3 rd quarter 2005 conference call september 8, 2005
TRANSCRIPT
3rd Quarter 2005 Conference Call
September 8, 2005
Presentation Content
SPARTECH: FORWARD-LOOKING STATEMENTS
This presentation contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that relate to future events and expectations.
Forward-looking statements include those containing such words as "anticipates,"
"believes," "estimates," "expects," "would," "should,", "will," "will likely result," "forecast,"
"outlook," "projects," and similar expressions. Forward-looking statements are based on
management's current expectations and include known and unknown risks, uncertainties
and other factors, many of which management is unable to predict or control, that may
cause actual results, performance or achievements to differ materially from those
expressed or implied in the forward-looking statements. Important factors that could
cause actual results to differ materially from those in the forward-looking statements
include: (a) adverse changes in economic or industry conditions generally, including
global supply and demand conditions and prices for products of the types produced by
Spartech; (b) material adverse changes in the markets we serve, including the
transportation, packaging, building and construction, recreation and leisure, and other
markets, some of which tend to be cyclical;
-continued-
Presentation Content
SPARTECH: FORWARD-LOOKING STATEMENTS, continued
(c) the inability to achieve the level of cost savings, productivity improvements, synergies,
growth or other benefits anticipated from acquired businesses and their integration;
(d) volatility of prices and availability of supply of energy and of the raw materials that are
critical to the manufacture of our products, particularly plastic resins derived from oil and
natural gas; (e) the inability to predict accurately the costs to be incurred or savings to be
achieved in connection with announced production plant restructurings; (f) adverse
findings in significant legal or environmental proceedings or the inability to comply with
applicable environmental laws and regulations; (g) the inability to achieve operational
efficiency goals or cost reduction initiatives; (h) the inability to develop and launch new
products successfully (i) the inability to predict accurately the start-up costs associated
with the new Donchery, France facility or the expansion of the existing wheels production
capacity; (j) restrictions imposed on Spartech by instruments governing its indebtedness,
and the possible inability to comply with requirements of those instruments, (k)
weaknesses in internal controls; and (l) other risk factors summarized in reports filed by
Spartech with the Securities and Exchange Commission. Spartech assumes no duty to
update its forward-looking statements.
Investment Highlights…3rd Quarter 2005 Results
Strategy Highlights
Capitalize on Market Leadership in Sheet and Diversified Products & Markets Served
Renewed Focus & Tracking of Cash Flow Generation
New Capital Expenditure Appropriation Process & Return on Investment Focus
A Process to Achieve World Class Service, Quality, & Cost
3rd Quarter 2005 Results
Net Sales $349 mil.
…21% increase over ‘04
Op. Earnings $13.2 mil.
…$21.6 excluding special items *
Diluted EPS $.13 /sh.…vs $.30/sh excluding special items*, $.36 in ‘04
Quarterly Dividend … $.12/share
* See slide reconciling GAAP to non-GAAP measures.
Sales Fluctuations (Last Seven Quarters). . . Internal Volume/Acquisition/Price-Mix
3rd Q
2005
2nd Q
2005
1st Q
2005
4th Q
2004
3rd Q
2004
2nd Q
2004
1st Q
2004
Fiscal
Yr ‘ 04
Fiscal
Yr ‘ 03
Internal -4% -1% 3% 11% 15% 9% 5% 9% 1%
Acquisition 10% 11% 10% 6% 3% 4% 4% 4% 3%
Price Mix 15% 21% 13% 3% 3% 2% 4% 4% 2%
Total 21% 31% 26% 20% 21% 15% 13% 17% 6%
Company Overview… Diversity of Products & Markets
Key Base Materials...
Comprehensive Product Portfolio
[Full Year Estimate]
Customer End Markets...
Packaging Largest Sector
[3rd Qtr Actual]
2005 3rd Quarter Sales of $349 Million and 365 Million Pounds
Packaging
23%
Transportation
22%
Rec. &
Leisure
11%Bldg. &
Const.
15%
Other
9%
Lawn &
Garden 6%
Sign &
Advertising
8%
Appliances &
Electronics
6%Polyethylene
25%
Polystyrene
20%Polypropylene
15%
ABS
10%
PVC
10%
Other--Specialty
20%
Sales Outlook… By “End Market” Application
* The following represents rough guidelines for the Outlook Ratings above:
Strong = +3% or higher growth; Flat = +/-2% change; Weak = -3% or more decline
Total Debt to Equity...Current 1.0 To 1 Ratio
$426$464$474
$384$393 $412$408
$291 $322
$418
$0$100$200$300$400$500
2002 2003 2004 2005 2005
($'s
in M
illio
ns)
Total Debt Stockholders' Equity
Debt/Equity Ratio… 1.4 1.2 1.1 1.1 1.0
3rd Qtr2nd Qtr
Operating Results for 3rd Qtr '05 Versus '04…Sales Up 21%, Net Earnings $4.3 Million
($’s In Millions, Except Per Share Data)
Sales (21%). . . . . . . . . . . . . . . . . . . .
Operating Earnings (47%) . . . . . . .
Operating Earnings Excluding Special Items (13%) * . . . . . . . . . . . .
Interest Costs (6%) . . . . . . . . . . . . .
Net Earnings . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . .. . . . . . . . . . . . . .
2005
$348.7
$ 13.2
$ 21.6
$ 6.4
$ 4.3
$ .13/Sh
2004
$288.0
$ 24.9
$ 24.9
$ 6.0
$ 11.7
$ .36/Sh
* See slide reconciling GAAP to non-GAAP measures.
Sales Data TrendsPounds Sold by Segment
Quarterly Results:3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q
Pounds Sold (in 000's)Extruded Sheet & Rollstock 184,649 195,977 159,457 187,062 187,058 180,061 153,946 Color & Specialty Compounds 169,017 175,286 169,244 169,670 154,510 168,565 141,895 Engineered Products 11,791 17,033 11,077 8,680 9,276 13,061 8,880 Spartech Corporation 365,457 388,296 339,778 365,412 350,844 361,687 304,721
9 Months
Fiscal Year Results: YTD2005 2004 2003 2002
Pounds Sold (in 000's)Extruded Sheet & Rollstock 540,083 708,127 587,000 574,473 Color & Specialty Compounds 513,547 634,640 580,117 564,644 Engineered Products 39,901 39,897 39,661 40,269 Spartech Corporation 1,093,531 1,382,664 1,206,778 1,179,386
2005 2004
(Pounds in thousands)
Cash Flow TrendsFrom Operations and Free Cash Flows
Quarterly Results:3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q
Cash Flow Data (in 000's)Net Income 4,289$ (80)$ 2,818$ 9,126$ 11,712$ 13,519$ 7,706$ Depreciation and Amortization 9,894 10,443 10,296 9,572 8,516 8,633 8,335 Change in Working Capital 32,089 (1,082) (26,257) (4,097) (3,906) (20,146) (19,901) Other Operating Cashflows 5,878 12,987 1,059 6,522 2,077 (488) 592
Cash Flows from Operations 52,150 22,268 (12,084) 21,123 18,399 1,518 (3,268) Capital Expenditures (8,034) (9,759) (13,474) (12,308) (10,181) (7,283) (5,231)
Free Cash Flow (A) 44,116$ 12,509$ (25,558)$ 8,815$ 8,218$ (5,765)$ (8,499)$
9 MonthsFiscal Year Results: YTD
2005 2004 2003 2002Cash Flow Data (in 000's)
Net Income 7,027$ 42,063$ 34,103$ $ 34,270 Depreciation and Amortization 30,633 35,056 31,566 28,120 Change in Working Capital 4,750 (48,050) (14,283) 12,456 Other Operating Cashflows 19,924 8,703 15,294 12,224
Cash Flows from Operations 62,334 37,772 66,680 87,070 Capital Expenditures (31,267) (35,003) (22,009) (28,217)
Free Cash Flow (A) 31,067$ 2,769$ 44,671$ 58,853$
(A) Spartech's management believes that free cash flow, a non-GAAP measure, is an important indicator of the Company's ability
to generate excess cash above levels required for capital investment to support future growth. However, it should be viewed as
supplemental data, rather than as a substitute or alternative to any GAAP performance measure.
2005 2004(Dollars in thousands)
Material/Gross/Operating MarginsResults on a per Pound Basis
Quarterly Results:3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q
Results per Pound (in 000's)Sales 0.954$ 0.973$ 0.896$ 0.834$ 0.821$ 0.795$ 0.792$ Material Cost 0.616 0.633 0.566 0.511 0.488 0.464 0.461
Material Margin 0.338 0.340 0.330 0.323 0.333 0.331 0.331 Coversion Cost 0.229 0.224 0.246 0.223 0.216 0.211 0.222
Gross Profit 0.109 0.116 0.084 0.100 0.117 0.120 0.109 SG&A 0.050 0.052 0.053 0.043 0.046 0.043 0.048 Restructuring and Exit Costs 0.023 0.046 - - - - -
Operating Earnings 0.036 0.018 0.030 0.057 0.071 0.078 0.061 Depreciation and Amortization 0.027 0.027 0.030 0.026 0.024 0.024 0.027
EBITDA (A) 0.063$ 0.045$ 0.061$ 0.083$ 0.095$ 0.101$ 0.088$
9 MonthsFiscal Year Results: YTD
2005 2004 2003 2002Results per Pound (in 000's)
Sales 0.943$ 0.811$ 0.792$ $ 0.762 Material Cost 0.607 0.482 0.456 0.426
Material Margin 0.336 0.329 0.336 0.336 Coversion Cost 0.233 0.218 0.226 0.221
Gross Profit 0.103 0.111 0.110 0.115 SG&A 0.052 0.045 0.046 0.046 Restructuring and Exit Costs 0.024 - - -
Operating Earnings 0.027 0.066 0.064 0.069 Depreciation and Amortization 0.028 0.025 0.026 0.024
EBITDA (A) 0.055$ 0.091$ 0.090$ 0.093$
(A) Spartech's management believes that EBITDA is a meaningful gauge of financial strength from continuing operations beforefinancing costs, taxes on income, and depreciation and amortization. However, it should be viewed as supplemental data,rather than as a substitute or alternative to GAAP performance measures.
2005 2004
Non-GAAP MeasuresGAAP to Non-GAAP Reconciliation
Three Months Ended Nine Months Ended July 30, July 31, July 30, July 31, 2005 2004 2005 2004
Operating Earnings (GAAP) $ 13,156 $ 24,934 $ 29,691 $ 71,783 Restructuring & Exit Costs 4,639 - 12,258 - Fixed Asset Charge 206 - 10,592 - Former CEO Retirement 3,645 - . 3,645 - . Operating Earnings Excluding
Special Items (Non-GAAP) $ 21,646
$ 24,934
$ 56,186
$ 71,783
Net Earnings (GAAP) $ 4,289 $ 11,712 $ 7,027 $ 32,937 Restructuring & Exit Costs, net 2,927 - 7,727 - Fixed Asset Charge, net 130 - 6,673 - Former CEO Retirement, net 2,300 - . 2,300 - . Net Earnings Excluding
Special Items (Non-GAAP) $ 9,646
$ 11,712
$ 23,727
$ 32,937
Earnings Per Diluted Share
(GAAP) $ .13
$ .36
$ .22
$ 1.04
Restructuring & Exit Costs, net .09 - .24 - Fixed Asset Charge, net .01 - .21 - Former CEO Retirement, net .07 - . .07 - . Earnings Per Diluted Share
Excluding Effect of Special Items (Non-GAAP)
$ .30
$ .36
$ .74
$ 1.04
Note: Management believes that operating earnings, net income, and earnings per share excluding special items, which are non-GAAP measurements, are meaningful to investors because they provide a view of the Company with respect to ongoing operating results. Special items (restructuring & exit costs, fixed asset charges, and the former CEO retirement) represent significant charges that are important to an understanding of the Company’s overall operating results in the periods presented. Such non-GAAP measurements are not recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance. The following reconciles GAAP to non-GAAP measures for operating earnings, net income, and earnings per share excluding special items
used within this presentation.
Leadership Transition…Ongoing Focus
Measures Priorities on Key Measures Tie measures to performance & compensation
Cost Reduction & Cash Flow Focus Enhance profitability of operations (cost structure) Improve working capital management
Returns Capital Expenditures Acquisitions Resources/Investments Made
– Volume Growth (market share)– CapEx (>$140M last 5 yrs) / Acquisitions– Technology / R&D
Spartech Investment Highlights… Market Leader With Solid Improvement Strategy
Leader In Key Custom Markets – North American leader in Sheet with more than 30% share of custom market– Top 5 In Compounding segment
Diversified End-Use Markets – Largest is non-cyclical Packaging market ~ 23% of sales– Largest customer represents less than 5% of sales– Continuing to expand end markets and product offerings
New Focus on Cost Control & Cash Flow Generation– Restructuring of operating locations– Continuous improvement of Working Capital Management– Accelerate cash flow to pay down debt
Renewed Focus on Return on Capital – Emphasis on working capital management– Capital expenditures for productivity & cost improvement– Compensation based on Operating Profit, Working Capital, & Sales Growth Metrics
World Class Service, Quality, & Costs– All metrics and rewards tied to these objectives (Corporate/Regional/Individual)
3rd Quarter 2005 Conference Call
September 8, 2005