Start Time: 16:30 End Time: 17:11 Primo Water Corporation (PRMW) Q2 2012 Earnings Call August 7, 2012 04:30 p.m. ET Executives Katie Turner – IR Billy Prim – President & CEO Mark Castaneda – CFO Analysts Jim Duffy – Stifel Nicolaus Andrew Wolf – BB&T Capital Markets Mitchell Pinheiro – Janney Capital Markets Presentation Operator
And now, I’d like to turn the call over to Primo Water’s President and CEO, Billy Prim.Billy Prim Thank you, Katie. Good afternoon, everyone, and thank you for joining us. I will provide some opening remarks. Then, Mark will review our financial results for the second quarter and our outlook for the remainder of 2012. And then, I will provide some closing remarks and open up the call for questions. We’re pleased to report that the second quarter net sales results were in line with our expectations. These results reflect strong dispenser and water sales as we continued to add households that have our Primo Water Dispensers and use our water. Before I provide you with an update on our business strategy, I would like to provide you with a brief review on our business segments. First, our water business, our water business continues to grow and generate high profitability. The water segment sales increase is primarily due to an acceleration of U.S. exchange same-store sales unit growth of 14.7% for the second quarter. We plan to continue to add more water locations with most of them in locations where we will sell dispensers. Our dispenser business continues to grow and gain more retail store locations. Consumers purchased a record 96,500 dispensers in the second quarter. As a result, our dispenser sales increased 58% to $9.3 million. We continue to believe the increased water dispenser penetration will lead to reoccurring water sales. In the Flavorstation business, we continue to believe in the sparkling beverage category. We have great products and only CO2 direct store delivery capability. We have had some success expanding in this category with Lowe’s Home Improvement and certain grocery and hardware chains that currently sell our water. But we recognize there may be better ways to utilize our assets in this category long term.
As for gross margins, the water continues to have healthy gross margin in excess of 30%. We did have some extra costs this quarter related to consolidation of our refill service network, which slightly reduced our water margins compared to prior year. The water segment’s operating income for the second quarter of this year increased 4.2% to $3.8 million compared to prior year. The appliance segments of Flavorstation and dispensers have generated increased sales; however, they reported operating losses in the second quarter.As a result of this operating performance, our future business strategy will focus more on the growth of our core water and dispenser business going forward. Our water business has generated more than $14 million in operating income over the last 12 months and continues to grow. For our Flavorstation appliance business, we plan to explore shareholder-enhancing strategic alternatives included – including, but not limited to, a brand licensing partnership for our Flavorstation appliance business or the sale of certain Flavorstation appliance business assets and technologies. We expect to complete this sometime in the second half of this year. The past year has been difficult for investors, and much of the problem involves the timing of sales, expenses and profitability of the Flavorstation appliance business. During that time, our water business has grown and generated strong operating margins. For that reason, we are renewing our focus on the water and dispenser businesses, both of which are working well and growing. We are in a very strong position with our water business to leverage our existing regional operator network to service customers. We’ve also started to test servicing our refill network with company-owned employees. While we are still in the early testing phase, we believe that from early results, it will lead to improve sales and profitability in the markets we serve long term. Read the rest of this transcript for free on seekingalpha.com