Bandag, Incorporated Reports 2nd Quarter 2006 EPS
Bandag, Inc.
Flash Results
(Numbers in Millions, Except Per Share Data)
Q2 2006 Q2 2005 6 Months 6 Months 2006 2005 Net sales $247.3 $227.3 $459.7 $417.0 Earnings from continuing operations $10.5 $12.7 $16.2* $18.7 Diluted EPS from continuing operations $0.54 $0.65 $0.83* $0.95
*Before loss from discontinued operations of $16.4 million, or $0.84 per diluted share.
MUSCATINE, Iowa, July 19 -- Bandag, Incorporated today reported consolidated net sales for second quarter 2006 of $247.3 million compared to consolidated net sales of $227.3 million in second quarter 2005, an increase of nine percent. Consolidated net sales were positively impacted by approximately $4.1 million due to the effect of translating foreign currency denominated net sales into U.S. dollars. Consolidated net earnings were $10.5 million, or $0.54 per diluted share, for second quarter 2006, compared to second quarter 2005 consolidated net earnings of $12.7 million, or $0.65 per diluted share.
Consolidated net sales for the first six months of 2006 were $459.7 million, an increase of ten percent from consolidated net sales of $417.0 million in the first six months of 2005. For the first six months of 2006, Bandag reported consolidated earnings from continuing operations of $16.2 million, or $0.83 per diluted share, compared to consolidated net earnings of $18.7 million, or $0.95 per diluted share, in the same period of 2005. During the first quarter of 2006, Bandag recorded the previously announced deferred loss on the sale of its business in South Africa. As a result, for the first six months of 2006, Bandag recorded a net loss on discontinued operations of $16.4 million, or $0.84 per diluted share, resulting in a consolidated net loss of $0.2 million, or $0.01 per diluted share.
In announcing second quarter 2006 results, Martin G. Carver, Bandag's Chairman of the Board and Chief Executive Officer, said, "In Bandag's Traditional Business, unit volume came in below 2005 levels, reflecting intense pressures from competitive retread tires and low-priced new tires. Also, margin pressure from continued increases in raw material prices again outpaced the effect of product price increases. To address these and other fundamental changes we initiated several programs globally to simplify our operations and reduce costs. These programs include closing our Shawinigan, Quebec production facility, freezing our U.S. and Canadian pension plans, and announcing a workforce reduction program to eliminate approximately 175 jobs in North America. Overall, we anticipate that the steps we're taking in our Traditional Business globally will simplify our operations and reduce our cost structure, better aligning operations with the forces shaping today's markets and our dealers' needs.
"Tire Distribution Systems, Inc. (TDS), Bandag's tire distribution subsidiary, turned in a strong second quarter, delivering a second quarter sales increase of 25 percent," said Mr. Carver. "TDS' sales were strong and benefited from off-the-road tire sales to companies in the construction and mining industries. At Speedco, investment in new on-highway locations reduced its operating contribution significantly, even though the business continued to deliver real growth in terms of lube and tire sales, customer visits and sales per visit. Speedco plans to open six to eight locations in 2007 which compares to thirteen locations scheduled to open in 2006. The moderated 2007 expansion schedule should assure that the business continues to deliver both superior quality service and real growth in lube service and routine tire maintenance, and should lessen the impact on earnings, thus assuring that we're building real growth in shareholder value."
Financial Highlights
-- Factors that affected consolidated net sales for second quarter 2006
were:
-- North American business unit volume decreased five percent while
net sales increased seven percent as compared to second quarter
2005. Net sales were positively impacted by approximately
$1.6 million due to the effect of translating foreign currency
denominated net sales into U.S. dollars and by price increases in
May 2005 and January 2006.
-- European business unit volume decreased four percent and net sales
decreased fourteen percent. Net sales were negatively impacted by
intense competitive pressures and by higher sales deductions.
-- International business unit volume decreased nineteen percent and
net sales decreased twelve percent. Unit volume and net sales
were negatively impacted by 15 percent and 17 percent,
respectively, due to the sale of the South African operations.
Net sales were positively impacted by price increases and by
approximately $2.5 million due to the effect of translating
foreign currency denominated net sales into U.S. dollars.
-- TDS net sales increased $10.6 million, or 25 percent, from the
prior year period. Net sales were positively impacted by
increased unit sales and higher prices.
-- Speedco, together with TruckLube1, acquired in the second quarter,
are now combined into one segment, Vehicle Services. TruckLube1,
which provides light truck maintenance, was purchased in April
2006 and contributed $2.4 million to second quarter net sales.
Vehicle Services business unit net sales increased 44 percent
primarily due to an increase in Speedco net sales of $6.1 million
compared to the prior year period. Same store Speedco lube sales
increased $2.2 million, or 11%, and same store tire sales
increased $0.3 million, or 23%. Same store revenue is comprised
of locations that have operated for twelve full months. As of
June 30, 2006 same store lube sales included 34 locations and same
store tire sales included eleven locations. Overall, Speedco had
41 locations, 32 with tire service capabilities, as of June 30,
2006, compared to 35 locations, 13 with tire service capabilities,
at the same time last year.
-- Second quarter 2006 consolidated gross margin declined by
3.6 percentage points. Vehicle Services gross margin declined
2.8 percentage points, primarily due to expenses associated with the
start-up of new Speedco stores and the addition of tire lanes to
existing stores. Traditional Business gross margin declined
4.4 percentage points. European business unit gross margin declined
eleven percentage points, primarily due to higher raw material costs,
lower sales volume and a manufacturing shut-down to reduce inventory
levels. North American business unit gross margin declined
4.2 percentage points and International business unit gross margin
declined 2.3 percentage points, primarily due to higher raw material
costs.
-- Consolidated operating and other expenses for second quarter 2006 were
$2.4 million, or four percent higher than the prior year period.
Speedco operating and other expenses increased $2.5 million, primarily
related to the additional stores and tire lanes.
-- Capital expenditures were $44.5 million through June 30, 2006,
compared to $26.2 million for the same period last year. The increase
in capital expenditures is primarily due to expenditures made by
Speedco for new facilities and expansions of tire lanes at existing
facilities.
Outlook
Commenting on the outlook for the second half of 2006, Mr. Carver said, "As you would expect, several of the actions initiated during the second quarter will negatively impact the last half of 2006, particularly the third quarter. Though we don't anticipate any relief from rising raw material costs globally, we're hopeful that our simplified operations and slimmer cost structure will begin to offset the impact of the rising raw material costs in 2007. TDS and Speedco are both expected to benefit from continued underlying strength in the trucking industry."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of more than 900 franchised dealers that produce and market retread tires and provide tire management services. Bandag's traditional business serves end-users through a wide variety of products offered by dealers, ranging from tire retreading and repairing to tire management systems outsourcing for commercial truck fleets. TDS sells and services new and retread tires. In addition, Bandag has an 87.5% interest in Speedco, Inc., a provider of on-highway truck lubrication and routine tire services to commercial truck owner-operators and fleets.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
Consolidated Second Quarter Six Months
Statements Ended June 30, Ended June 30,
of Earnings 2006 2005 2006 2005
Income
Net sales $247,315 $227,261 $459,670 $417,017
Other 1,329 1,087 5,885 3,148
248,644 228,348 465,555 420,165
Costs and expenses
Cost of products sold 169,383 147,558 314,127 273,304
Operating & other
expenses 64,669 62,284 129,848 119,680
234,052 209,842 443,975 392,984
Income from operations 14,592 18,506 21,580 27,181
Interest income 1,878 2,159 4,332 3,972
Interest expense (373) (629) (687) (1,085)
Earnings before income
taxes, minority
interest and
discontinued
operations 16,097 20,036 25,225 30,068
Income taxes 5,740 7,029 9,339 11,222
Minority interest (122) 268 (302) 145
Earnings from
continuing operations 10,479 12,739 16,188 18,701
Net loss on
discontinued operations 0 - (16,356) -
Net earnings (loss) $10,479 $12,739 $(168) $18,701
Basic earnings (loss)
per share
Earnings from
continuing
operations $0.54 $0.66 $0.84 $0.96
Net loss on
discontinued
operations - - (0.85) -
Net earnings (loss) $0.54 $0.66 $(0.01) $0.96
Diluted earnings (loss)
per share
Earnings from
continuing
operations $0.54 $0.65 $0.83 $0.95
Net loss on
discontinued
operations - - (0.84) -
Net earnings (loss) $0.54 $0.65 $(0.01) $0.95
Weighted average
shares outstanding
Basic 19,354 19,426 19,339 19,409
Diluted 19,513 19,714 19,542 19,710
Second Quarter Six Months
Ended June 30, Ended June 30,
Segment Information 2006 2005 2006 2005
Net Sales
Traditional Business
North America $117,938 $110,432 $218,038 $201,702
Europe 18,346 21,379 37,868 40,768
International 28,001 31,952 54,680 60,821
TDS 53,471 42,921 95,946 75,598
Vehicle Services 29,559 20,577 53,138 38,128
Total net sales $247,315 $227,261 $459,670 $417,017
Segment Operating
Profit (Loss)
Traditional Business
North America $15,371 $14,974 $22,595 $23,579
Europe (2,504) 273 (1,703) 1,194
International 1,345 3,445 4,593 6,884
TDS 4,619 2,670 4,593 1,573
Vehicle Services (794) 838 (1,790) 1,637
Corporate expenses
& other (3,445) (3,694) (6,708) (7,686)
Net interest income 1,505 1,530 3,645 2,887
Earnings before income
taxes and minority
interest $16,097 $20,036 $25,225 $30,068
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
June 30, Dec. 31,
Condensed Consolidated Balance Sheets 2006 2005
Assets:
Cash and cash equivalents $71,760 $97,071
Investments 55,693 60,150
Accounts receivable - net 164,469 174,017
Inventories 88,032 84,668
Other current assets 55,453 59,960
Total current assets 435,407 475,866
Property, plant, and equipment - net 238,980 209,640
Other assets 78,843 69,531
Total assets $753,230 $755,037
Liabilities & shareholders' equity:
Accounts payable $48,830 $45,794
Income taxes payable 1,786 2,477
Accrued liabilities 95,379 100,647
Short-term notes payable and current
portion of other obligations 13,428 15,351
Total current liabilities 159,423 164,269
Long-term debt and other obligations 24,589 24,061
Deferred income tax liabilities 5,534 4,771
Minority interest 1,463 2,779
Shareholders' equity
Common stock 19,452 19,436
Additional paid-in capital 42,105 37,191
Retained earnings 513,096 529,372
Accumulated other comprehensive loss (12,432) (26,842)
Total shareholders' equity 562,221 559,157
Total liabilities & shareholders' equity $753,230 $755,037
Six Months
Ended March 31,
Condensed Consolidated Statements of Cash Flows 2006 2005
Operating Activities
Net earnings (loss) $(168) $18,701
Non-cash translation adjustment due
to sale of South Africa 14,212 -
Provision for depreciation 13,522 12,737
(Increase) decrease in operating assets
and liabilities - net 10,509 (6,577)
Net cash provided by operating activities 38,075 24,861
Investing Activities
Additions to property, plant and equipment (44,467) (26,243)
Maturities of investments - net 4,457 12,950
Payments for acquisitions of businesses (8,091) -
Proceeds from divestiture of businesses 460 2,251
Net cash used in investing activities (47,641) (11,042)
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (1,468) (1,886)
Cash dividends (13,038) (12,873)
Purchases of common stock (3,408) (2,281)
Stock options exercised 2,523 1,387
Excess tax benefits from share-based
compensation expense 196 -
Net cash used in financing activities (15,195) (15,653)
Effect of exchange rate changes on cash
and cash equivalents (550) 1,063
Decrease in cash and cash equivalents (25,311) (771)
Cash and cash equivalents at beginning of year 97,071 66,646
Cash and cash equivalents at end of period $71,760 $65,875