CD International's Management Discusses F3Q2012 Results - Earnings Call Transcript

CD International Enterprises, Inc. (CDII)

F3Q2012 Results Earnings Call

August 14, 2012 4:30 PM ET

Executives

Hernan Welch - Chief Financial Officer

Richard Galterio - Vice President

Analysts

Ken Mann - American Consulting Services

Marco Barattini - Barattini Investment Advisors

Presentation

Operator

Greetings, ladies and gentlemen. And welcome to the Fiscal 2012 Third Quarter Earnings Conference Call for CD International Enterprises Inc. For those of you who may be new to the company, CD International Enterprises trade on the OTCQB Marketplace under the symbol CDII.

CD International Enterprises is a U.S. based company that produces, sources, and distributes industrial commodities in China and the Americas, and provides business and financial corporate consulting services. For more information on this company, please visit its website at www.cdii.net.

Our call today is hosted by Mr. Hernan Welch, CFO; and Richard Galterio, Vice President. Additionally, a Q&A session will follow management’s discussion of the third quarter ended June 30, 2012.

At this time, I would like to refer to the Safe Harbor statements under the Private Securities Litigation Reform Act of 1995. During the conference call management may discuss financial projections, information or expectations about the company’s products or markets, or otherwise make statements about the future, which statements are forward-looking and subject to a number of risks and uncertainties, that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission, including its most recent Form 10-K.

At this time, I would like to introduce Mr. Richard Galterio, Vice President of CD International Enterprises. Thank you, sir. You may begin.

Richard Galterio

Thank you, Operator. And all of you who are joining us for our third quarter of fiscal 2012 conference call. CD International recorded revenues of $37.3 million for the quarter third quarter of fiscal 2012 with gross profit of $1.1 million and a net loss attributable to common stockholders of $1.4 million. This compares to revenue of $57 million, with gross profit of $7.6 million and a net income attributable to common stockholders of $4.3 million recorded in the same period in fiscal 2011.

Gross margins in the third quarter of fiscal 2012 was 3%, down from 13.3% in the same period from the prior year, largely due to the timing of a high margin large transaction which took place in our Consulting segment in the third quarter of fiscal 2011, and contributed approximately 10 percentage points in gross margin in that quarter.

Net loss per basic and diluted share outstanding was $0.03 in the third quarter of fiscal 2012 on $48 million basic and diluted weighted average shares. Earnings per basic and diluted shares outstanding was $0.11 in the prior quarter on 38 million weighted average shares.

For the first nine months of fiscal 2012, we recorded revenue of $116.1 million with gross profit of $13.3 million and net income attributable to common stockholders of $3.7 million, resulting a $0.09 per basic share on 43 million weighted average shares and $0.08 per diluted share on 47 million weighted average shares outstanding.

This compares to revenues of $145.1 million with gross profit of $17.3 million and net income attributable to common stockholders of $7.7 million resulting in $0.22 per basic and diluted share on 35 million weighted average shares outstanding.

Gross margins and net margins for this first nine months of fiscal 2012 were $11.4 million and 3, excuse me, 11.4% and 3.2%, respectively, compared to 11.9% and 5.4%, respectively, in the same period in fiscal 2011.

In highlighting our Magnesium segment, we saw slightly improve conditions in pricing as compared to the comparable quarter in fiscal 2011. Total revenue for the quarter was approximately $26.5 million, as compared to $25 million recorded in the third quarter of fiscal 2011.

Gross margin improved to 3.1% in the third quarter, up from 2.5% in the third quarter of fiscal 2011 and up sequentially from 2.6% in the prior quarter. We believe gross will continue to improve as we integrate our acquisition and increase volumes, during the current period we continue build inventory in anticipation of rising prices and increasing demand.

With the recent increase in spot prices rising in the past two months to 3400 FOB China, we believe we will be rewarded in the future for our inventory, as well as our prepaid expenses and we anticipate a firming in demand as we move through the remainder of the calendar year.

Our Basic Materials segments saw a sharp decline in revenue which totaled $10.6 million, declining by $9.5 million compared to same period in fiscal 2011. The decline in revenues was mainly a result of declining sales at our CDI Beijing subsidiary compared to the same period in fiscal 2011. And this is due to reduced demand from urban infrastructure expansion caused by tightening of credit in China.

In our Consulting segment this quarter, we generated a small amount of recurring revenue. However, we have seen a number of positive developments in this segment which I will highlight later in this call.

While our efforts in our commodity distribution business in the Americas has experienced a number of challenges, our team is on the ground there and we are working diligently to begin to deliver on the rich potential of this business. We will continue to deploy our resources in the Americas to build inventory in our Magnesium segment in anticipation of increases in demand.

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