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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the CLARCOR Incorporated first quarter 2009 earnings conference call. Today's conference is being recorded. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.
It is now my pleasure to turn the conference over to Mr. Tom Lawrence of Dye, Van Mol & Lawrence. Please go ahead, Mr. Lawrence.
TOM LAWRENCE, DYE, VAN MOL & LAWRENCE: Thank you. We appreciate your interest in joining us on CLARCOR's conference call to discuss results for the first quarter of 2009. By now everyone should have received a copy of the news release that was distributed yesterday. If anyone does need a copy, it is available on CLARCOR's website at www.CLARCOR. com or call Bonnie Cash at 615-244-1818, and she will send you a copy immediately.
Before I turn the call over to Norm Johnson, CLARCOR's Chairman and CEO, I remind you that all statements made in the news release and during the conference call, other than statements of historical fact, are forward-looking statements. These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
The Company believes that its expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties, and other important factors that could cause the Company's actual results, performance, or achievements or industry results to differ materially from the Company's expectations of future results, performance, or achievements expressed or implied by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate its future results.
Finally, we wanted to let people know that the information and statements made during the call are made as of the date of the call, March 19, 2009. Those listening to any replay should understand that the passage of time by itself will diminish the quality of the statements. Also, the contents of the call are the property of the Company, and the replay or transmission of the call may be done only with the consent of CLARCOR. Now, my pleasure to turn the call over to Norm Johnson for his opening remarks.
NORMAN JOHNSON, CHAIRMAN AND CEO, CLARCOR INC.: Thanks, Tom. Good morning, and thank you for joining us today. With me are Bruce Klein, our Chief Financial Officer, and Kim Orr, our Corporate Controller. During our last call I said earnings in the first quarter of 2009 would be lower than 2008. I would be the first to admit we did not expect the economy or our sales would fall as much as they did. Our sales decline was further exacerbated by our customers reducing inventory levels as they reacted to the uncertain times. We believe this inventory reduction effort is mostly over, and orders for the balance of the year will be more in line with the general economy and new business we generate.
While we are disappointed in our results, the sky is not falling in. I recently visited all of our operating companies to make sure I had the pulse of the business. I came away from those visits seeing the glass is half full. Our people are doing a great job in reducing costs and at the same time building for the future. Undoubtedly we along, with many companies, will have a tough couple of quarters. But we have not lost any major customers. Actually, we have gained new ones, and I see us coming out of this downturn stronger than ever.
Our balance sheet is strong and we have the ability to weather a long downturn, which we hope won't happen, to make acquisitions or to buy back stock. Not a bad position to be in. While we did have some unusual charges during the quarter, the majority of our earnings decline is attributable to lower sales. We just could not reduce costs fast enough. December was the worst month we have had in my 19 years with the Company. January and February were better, but still not at 2008 levels. If there's any good news, we expect our performance to improve for the remainder of the year as our cost reduction actions are realized. At the same time we are not expecting any worsening of the economy, nor any improvement.
Our current outlook is that each quarter for the rest of the year will be sequentially better and the second quarter will be the most challenging. I want to give you a quick update on some of the actions we have taken. We have implemented all of the cost reductions you expect such as freezing headcount and salaries, reducing travel, et cetera. Material costs will be lower for the balance of the year as our cost reduction plans are realized. Bruce can provide more detail, but being on a FIFO accounting system we had to write off costs in the first quarter for material cost variances we capitalized last year. As a result, material costs did not reflect the lower prices we are now paying. This will be -- they will be lower in the balance of the year.
We have not reduced our sales customer service or new product development activities. We are gaining new customers and adding new products by playing offense. Our customer service levels and fill rates are the best they have ever been. This is even more important when customers have reduced their inventory levels. Having the product means orders. Our balance sheet remains strong, and we expect to generate positive free cash flow at every quarter.
Our factories which produce vessels for the natural gas market are fully booked for the second quarter, and we expect vessel sales for natural gas to be about equal to last year. While this could end at any time, and don't read too much into it, but it is a glimmer of hope, so far in March we have seen an up-turn in orders. I suppose one could summarize this by saying we are managing our way through the downturn in the economy, however bad it gets, and at the same time preparing ourselves to be stronger than ever when the economy improves. Bruce will now review the financials, then I will discuss in more detail our outlook and plans for the future.
BRUCE KLEIN, CFO, CLARCOR INC.: Thanks, Tom. Norm has addressed and will speak further about our plans and expectations for the rest of 2009. I want to add a few more details to what he has said. Raw material costs, as Norm pointed out, have declined significantly in the first quarter, continuing a trend from the very end of 2008. Very little of these reductions measure the bottom line in the first quarter as we first had to work through higher cost inventory that we had. The lower input costs are now reducing our cost of sales.
The cost reductions extend over many different commodity types, but for us most significantly in metal prices, and steel particularly, hydrocarbon based materials such as adhesives, resins, and colorants, and energy and freight costs. We have initiated a freeze on salary increases for all domestic employees and also in certain non-US locations where we could legally do this. We have also reviewed every discretionary expense we have and will continue to do so, and to make cost cuts where appropriate.
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