NEW HAVEN, Conn. -- Proliance International has announced results for the second quarter and six months ended June 30.
Operating income for the 2008 second quarter was $5.8 million versus a year ago loss of $2.9 million. Net income for the second quarter of 2008 was $0.5 million, or 3 cents per basic and diluted share, compared to a net loss of $6.2 million, or 48 cents per basic and diluted share, in the same period last year. Second quarter 2008 net sales of $102.2 million were approximately level with $102.4 million a year ago.
The second quarter of 2008 operating income included $3.1 million of other income relating to insurance recoveries, which mostly offset costs incurred by the company as a result of the Southaven, Miss., casualty event. The year-ago quarter operating loss included a gain of $0.8 million from the sale of a facility, a $3.2 million expense from an arbitration earn-out decision and $1.1 million in restructuring charges related to the closing of branches and headcount reductions.
“Profitability improved significantly due to our domestic cost reduction initiatives, including related changes in our distribution approach to the automotive and light truck market in the U.S., along with growth in the European heavy duty marine market, which remains quite strong,” said Charles Johnson, president and CEO. “This performance was achieved despite the continued impact on domestic sales of the February tornadoes that destroyed our Southaven, Miss., heat exchange products distribution facility.”
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) of $7.9 million in the second quarter of 2008 more than tripled from $2.3 million in the year ago quarter.
Domestic net sales for the 2008 second quarter of $68.4 million declined 11 percent year over year, primarily due to the Southaven event and the change in branch distribution. International sales of $33.8 million increased 31 percent. More than half of the international growth reflected increased volume, primarily in heavy duty marine products due to worldwide growth in the shipping industry. The balance primarily reflected exchange rate differences caused by the stronger Euro versus the U.S. dollar from a year ago.
Gross margin was 20.1 percent of sales in the second quarter of 2008 compared to 20.7 percent in the year ago quarter. Domestic gross margin reflected lower average selling prices, in part attributable to the changes in branch distribution structure, resulting from lower sales direct to installers and increasing sales to wholesale customers. Lower average selling prices were partially offset by lower manufacturing costs as a result of product innovations and production efficiencies. International gross margin was slightly higher, due to improved production efficiencies and increased marine sales.
Selling, general and administrative expenses (SG&A) for the second quarter 2008 declined to $14.8 million or 14.4 percent of sales compared to $19.9 million or 19.4 percent of sales a year ago. Excluding previously mentioned non-recurring items, SG&A declined as a result of the company’s cost reduction efforts, primarily the reduction in branch and agency locations, which enabled Proliance to offset higher freight costs due to increased fuel prices.
Interest expense increased $1.6 million year over year, due to higher average interest rates and increased amortization of debt issue costs, partially offset by lower average debt levels. The increased interest rates and debt issue costs were a consequence of amendments negotiated with the company’s lead lender following the Southaven event, which destroyed inventory used as collateral for borrowings.
The company reiterated that it continues to be on track with previously announced plans to achieve operating income in the range of $20 million for the full year 2008, excluding one-time costs related to the Southaven event and expenses associated with amendments to the company’s credit facility.
“We have seen positive seasonal demand in the domestic heat exchange market, so far this year, certainly supported by favorable weather conditions,” Johnson said. “Despite the fact the economy is challenging, gas prices are high and miles driven are down, we believe the increased seasonal demand is in part a reflection of the aging vehicle population and its impact on necessary maintenance, among other factors.”
In late July, Proliance moved from a temporary distribution center to a new, permanent facility in Southaven and has been steadily ramping up service levels. In addition, as previously announced, the company’s insurer agreed to settle all damage claims resulting from the Southaven event and pay Proliance an additional $15.3 million by Aug. 15, for a total settlement of $52 million, which is within the range the company sought.
Proliance said it continues to make progress with its plan to raise $30 million or more in debt and/or equity capital to partially or fully replace its current credit facility. Replacing its credit facility in part or in total, the company would incur cash prepayment fees to the current lender as well as the write-off of non-cash debt extinguishment expenses. However, eliminating or restructuring current debt is expected to increase the company’s financial flexibility and support continued growth of the business.
For more information about Proliance, visit: www.pliii.com.
