American Vanguard Corporation (AVD) Q1 2010 Earnings Call May 6, 2010 12:00 p.m. ET Executives Bill Kuser - Director, Investor Relations Eric Wintemute - President & CEO Trevor Thorley - COO David Johnson - CFO Analysts Jim Bartlett - Bartlett Investors Brad Evans - Heartland Advisors Ian Corydon - B. Riley and Company Jay Harris - Goldsmith & Harris Frank Bisk - Pilot Presentation Operator
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After a very difficult 2009, we are beginning to see improving market condition. The farm credit difficulties and distributor inventory retrenchment of 2009 have moderated, and improved weather conditions have resulted in more normal planting patterns. After significant recent declines, we also see resurgence in cotton and peanut acreage, which is a very positive development for us given the strong product offering that we have in those crops.Our sales and marketing efforts have become more focused. Our personnel are highly motivated, and Trevor will provide additional comments on our top-line performance. As promised in the first quarter, we maintained the financial discipline that we exercised in the second half of 2009. As you review our financial statements and read the commentary included in our 10-Q filing, you will see that when compared to the first quarter of 2009, operating expenses declined by $1.4 million. Inventory levels were more than $38 million lower. Even with higher sales, our receivables were more than $10 million lower. And as a result of these efforts, we were able to reduce our debts by nearly $45 million. These are important accomplishments, and it is our intention to continue to focus on the balance sheet strength through 2010 and beyond. During the quarter, we continued to work on several projects that involved either the acquisition or licensing of products that can strengthen our existing portfolio. Similarly, we continued the work that we discussed in our last conference call, involving our in-house product development program. We are making a good progress in all of these pursuits, and our future growth potential will be enhanced by these efforts. As I indicated in our press release this morning, the combination of more favorable market conditions, increased demand in several key crops, more efficient manufacturing and operating rates, improved organizational capabilities and judicious financial control should allow American Vanguard to achieve better performance in 2010. And we're happy that this first quarter results has started on that path.
I will now ask David to fill in on some of the most important financial details.David Johnson As mentioned, American Vanguard sales revenues increased by 5% to $46.7 million in Q1 of 2010 in comparison to the $44.6 million in the same quarter of 2009. Trevor will provide product line detail and explanations of the factors that led to this overall result. Our cost of sales for Q1 of 2010 was $27.8 million or 59% of net sales compared to $26.1 million or 58% of net sales for the same period in 2009. As we have discussed in the recent conference calls, there are several factors that explain these results. We have continued to focus hard on inventory levels, making sure that we produce what we need to produce and no more. The benefit is evident in the balance sheet, but the downside has continued under absorption, a fixed factory operating cost. We have significantly lower tolling sales recorded in this quarter compared to the same period of 2009, and we continue to address aggressive price competition internationally. As a result, our gross profit ended at $18.9 million or 41% of net sales in Q1 of 2010 compared to $18.6 million and 42% of net sales in 2009. Operating expenses continued to be on the high focus and ended at $1.4 million lower than the same period of 2009. You will see in our 10-Q report that our selling costs were up $400,000 as a result of a different mix of sales and associated program costs, plus the cost of increased advertising spending supporting our brands. General and administrative costs were $1.3 million lower as a result of not incurring the high expenses we reported in Q1 of 2009 on the potential acquisition. Research and product development costs were down $600,000, mainly timing of particular studies and other development activities. Read the rest of this transcript for free on seekingalpha.com