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Article Excerpt
OPERATOR: Greetings and welcome to the Haynes International Inc. first quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions)
It is now my pleasure to introduce your host Ms. Stacy Kilian, Vice President and General Counsel for Haynes International. Thank you Ms. Kilian. You may begin.
STACY KILIAN, VP, GENERAL COUNSEL AND CORPORATE SECRETARY, HAYNES INTERNATIONAL INC: Good morning. Welcome to the Haynes International Inc. earnings conference call for the fiscal quarter ended December 31, 2008. This call is also being broadcast over the Internet.
With me today are Mark Comerford, President and Chief Executive Officer of Haynes International and Marcel Martin, Vice President and Chief Financial Officer.
Before we get started, I would like to read a brief cautionary note regarding forward-looking statements. This conference call could contain statements that constitute forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of the 1933, and Section 21E of the Securities and Exchange Act of 1934. The words believe, anticipate, expect, plan and similar expressions are intended to identify forward-looking statements.
Although we believe our plans, intentions and expectations reflected or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties and we can provide no assurance that such plans, intentions or expectations will be achieved.
Many of these risk are discussed in detail in the Company's filings with the Securities and Exchange Commission. In particular, in its Form 10-K for the fiscal year ended September 30, 2008. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of the new information, future events, or otherwise.
Thank you and I will now turn the call over to Mark.
MARK COMERFORD, PRESIDENT, CEO, HAYNES INTERNATIONAL INC: Thank you, Stacy. Good morning everyone and thank you for joining us. I'll recap our financial performance for the first quarter and discuss some of the issues within our key markets, I'll then turn the call over to Marcel who will give us greater detail about our financial results and we'll finish up with your questions.
Hopefully, you've had a chance to review the information in our press release and quarterly report. Our first quarter results were disappointing and indicative of the economic environment and market conditions which began deteriorating in the August - September time frame and have since continued to worsen.
The economic outlook remains very cloudy. Our key customers report the same and the credit crisis and economic downturn appears to be putting many capital projects into question. In the first quarter, we recorded $4.5 million of net income or $0.38 per diluted share, compared to $13.8 million in net income or a $1.16 per diluted share for the first quarter of 2008.
During the quarter, we saw several issues affect our business. First, the economic downturn resulted in a more competitive environment and lower volume. Second, we saw a rapid decline in raw material prices from the commodity exchanges, triggering dramatic price changes in the market place. This factor, combined with our high cost inventory in our system results in compression of our gross profit margins.
We expect this compression to continue through the next two quarters, as we flush out our higher cost FIFO inventories and expect to achieve levels more in line with current commodity price levels and current market prices. Provided that such pricing stabilizes.
We have taken action to lower our cost structure to adjust to this new demand level. Most significantly we reduced our work force by over 10% in the quarter and we are continuing to sharply cut our cost and spending. However, we are continuing to reinvest in the business.
For example, several key CapEx projects will enable us to improve our reliability and quality which we believe will make us a better partner to several key accounts. And I think you have heard me talk on the prior call that in meeting with customers, quality and reliability are absolutely critical. Without fail, our customers talked to us about if we were more reliable, they would be able to place more business with us.
Likewise, we continue to pursue broadening our application development and marketing efforts. While we believe we can maintain profitability for the fiscal year, due to the conditions I described above, the base economy, our volume and costs of inventories flowing through. We expect our results will be well below those seen in recent years and we will have a substantial impact on the Company's profitability in the second quarter.
Turning to our key markets. In aerospace, first quarter '09 revenue was $49.7 million. A 16.4% reduction compared to the $59.4 million in the first quarter of last year. Volume was up 23.3% but partially offset by a 9% higher average selling price. The volume reduction is due to fabricator's in the supply chain leaning out their inventories along with the disruption due to the Boeing strike. We expect at least the next several quarters to continue to be at lower levels than seen in fiscal 2008.
Sales to the chemical processing industry were $30.9 million in the first quarter, compared to $40.8 million a year ago. This is a 24.3% reduction in revenue on a volume reduction of 27.8%. Higher average selling prices reflecting a higher mix of specialty product help offset the volume reduction.
Several key projects in this industry will close out in 2009 and funding in this industry for new projects remains unclear due to the credit crisis and falling demand in some areas of the chemical industry. Furthermore, MRO business in this market can be negatively impacted in times of financial distress as operators use cheaper materials, which must be replaced more frequently in order to preserve short-term cash.
Our business in China is heavily tied to this segment today and we have seen this market fall off precipitously since November. However, the Chinese stimulus program appears to have freed up some money and we are starting to see some releases of orders that have been on hold. We do expect this will continue to be a very challenging market through the fiscal year. Our revenue and land-based gas turbines increased 26% year-over-year to $32.1 million, an increased volume of 42.2%.
Our lower priced product mix, as well as increased competition resulted in an 11.3% reduction in the selling prices to this market. The increased volume comparison year-over-year is reflective of a timing issue which lowered shipments in the first quarter of 2008. However, we feel this market is holding up relatively well with current volumes similar to average quarterly volumes seen in fiscal 2008.
Our key MRO accounts report very strong steady backlogs. But we do feel OEM activity is slowing as OEMs are looking at their supply chains and proactively positioning their inventories in the event of cancellations or delays of capital projects.
Our sales into other markets, such as flu gas desulphurization, alterative energy, and industrial heating grew 1.5% to $19.2 million on a corresponding 1.5% growth in volume.
Finally, we are continuing to see improvements in our delivery performance metrics and velocity. Meaning shorter lead times through our plants, which allows our customers greater flexibility in their order entry patterns. Faster,...
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