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Event Brief of Q3 2008 Albany International Corp Earnings Conference Call - Final.

Article Excerpt
PARTICIPANTS

. Joseph Morone, Albany International Corp., President and CEO . Michael Nahl, Albany International Corp., EVP and CFO . Mark Connelly, Credit Suisse, Analyst . Jason Ursaner, CJS Securities, Analyst . Ned Borland, Next Generation Equity Research, Analyst . Paul Mammola, Sidoti & Company, Analyst

OVERVIEW

AIN reported 3Q08 results.

FINANCIAL DATA

A. Key Data From Call 1. YTD total CapEx = $105m. 2. 3Q08 CapEx = $31.4m.

PRESENTATION SUMMARY

S1. Business Review (J.M.) 1. Overview: 1. Despite rapidly deteriorating general economy in paper industry and effects of previously announced slow down in Eclipse Aviation, 3Q08 earnings were comparable to 3Q07 excluding effects of: 1. Restructuring. 2. Performance-improvement initiatives. 3. Income tax adjustments. 2. Effects of weak PMC and EF sales and AEC income were largely offset by: 1. Continued reductions in cost. 2. Another outstanding qtr. for Albany Door Systems. 3. '3Q' results offer a window into performance trends that AIN anticipates for the next few quarters. 4. Topline, particularly in PMC, is being hurt by global recession. 1. Even in a long and deep recession, expects to continue to make good progress (as in 3Q08), towards twin objectives of: 1. Restoring long-term cash generating potential of PMC. 2. Establishing a family of new businesses with potential for significant, sustainable, and profitable growth. 5. Acutely aware of the likelihood of a prolonged global recession. 1. Cash and grow strategy is sound. 2. Will come out of recession in an even stronger competitive position in each of AIN's businesses than was in at its outset. 2. PMC: 1. 3Q08 sales, excluding effects of currency translation, were 8% percent lower than in 3Q07. 1. Sales in every region were lower than normal, primarily due to lower sales volume. 2. Sales were especially weak in Aug. 2008, suggesting that normal seasonal downturns are likely to be magnified during recession. 2. 3Q08 operating income excluding costs associated with restructuring and performance-improvement initiatives was 5% lower than a year ago as continuing cost reductions partially offset lower sales. 3. Expects this global slowdown in PMC sales to continue for the length of the recession, as paper makers in every region: 1. Reduce mill-operating rates. 2. Slow down operating speeds. 3. Extend downtime periods. 4. Accelerate pace of machine slowdowns. 4. Overall Strategy & Progress: 1. Gained market share YTD in Americas, Europe, and China. 2. Maintained (what is for this time of year) a strong order-to-sales ratio in North America. 3. Continued to make progress with key contract negotiations in Europe. 4. Completed promising new product trials in each of major product lines. 5. Three-year global restructuring process enters its final year on schedule. 1. Pacing item now in this process is ramp-up of three plants in Asia. 2. Expansion of Korean plant is largely complete. 1. Team there has already expanded its production rates while maintaining exceptional quality levels. 3. New plant in Hangzhou, China, passed an important milestone in early Oct., when it successfully produced its first set of products for shipment. 3. Engineered Fabrics: 1. Another tough qtr. in 3Q08. 2. This business shares many similarities with PMC. 3. About 30% of revenue derives from sales to markets adjacent to paper. 4. Another 20% of revenue derives from products that serve the struggling building products market. 5. 40% of EF's revenue derived from sales to the non-wovens industry, which is still growing even in North America and Europe. 1. 3Q08 orders for the non-wovens industry grew by: 1. 25% vs. 3Q07. 2. 15% vs. 2Q08. 6. Sales to the building products industry appear to have bottomed. 1. Orders in 3Q08: 1. Comparable to 3Q07. 2. Considerably stronger than in 2Q08. 2. For this reason, even though EF sales performance in 3Q08 was similar to PMC's, there is reason to believe that the recession will not have as large an effect on this business as it is already having in PMC. 4. Albany Door Systems: 1. Compared to 3Q07 and excluding currency effects: 1. Sales grew by 16%. 2. Operating income by 250%. 2. Performance was strong across the board, in all regions and in product sales and aftermarket. 3. 3Q08 orders were 20% higher than 3Q07. 4. Expects a slowdown next year. 1. How severe the effect will be is uncertain. 2. Product sales will likely decline, which will especially affect North America, where product sales represent 90% of revenue. 3. Europe, which represents 70% of total segment sales, the impact of recession should be lessened by the aftermarket business, which should continue to grow during recession. 1. Europe's aftermarket business represents about 35% of European sales and an even larger fraction of total segment operating income. 4. In the product side of the business, has been preparing for a downturn for at least a year by: 1. Reducing fixed costs in manufacturing operations. 2. Shifting underlying operating model to one with a heavier reliance on variable costs. 5. Composites: 1. In Aug. announced that Eclipse Aviation (AEC's largest customer) was substantially cutting back production. 1. This meant a complete stoppage of production of parts for Eclipse. 2. Stated in Aug. that AIN expected Eclipse to ramp back up in 2009. 1. Indications from Eclipse are that they are on track for a 2009 recovery, which would mean that AEC production of Eclipse components would...

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