Flanders Announces Record Q3 Revenues up 24%
16 November 2000
Flanders Announces Record Q3 Revenues up 24%; Earnings from Operations of $0.03 Before Special Charges
ST. PETERSBURG, Fla.--Nov. 15, 2000--Flanders Corporation , today announced its results for its third quarter ended September 30, 2000. The Company reported net sales of $60.2 million for its third quarter, up 24% from net sales of $48.7 million for the third quarter of 1999, a company record for revenues during a quarter. Flanders recognized a net loss from continuing operations for the third quarter of $1.8 million ($0.07 per share), which included special charges related to consolidating and combining West Coast operations of $4.3 million ($2.6 million net of tax benefits). These charges included costs for inventory adjustments, write-offs, duplicate assets and other miscellaneous items. Excluding one-time charges, pro forma net income from continuing operations for the quarter was approximately $720,000 ($0.03 per share), a decrease of approximately $1.6 million, or 68%.For the nine months ended September 30, 2000 and 1999, revenues increased 18%, to $154 million from $131 million. Pro forma net earnings from continuing operations for the nine month period decreased 19%, to $2.9 million or $0.11 per diluted share, from $3.5 million, or $0.13 per diluted share earned in the first six months of 1999.
The Company indicated that the accelerated sales growth experienced during the third quarter was primarily the result of capturing market share in all areas. During the period, the Company also secured new or expanded supply agreements with major customers in retailing, automobile and aeronautics manufacturing, and wholesale distribution, whose impacts will not be noticeable until the first quarter of 2001.
However, this top-line progress has not been accompanied by gains on the bottom line. The reasons for the decline in profitability, and the steps being taken to mitigate them, primarily consist of:
| -- | During 1999 and the first half of this year, we made price concessions to some of our major retail accounts in a successful effort to expand our business from being a regional supplier to being a national supplier of filtration products to them. We are currently renegotiating prices for contracts representing the majority of sales to this group of customers. |
| -- | The expansion of our facility in Tijuana, Mexico, was brought partially on line during the quarter as part of the consolidation and reorganization of our West Coast operations. During this reorganization period, there were unusually high labor and related expenses associated with moving capacity and production between geographical locations, consisting of both major expansions and divisional downsizing, which exceeded our projected costs. We have adopted an expedited reorganization schedule to complete the bulk of this restructuring by year end in an attempt to reduce the negative impact this process will have on our operations. We believe that completion of this reorganization will result in substantial benefits in terms of operational efficiency, labor savings and oversight reductions, as well as the elimination of duplicate corporate infrastructures from having two subsidiaries with overlapping capacities in the same geographical region. |
| -- | We did not complete our new product catalogs to accompany the consolidation and reorganization of our sales and marketing staff until mid-August, approximately three months behind schedule. This also delayed the implementation of our previously announced price increase, which was put into place on September 15, and should begin to have an impact on our results during the fourth quarter of this year. |
| -- | We experienced a sharp increase in the percentage of our labor force employed through temporary services compared to the third quarter of 1999. This increase was caused by tightness in the labor pool of qualified seasonal workers, and increased average labor costs per hour during the period, resulting in a net increase of comparable expenses in excess of $450,000, in addition to the $300,000 increase in comparable expenses realized in the second quarter. |
| -- | We aggressively expanded our customer base in the mid-range industrial air filter marketplace, historically our weakest sales category, in some cases by reducing prices. The need for aggressive pricing for this expansion was heightened by the delays in our unified product catalog for this market, and delays in the now completed development of new products which make our product offerings more attractive. Effective during the fourth quarter of 2000, we have changed our sales commission structure and distributor programs to add additional emphasis to profitability as well as volume. |
During September, we completed our then authorized repurchase program of 2,000,000 shares, and announced a new repurchase program whereby we would repurchase up to an additional 2,000,000 shares of our common stock. The purchases will be made from time to time, at market prices and as market and business conditions warrant, in open market, negotiated or block transactions. There is no time limit set for completion of the program and there can be no assurance that the new share purchase program will be completed. These purchases will be at the full discretion of management and the Board of Directors, and will be subject to market conditions, applicable legal requirements and other factors.
Conference Call
Selected Operations Data (all but per share data in
Millions)
Q3 2000 Q3 1999 9-Month 2000 9-Month 1999
Net sales $ 60.2 $ 48.7 $ 154.3 $ 131.0
Gross profit 7.0 13.7 31.1 35.8
Operating expenses 9.5 9.5 28.1 25.2
Operating income (loss)
from continuing
operations (2.5) 4.3 3.0 10.6
Earnings (loss) from
continuing operations
before income taxes (2.9) 3.9 2.1 10.0
Earnings (loss) from
continuing operations (1.8) 2.3 1.0 5.8
Loss from discontinued
operations (0.4) (0.0) (0.9) (0.3)
Net earnings (loss) $ (2.2) $ 2.3 $ 0.1 $ 5.5
Earnings (loss) per
share from continuing
operations:
Basic $ (0.07) $ 0.09 $ 0.04 $ 0.23
Diluted $ (0.07) $ 0.09 $ 0.04 $ 0.22
Earnings (loss) per
share:
Basic $ (0.09) $ 0.09 $ 0.00 $ 0.22
Diluted $ (0.09) $ 0.09 $ 0.00 $ 0.21
Common shares
outstanding:
Basic 25.0 25.3 25.2 25.3
Diluted 26.1 26.3 26.4 26.6
Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not reflect the potential impact of any mergers or acquisitions that may be completed after the date of this release.
| -- | Semiconductor Industry. Since 1997, the semiconductor industry experienced a cyclical slowdown in capital spending for new facilities, and thus our cleanroom air filters. During the first quarter of 2000, we have seen definite signs that the semiconductor industry will be building new capacity in the near future. These signs include price increases in commodity DRAM and flash memory markets due to supply constraints, as well as several major new facility announcements. We expect sales for products used in semiconductor plants to increase through the rest of this year, and possibly through the next. |
| -- | Increased Awareness of Air Quality. We believe there is a growing concern by the public over the quality of the air they breathe. This is evident in many areas of society, from increased popular media concern over the high incidence of asthma in recent years, to concern over secondhand tobacco smoke in public areas. |
Flanders Corporation designs, manufactures and markets a full range of air filtration products ranging from high performance laminar flow high efficiency particulate air filters and carbon filters for semiconductor manufacturing facilities to residential furnace filters. Flanders' air filtration products are utilized by many industries, including those associated with commercial and residential heating, ventilation and air conditioning systems, semiconductor manufacturing, ultra-pure materials, biotechnology, pharmaceuticals, synthetics, nuclear power and nuclear materials processing.
The statements contained in this press release contain many forward-looking statements that involve a number of risks and uncertainties. Important factors to consider in evaluating such forward-looking statements include (i) the shortage of reliable market data regarding the air filtration market; (ii) changes in external competitive market factors or in the Company's internal budgeting process which might impact trends in the Company's results of operations; (iii) anticipated working capital or other cash requirements; (iv) changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the market; (v) product obsolescence due to the development of new technologies, and (vi) various competitive factors that may prevent the Company from competing successfully in the marketplace. Additional factors which may affect our financial condition and results of operations are set forth in our filings with the Securities and Exchange Commission, the most recent of which was our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed with the SEC on August 18, 2000. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this Press Release will in fact occur.
For further information on Flanders and its products, visit its web site at http://www.flanderscorp.com/ or contact Steven Clark at 727/822-4411.