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Article Excerpt
OPERATOR: Good morning, and welcome to Ferro Corporation's full-year and fourth-quarter conference call. Good morning and welcome to Ferro Corporation 2008 full year and fourth quarter conference call.
(Operator Instructions)
Now I'd like to turn the meeting over to your host, Mr. David Longfellow, Director of Investor Relations. Mr.Longfellow, you may begin.
DAVID LONGFELLOW, DIRECTOR OF IR, FERRO CORPORATION: Good morning and welcome to the Ferro Corporation 2008 fourth-quarter earnings conference call. Today we will provide information about our financial results for the full year, and the three-month period ended December 31, 2008, and actions Ferro is taking to address the current economic challenges. Joining me today on the call are Jim Kirsch, Chairman, President, and Chief Executive Officer, and Sallie Bailey, Vice President and Chief Financial Officer. Following their prepared remarks, Jim and Sally will take your questions. I hope you have all gotten the opportunity to review the press release we issued yesterday. Copies of the press release are available on the Investor Relations portion of Ferro's website, which is located at www.Ferro.com. Also available on the website is a reconciliation of reported results to non-GAAP results discussed on this conference call.
Before Jim begins, I want to remind you that statements made on this conference call about the future performance of the company may constitute forward-looking statements, within the meaning of federal securities laws. These statements are subject to variety of uncertainties, risks, and other factors related to the company's operations and business environment, that are listed on our earnings press release, and in the company's quarterly report on Form 10-Q for September 30, 2008. Forward-looking statements reflect management's expectations as of today, March 3, 2009. The company undertakes no duty to update them to reflect future events, information or circumstances that arise after the date this conference call, except as required by regulations. Any redistribution, retransmission or rebroadcast this call in any form, without the express written consent of Ferro is prohibited. A dial-in replay of today's call will be available for seven days. In addition you may listen to, or download a replay through the Ferro Investor Relations website. I'd now like to turn the call over to Jim.
JAMES BAYS, VP AND GENERAL COUNSEL, FERRO CORPORATION: Thank you, David. And welcome to everyone on the call this morning. I will focus my remarks this morning on four critical topics. First, our results in 2008 concentrating on the dramatic slowdown in demand we experienced in November and December. Second, the actions we were taking across Ferro to improve our cost structure, and respond to the abrupt global decline in customer demand. I will then discuss the factors contributing to the delay in the filing of our Form 10-K. And finally I will discuss our current outlook. Let me begin with a discussion of the 2008 results, particularly the decline in customer demand that we experienced in the last two months of the year. I'll start by saying I am extremely proud of our worldwide team, for the agressive action they took during 2008, and that they continue to take in 2009.
We are making progress in initiatives that will unlock future earnings potential for Ferro. That progress was evident in our reported results through the September quarter, as we generated 14% sales growth and a 23% increase in segment income during the first nine months of the year. These results were achieved during a period when the US economy was already in a recession, and while we served a number of worldwide market segments that showed significant weakness. And despite the most abrupt global economic slowdown in decades in the fourth quarter, we generated a 4.5% increase in full-year 2008 sales, and a 23% sales in adjusted earnings compared with 2007. We also generated the cash to reduce debt, including off balance sheet receivables factoring, by over $100 million during the fourth quarter.
However ,we were not able to cut costs fast enough in the fourth quarter to match the abrupt drop in customer demand. December 2008 sales declined by 25%, compared with December, 2007. As many of our customers sharply curtailed their production and reduced inventories. In January and February, sales appear to have stabilized at or near the levels, we experienced at the end of 2008 in of our most markets. Our cost-control initiatives have intensified, as a result of the decline in global demand in late 2008, but we have been taking aggressive action to improve our cost structure since the middle of 2006. Over the past two and a half years our restructuring programs around the world have generated annual cost and expense savings of more than $45 million in aggregate. And the programs we have completed or are currently working on are expected to generate an additional $40 million in annual cost reductions, over the next two years at normalized production levels.
We know these restructuring efforts create value for shareholders, as we generate nearly $1.00 of annual cost and expense savings, for every $1.00 of restructuring expense. We have taken a number of other steps within the business respond to the global recession. We've reduced fixed costs by closing facilities. During 2008, we closed plants in the Netherlands, Mexico, Portugal, the United States, and Brazil as we consolidated our manufacturing operations. Between 2006 and 2008, we reduced our break-even level as we lowered our annual fixed manufacturing costs and SG&A expenses by approximately $50 million. We have lowered operational costs through reduced staffing and production schedules at our manufacturing facilities around the world.
In December, most of our worldwide factories operated with temporary shutdowns, short work weeks, or other production cutbacks. And we have continued to take these actions since the beginning of the year. Across all of Ferro, we reduced staffing by 12% in 2008, with about two thirds of the reductions occurring in the fourth quarter. These actions cut across all regions and functions within the company, and are reinforced by a global hiring freeze. We are seeing the full benefits of these actions as we move into 2009. We continued to take aggressive action with an additional 2% staff reduction in January. Our total global headcount has been reduced from 6,700 to 5,725 since January of 2008.
We have asked our employees to sharply curtail discretionary spending and they are responding. SG&A expense dropped by approximately $14 million from the third quarter 2008, to the fourth quarter. Discretionary spending controls contributed to this decline, along with favorable foreign currency rates and lower incentive compensation accruals. We are generating cash through asset sales and working capital reductions. During the fourth quarter we lowered our total debt financing, including off balance sheet factoring by over $100 million, through a combination of proceeds from the Fine Chemicals Business sale and reduced capital working requirements.
As we monitor our customer orders, region by region economic activity and our internal rolling forecasts, we will continue to take the actions necessary to operate the business in a responsible manner. Our focus throughout Ferro in 2009 is debt reduction, supported by cost and expense control and additional restructuring. We have reduced our capital spending plan for 2009 by $35 million, a 50% reduction from 2008. In January, we lowered our dividend which will reduce cash outlays by approximately $24 million on an annualized basis. We have eliminated most salary increases for 2009. In addition, we have made additional changes in our benefit plans and human resource policies that will reduce 2009 expenses. For example, we have suspended certain company contributions to our 401k, for an annualized savings of $3.5 million. We continue to focus on working capital reductions, mainly related to inventory.
Over the next few months, we expect that lower raw material costs will contribute to the inventory reductions, as declining commodity costs are passed through our supply chain. And as we continue to find ways to run our production facilities more efficiently. I have talked about our "win from within" operating philosophy at Ferro in a number of conference calls the past several years. This philosophy has been an important part of the momentum we have built, and the improvements we have achieved. As I have communicated to our employees over the past few months, I have stressed staying focused...
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