rolls segment revenue globally.
The second influence on segment mix was continued softness of our North American and European industrial textiles product line. These customers are closely related to building construction, which decreased PMC segment bookings. During the first half of 2011, our PMC factories were fully occupied with heavy overtime, particularly in the press felt product line, as we worked to reduce our backlog and shorten our order to delivery lead times, in response to customer needs. You may recall that our investments to increase press felt capacity were not yet fully online during the first half of the year. The first half of 2011 was also marked by a rapid increase in material costs driven primarily by the rise in prices of raw materials used in the production of PMC and roll covers, specifically oil-based yarns and synthetic and natural rubber.