NEW HAVEN, Conn. -- Proliance International has announced results for the first quarter ended March 31.
Net sales were $76.5 million compared with $91.9 million in the year-ago quarter, primarily due to the impact of the Feb. 5, tornadoes that destroyed the company’s Southaven, Miss., distribution facility. Excluding this loss of sales, the company believes total net sales would have been approximately level with the year-ago quarter as higher sales in Europe and Domestic sales to new customers, including stocking orders, offset lower average selling prices related to the change in automotive and light truck product distribution from company owned branches to third party distributors.
Due to the company’s continuing program to reduce manufacturing costs and sharply lower selling, general and administrative expenses, in addition to some one-time items, the loss from operations in this seasonally weak period improved to $1.9 million, from $3.5 million a year ago. After higher interest expenses and debt extinguishment costs, the company reported a net loss of $6.2 million, or 40 cents per basic and diluted share, compared to a net loss of $6.3 million, or 42 cents per basic and diluted share, for the first quarter of 2007.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved $0.8 million, to ($0.7) million in the first quarter of 2008, from ($1.5) million in the year ago quarter. Adjusted EBITDA excludes the estimated impact on lost sales and costs net of insurance recovery and gain on assets converted as a result of the Southaven tornadoes and also excludes one-time items associated with the sale of the Emporia, Kan., facility and restructuring costs.
Adjusted EBITDA and related measures above constitute “non-GAAP financial measures” as defined by the rules of the Securities and Exchange Commission. The company has provided the foregoing data as it believes that it provides the marketplace with additional information useful in evaluating the financial performance of the company for the three months ended March 31, 2008 and 2007.
“Despite an unusually challenging quarter related to the Southaven tornadoes, Proliance generated results in line with our previously announced plans for achieving operating income in the range of $20 million for the full year 2008, excluding one-time costs related to Southaven and expenses connected with amendments to our credit facility,” said Charles Johnson, president and CEO. “We continue to be on track to meet all the earnings covenants contained in our credit agreement, and to eliminate our borrowing base over-advance by May 31, as required by our credit agreement.
“Our program to enhance manufacturing efficiency and drive down costs continued to pay off in the first quarter, as was demonstrated in our performance for the second half of last year," Johnson said. “In addition, first quarter International sales were up 17 percent over the year ago period. Domestic automotive and light truck temperature control product sales were also ahead of last year’s first quarter.
“As a result, we were able to overcome pressures from a weakening economy, a competitive marketplace and higher fuel costs, as well as the Southaven event. Besides the operational problems caused by the damaged facility, the event also caused an over advance with our lender, which we have been addressing through an intensive effort with our insurance company to secure critical insurance advances.
“Looking forward, Proliance remains focused on taking the necessary steps to strengthen our competitive market position by lowering product and overhead related expenses and building strategic relationships with our customers. Indeed, our associates have done an outstanding job helping our business get back on track and resuming shipments from our interim facility in Southaven.”
Domestic sales for the first quarter of 2008 amounted to $49.7 million, compared to $69.0 million a year ago. The majority of this reduction was due to the Southaven event as the company temporarily curtailed shipments from its main radiator and heater warehouse facility while it worked to assess the damage and open an interim location from which it is now operating. Customer order fill rates continue to improve with the arrival of replacement inventories and the company expects to be shipping from a new permanent facility by the end of June. The balance of the sales reduction was primarily due to the closure of 58 direct selling branches since Dec. 31, 2006, partially offset by sales to new customers, including related stocking orders. This resulted in lower average selling prices and margins, but higher operating profit due to lower branch-related expenses.
Year over year, International sales rose $3.9 million to $26.8 million. The increase reflected demand for heavy-duty marine products due to worldwide growth in the shipping industry, and a $2.3 million exchange rate benefit caused by weakness in the U.S. dollar compared to the Euro.
Gross margin was $11.1 million, or 14.5 percent of net sales, versus $17.4 million, or 18.9 percent, a year ago. The decline was primarily due to the impact of the Southaven tornadoes on sales and changes in the company’s domestic branch distribution strategy. This was partially offset by the successful and ongoing program to reduce manufacturing costs through product innovations and production efficiencies.
SG&A declined $7.8 million to $12.8 million, or 16.8 percent of net sales, compared to $20.6 million, or 22.4 percent of net sales, in the prior year. This decline reflected lower administrative and branch operating costs as a result of restructuring actions taken by the company in 2007 and the first quarter of 2008. These resulted from a reduction in the number of branch locations from 94 at Dec. 31, 2006, to 36 at March 31, 2008 and from additional overhead reductions.
SG&A included a $1.5 million gain on the sale of an unused facility in Emporia, Kan.; a $2.7 million insurance recovery, which includes partial reimbursement for lost margin on a portion of the inventory damaged by the Southaven tornadoes; and $0.6 million in expenses related to the Southaven event.
The company continues to work with its insurance company through the claims process and expects to receive additional advances. The current insurance receivable balance for the most part does not include recovery for claims for business interruption and certain Southaven event related expenses that are currently still under review by the insurance company.
Proliance received a $10 million advance in February 2008, another $11 million in April 2008, and anticipates receiving a third advance by May 31, 2008. The company’s insurance policy covers losses of property and from business interruption up to $80 million, which the company believes should provide more than sufficient coverage with respect to the damages arising from the Southaven casualty.
