Blount International, Inc. (BLT) Q2 2010 Earnings Call Transcript August 9, 2010 1:00 pm ET Executives Josh Collins – Chairman, President and CEO Calvin Jenness – SVP and CFO Analysts Andy White – Longbow Research Jeff Gates – Gates Capital Management Alan Robinson – Royal Bank of Canada Dax Vlassis – Gates Capital Management Tyson Bauer – Wealth Monitors, Inc. Jeff Matthews – Ram Partners Presentation Operator
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Now, I would like to turn the call over to Josh Collins, our Chairman and CEO.Josh Collins Thanks, Cal; and thank you all for joining us on today's call. First, I will take a few moments to discuss the highlights of the second quarter. After that, Cal will cover some financial details. I will then conclude our prepared remarks by outlining our revised forecast for 2010, discussing some of the significant recent events related to Blount. We are pleased with the results of our performance over the second quarter. There continue to be a number of positive signs within our business as we progress through the year. Order intake continues to increase, indicating a solid demand for the last half of 2010, and we continue to achieve solid operating margins as a result of the volume leverage on our manufacturing plants. The second quarter of 2010 marked the third consecutive quarter of sequential sales growth for our company, and the highest revenue and operating income levels since the record third quarter of 2008. Sales were up over 30% in the second quarter of 2010 compared to last year's second quarter. Second quarter operating margins continued to show strength at over 50% of sales as we achieved good cost performance, plant efficiencies, and lower steel costs year over year. Additionally, we generated over $20 million of free cash flow. Customer orders continued to show strength, with orders on hand increasing over 50% from both June 2009 and December 2009 levels. Back orders now only $6.9 million below the record level at the end of June 2008. As a result, we are optimistic about sales growth over the remainder of 2010. Overall, our solid operating performance and cash generation has led to net debt leverage of 1.9 times. This morning, we successfully completed the amendment of our senior credit facility. This was a significant achievement, as it provides us with our desired operating flexibility, and reduces our overall cost of borrowing.
Cal will now cover some specifics related to the financial performance of the company. Cal?Calvin Jenness Thanks, Josh. Overall, the second quarter trended better than we anticipated this year, and we have continued to refine our forecast for the balance of 2010 accordingly. Second quarter 2010 operating margin was 15.3% of sales, or $22.7 million of operating income. This represents an increase of $10.8 million from last year's second quarter. EBITDA, as defined by our senior credit agreement, was $30.1 million in this year's second quarter, and $110.1 million for the trailing 12 months ended June 30, 2010. Second quarter 2010 EBITDA was $12.5 million above the second quarter of 2009, a reflection of EBITDA margin of 20.2%. Overall leverage was 2.6 times EBITDA, and our net leverage ratio was 1.9 times EBITDA. Our core business, the Outdoor Products segment, increased sales by $34.7 million or 31.5% from the second quarter of 2009. The year-over-year growth in the second quarter was driven by $35.2 million of higher unit volumes compared to 2009, offset slightly by lower average prices due to currency trends and customer mix. Second-quarter sales for the original equipment manufacturer channel improved, and as result, average pricing slightly went up. In comparison to a relatively weak second quarter of 2009, segment international sales gained approximately 41% in the second quarter of 2010, and domestic sales also improved, increasing nearly 14%. Domestic sales in general were driven by continued sell-through of products, as well as associated restocking through the supply chain. Sales were up significantly in both replacement and OEM channels in the second quarter of 2010 as compared to 2009. Replacement channels were up 29%, with sales gaining the most in Europe and South Asia, consistent with international sales growth trends. OEM sales growth out of first quarter of 2010 strength in the U.S., South Asia, and Europe, and were up year over year by 39%, as end-user demand has picked up for those customers. Sales at concrete cutting products were up about 34% from the second quarter of 2009, as market conditions continue to improve. Read the rest of this transcript for free on seekingalpha.com