Lamson & Sessions Reports Strong Third Quarter Earnings Performance
- Net Sales Rose 22.1 Percent to a Record $128.1 Million in the Third
Quarter of 2005
- Diluted Earnings Per Share Increased to 35 Cents in the Third Quarter
of 2005 vs. 6 Cents in Third Quarter of 2004
- Debt Was Reduced $18 Million in Third Quarter Due to Strong Operating
Cash Flow
- Company Raises Fourth Quarter Earnings Estimate to 30-33 Cents
Per Share
CLEVELAND, Oct. 27 /PRNewswire-FirstCall/ -- Lamson & Sessions
(NYSE: LMS) today announced that the Company's net sales for the
third quarter reached a record $128.1 million, an increase of 22.1
percent over the $104.9 million reported in the third quarter of
2004. All three of the Company's business segments experienced
double-digit net sales growth in the quarter as sales order activity
in the Company's key end markets continued to exhibit strength
and resilience.
As a result of the increased net sales, the Company's net income
rose to $5.4 million, or 35 cents per diluted share, which is an
increase of more than five times the $833,000, or 6 cents per diluted
share, reported in the third quarter of 2004. The results for the
prior-year third quarter included charges for a litigation settlement
and plant closure expenses which totaled approximately $1.28 million
(net of tax), or 9 cents per diluted share.
Operating expenses were $12.6 million in the third quarter of
2005, an increase of $1.0 million, or 8.4 percent, over the third
quarter of 2004 due to the rise in business activity. However,
operating expenses decreased as a percentage of sales to 9.8 percent,
compared with the 11.0 percent reported in the third quarter of
2004.
"We are pleased to see the continued strength in our key end
markets which improved substantially late in the quarter," said
John B. Schulze, Chairman, President and Chief Executive Officer. "This,
along with the efficiency improvements we have implemented in recent
years, allowed us to achieve these encouraging results."
Business Segments
The Carlon business segment reported net sales of $58.8 million
in the third quarter of 2005, an increase of 13.5 percent over
the $51.9 million reported in the third quarter of 2004. Carlon
benefited from strengthening conditions in non-residential construction
and a continuation of favorable trends in residential construction.
Meanwhile, activity in the telecommunications infrastructure market
moderated as expected during the quarter. Operating income for
Carlon improved to $8.7 million, or 14.8 percent of net sales,
in the third quarter of 2005 compared with $4.6 million, or 8.8
percent of net sales, in the third quarter of 2004. This improvement
reflects a combination of higher selling prices, increased unit
demand and improved product mix.
The Lamson Home Products (LHP) business segment reported net
sales of $28.3 million in the third quarter of 2005, an increase
of $5.8 million, or 25.6 percent, over the $22.5 million reported
in the third quarter of 2004. Lamson Home Products continued to
benefit from strong underlying growth trends in the residential
construction and home improvement markets, along with additional
new LHP product introductions at several key retail store chains.
Operating income for LHP increased to $4.3 million, or 15.3 percent
of net sales, compared with $1.4 million, or 6.4 percent of net
sales reported in the third quarter of 2004. The improvement in
operating earnings was attributable to higher selling prices implemented
to recover higher raw material costs, along with new product introductions
and stronger unit demand.
The PVC Pipe business segment experienced a surge in demand late
in the third quarter of 2005, which led to net sales of $40.9 million,
an increase of 34.0 percent over the $30.5 million reported in
the third quarter of 2004. In the aftermath of the Gulf Coast hurricanes
late in the third quarter, concerns over rising resin and energy
costs, coupled with low inventories and raw material shortages,
resulted in rapidly escalating sales order patterns. In addition,
non-residential construction demand has begun to improve and residential
construction remains very resilient. The PVC Pipe business segment
reported an operating loss of $892,000 for the third quarter of
2005, compared with an operating loss of $597,000 in the third
quarter of 2004. This result reflects some of the process control
issues and higher material scrap rates incurred earlier in the
third quarter of 2005 previously disclosed, as well as higher raw
material costs. The Company has addressed the process control issues,
but higher-than-normal material scrap rates will continue until
new equipment can be obtained to resolve these issues over the
next two quarters. The Company has implemented several selling
price increases in the PVC Pipe segment to recover the significant
increases in the cost of polyvinyl chloride (PVC) and high density
polyethylene (HDPE) resins, as well as various additives and energy
costs.
Year-to-Date Results
For the first nine months of 2005, the Company's net sales totaled
$350.9 million, an increase of 21.0 percent over the $290.1 million
reported for the first nine months of 2004. Net income for the
first nine months of 2005 totaled $12.8 million, or 86 cents per
diluted share, compared with $5.3 million, or 35 cents per diluted
share, from continuing operations reported for the first nine months
of 2004.
All three of the Company's business segments reported net sales
growth in excess of 18 percent for the first nine months of 2005,
compared with the prior-year period, for essentially the same reasons
as noted above in the discussion of the segments' third quarter
2005 performance. Carlon's net sales rose to $165.0 million, or
18.3 percent higher than the $139.5 million reported in the first
nine months of 2004. Lamson Home Products reported net sales of
$78.7 million for the first nine months of 2005, an increase of
24.9 percent compared with $63.0 million in the first nine months
of 2004. The PVC Pipe business segment reported net sales of $107.2
million for the first nine months of 2005, or 22.3 percent higher
than the $87.6 million reported for the first nine months of 2004.
Operating income for Carlon improved to $20.2 million for the
first nine months of 2005, an increase of 57.4 percent over the
$12.8 million reported for the first nine months of 2004. Lamson
Home Products reported operating income of $12.4 million, which
compares favorably with the $6.3 million reported for the first
nine months of 2004. The PVC Pipe business segment reported an
operating loss of $530,000, which is 30.7 percent less than the
operating loss of $765,000 reported for the first nine months of
2004. All three of the business segments benefited from improved
selling prices and higher unit sales in the first nine months of
2005 compared with the similar period in 2004.
Balance Sheet Highlights
Accounts Receivable grew more than 17 percent to $69.8 million
at the end of the third quarter of 2005 compared with the similar
period in the prior year. The increase is entirely due to the increase
in net sales during the period. The aging of the accounts receivable
remains quite good with less than 1.1 percent classified as beyond
60-day status. The days sales outstanding remained at 46.1 days,
which is similar to the end of the second quarter of 2005, but
substantially better than the 50.8 days reported at the end of
the third quarter of 2004.
Despite persistent increases in raw material costs through the
first nine months of 2005, the investment in inventory decreased
slightly to $39.9 million from the $40.1 million reported at the
end of the third quarter of 2004. With the growth in net sales,
inventory turns have improved to a quarter-end record of 8.8 times,
which compares favorably with the 7.7 times reported at the end
of the third quarter of 2004.
By collecting the accounts receivable faster and improving inventory
turns, the Company generated sufficient cash to reduce total debt
by $18 million during the third quarter of 2005. The Company's
lower debt level and improved net income will result in a reduced
debt leverage ratio which will lower the interest rate spread by
50 basis points under the Company's secured credit agreement. This
improvement will offset the higher interest costs resulting from
the two recent interest rate increases implemented by the Federal
Reserve Bank.
Outlook
The current outlook for the Company's key end markets remains
positive for the fourth quarter of 2005. Sales order demand levels
are very high. However, this high demand may represent some over-buying
in anticipation of material shortages emanating from supply chain
disruptions caused by the Gulf Coast hurricanes, which resulted
in key raw material suppliers declaring force majeure. These events
will take several weeks and possibly several months to run their
course before returning to normal.
As a result, the Company anticipates that sales order demand
will be higher than normal seasonality might suggest for the fourth
quarter. In addition, the Company expects significant increases
in resin costs which it will attempt to recover through increased
selling prices. The timing of these cost and selling price changes
is not predictable and may result in margin volatility. However,
the Company is increasing its net sales guidance for the fourth
quarter of 2005 to a range of $110-$115 million, and for the full
year 2005 to a range of $460-$465 million, an increase of 18.8-20.0
percent over the $387 million reported in 2004.
The Company believes that the increased strength in net sales
and higher utilization rates in its plants will result in net income
for the fourth quarter of 2005 in the range of $4.6-$5.0 million,
or 30-33 cents per diluted share. Previously, on October 10, 2005,
the Company provided a fourth quarter net earnings estimate of
$3.5-$3.8 million, or 23-25 cents per diluted share. The Company
also has increased its net earnings estimate for the full year
2005 to a range of $17.4-$17.8 million, or $1.16-$1.19 per diluted
share.
With respect to 2006 expectations, the Company believes that
it will continue to experience growth in its key end markets and
anticipates that net sales will meet its goal of 8-10 percent growth
for the fourth consecutive year. However, because of the inordinate
volatility in the availability and pricing of raw materials, due
to the recovery issues created by the recent Gulf Coast hurricanes,
the Company will defer any further guidance on net sales or net
income at least until it releases its final 2005 results on February
16, 2006.
Lamson & Sessions is a leading producer of thermoplastic enclosures,
fittings, wiring outlet boxes and conduit for the electrical, telecommunications,
consumer, power and wastewater markets. For additional information,
please visit our Web site at: www.lamson-sessions.com.
This press release contains forward-looking statements that involve
risks and uncertainties within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially
from those expected as a result of a variety of factors, such as:
(i) the volatility of resin pricing, (ii) the ability of the Company
to pass through raw material cost increases to its customers, (iii)
the continued availability of raw materials and consistent electrical
power supplies, (iv) maintaining a stable level of housing starts,
telecommunications infrastructure spending, consumer confidence
and general construction trends, (v) the continued availability
and reasonable terms of bank financing and (vi) any adverse change
in the recovery trend of the country's general economic condition
affecting the markets for the Company's products. Because forward-looking
statements are based on a number of beliefs, estimates and assumptions
by management that could ultimately prove to be inaccurate, there
is no assurance that any forward- looking statement will prove
to be accurate.
THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Third Quarter Ended
2005 2004
NET SALES $128,052 100.0% $104,919 100.0%
COST OF PRODUCTS SOLD 105,144 82.1% 87,820 83.7%
GROSS PROFIT 22,908 17.9% 17,099 16.3%
SELLING AND MARKETING EXPENSES 7,825 6.1% 7,159 6.8%
GENERAL AND ADMINISTRATIVE EXPENSES 4,269 3.3% 3,817 3.6%
RESEARCH AND DEVELOPMENT 467 0.4% 616 0.6%
OPERATING EXPENSES 12,561 9.8% 11,592 11.0%
LITIGATION SETTLEMENT - 0.0% 1,728 1.7%
OTHER EXPENSE (INCOME), NET - 0.0% 395 0.4%
OPERATING INCOME 10,347 8.1% 3,384 3.2%
INTEREST 1,419 1.1% 1,992 1.9%
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 8,928 7.0% 1,392 1.3%
INCOME TAX PROVISION 3,575 2.8% 559 0.5%
INCOME FROM CONTINUING OPERATIONS 5,353 4.2% 833 0.8%
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX OF $256 - 0.0% - 0.0%
NET INCOME $5,353 4.2% $833 0.8%
BASIC EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $0.37 $0.06
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF TAX - -
NET EARNINGS $0.37 $0.06
AVERAGE SHARES OUTSTANDING 14,364 13,809
DILUTED EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $0.35 $0.06
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF TAX - -
NET EARNINGS $0.35 $0.06
DILUTED AVERAGE SHARES OUTSTANDING 15,211 14,182
NOTE: Certain amounts in the prior periods have been reclassified to
conform with current period presentations.
THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Nine Months Ended
2005 2004
NET SALES $350,854 100.0% $290,062 100.0%
COST OF PRODUCTS SOLD 287,954 82.1% 241,367 83.2%
GROSS PROFIT 62,900 17.9% 48,695 16.8%
SELLING AND MARKETING EXPENSES 22,428 6.4% 20,101 6.9%
GENERAL AND ADMINISTRATIVE EXPENSES 12,406 3.5% 11,380 3.9%
RESEARCH AND DEVELOPMENT 1,405 0.4% 1,692 0.6%
OPERATING EXPENSES 36,239 10.3% 33,173 11.4%
LITIGATION SETTLEMENT - 0.0% 1,728 0.7%
OTHER EXPENSE (INCOME), NET - 0.0% (231) -0.1%
OPERATING INCOME 26,661 7.6% 14,025 4.8%
INTEREST 5,632 1.6% 5,897 2.0%
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 21,029 6.0% 8,128 2.8%
INCOME TAX PROVISION 8,245 2.4% 3,251 1.1%
INCOME FROM CONTINUING OPERATIONS 12,784 3.6% 4,877 1.7%
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX OF $256 - 0.0% 401 0.1%
NET INCOME $12,784 3.6% $5,278 1.8%
BASIC EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $0.90 $0.35
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF TAX - 0.03
NET EARNINGS $0.90 $0.38
AVERAGE SHARES OUTSTANDING 14,170 13,793
DILUTED EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $0.86 $0.35
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF TAX - 0.03
NET EARNINGS $0.86 $0.37
DILUTED AVERAGE SHARES OUTSTANDING 14,835 14,080
NOTE: Certain amounts in the prior periods have been reclassified to
conform with current period presentations.
THE LAMSON & SESSIONS CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
Quarter Quarter
Ended Year Ended Ended
October 1, January 1, October 2,
2005 2005 2004
ACCOUNTS RECEIVABLE, NET $69,812 $48,391 $59,561
INVENTORIES, NET 39,918 36,860 40,130
OTHER CURRENT ASSETS 14,523 15,494 14,787
PROPERTY, PLANT AND EQUIPMENT, NET 47,330 47,961 47,842
GOODWILL 21,480 21,480 21,519
PENSION ASSETS 31,053 30,513 30,388
OTHER ASSETS 14,685 17,803 18,805
TOTAL ASSETS $238,801 $218,502 $233,032
ACCOUNTS PAYABLE $34,732 $24,213 $32,388
SECURED CREDIT AGREEMENT - CURRENT 5,000 75,000 83,100
OTHER CURRENT LIABILITIES 33,825 31,899 32,533
LONG-TERM DEBT 72,390 11,876 11,756
OTHER LONG-TERM LIABILITIES 29,226 30,138 28,749
SHAREHOLDERS' EQUITY 63,628 45,376 44,506
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $238,801 $218,502 $233,032
THE LAMSON & SESSIONS CO.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
Nine Months Ended
2005 2004
OPERATING ACTIVITIES
NET INCOME $12,784 $5,278
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 6,732 6,901
AMORTIZATION 1,182 1,199
GAIN ON SALE OF FIXED ASSETS - (933)
DEFERRED INCOME TAXES 5,016 2,942
NET CHANGE IN WORKING CAPITAL ACCOUNTS:
ACCOUNTS RECEIVABLE (21,421) (21,365)
INVENTORIES (3,058) (9,987)
PREPAID EXPENSES AND OTHER 499 (316)
ACCOUNTS PAYABLE 10,519 15,460
ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES 2,556 2,269
PENSION PLAN CONTRIBUTIONS (1,361) (1,792)
OTHER LONG-TERM ITEMS (109) 1,893
CASH PROVIDED BY OPERATING ACTIVITIES 13,339 1,549
INVESTING ACTIVITIES
NET ADDITIONS TO PROPERTY, PLANT,
AND EQUIPMENT (6,101) (4,012)
PROCEEDS FROM SALE OF FIXED ASSETS - 1,595
ACQUISITIONS AND RELATED ITEMS (187) (187)
CASH USED IN INVESTING ACTIVITIES (6,288) (2,604)
FINANCING ACTIVITIES
NET (PAYMENTS) BORROWINGS UNDER
SECURED CREDIT AGREEMENT (8,750) 1,700
PAYMENTS ON OTHER LONG-TERM BORROWINGS (836) (734)
PURCHASE AND RETIREMENT OF TREASURY STOCK - (205)
EXERCISE OF STOCK OPTIONS 3,575 359
CASH (USED) PROVIDED BY FINANCING ACTIVITIES (6,011) 1,120
INCREASE IN CASH AND CASH EQUIVALENTS 1,040 65
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 683 468
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,723 $533
THE LAMSON & SESSIONS CO.
BUSINESS SEGMENTS
(In thousands)
Third Quarter Ended Nine Months Ended
2005 2004 2005 2004
NET SALES
CARLON $58,836 $51,857 $165,043 $139,487
LAMSON HOME PRODUCTS 28,305 22,535 78,651 62,962
PVC PIPE 40,911 30,527 107,160 87,613
$128,052 $104,919 $350,854 $290,062
OPERATING INCOME (LOSS)
CARLON $8,712 $4,565 $20,165 $12,812
LAMSON HOME PRODUCTS 4,332 1,431 12,445 6,283
PVC PIPE (892) (597) (530) (765)
CORPORATE OFFICE (1,805) (1,620) (5,419) (4,536)
OTHER (EXPENSE) INCOME - (395) - 231
$10,347 $3,384 $26,661 $14,025
DEPRECIATION AND AMORTIZATION
CARLON $1,206 $1,313 $3,704 $4,078
LAMSON HOME PRODUCTS 474 458 1,390 1,393
PVC PIPE 943 891 2,820 2,629
$2,623 $2,662 $7,914 $8,100
TOTAL ASSETS BY BUSINESS SEGMENT AT OCTOBER 1, 2005, JANUARY 1, 2005 AND
OCTOBER 2, 2004
October 1, January 1, October 2,
2005 2005 2004
IDENTIFIABLE ASSETS
CARLON $87,290 $77,473 $87,075
LAMSON HOME PRODUCTS 38,966 34,190 33,484
PVC PIPE 52,721 44,650 50,307
CORPORATE OFFICE (INCLUDES CASH,
DEFERRED TAX, AND PENSION ASSETS) 59,824 62,189 62,166
$238,801 $218,502 $233,032
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