AEP Industries expanding, eyeing acquisition targets
During a morning conference call, plastic packaging maker AEP Industries (Nasdaq: AEPI) CEO Brendan Barba said the company continues to expand in North America, battle rising resin prices, and evaluating acquisition opportunities.
During the third quarter ended July 31, Barba said the company installed a new line in its PVC plant in Griffin, Ga.. It will also have a new manufacturing line in place by February 2008 at its plant in Matthews, N.C.. The North Carolina line will make “high-margin products that we didn’t have before,” Barba said.
Additionally, AEP is installing a 10-color press at its Bowling Green, Ky., plant and expanding its Wright Township, Pa., plant by 50,000 square feet. The Pennsylvania expansion should be ready by October, he said.
South Hackensack, N.J.-based AEP sold its Australian land and buildings for about $8.5 million during the quarter, Barba said. AEP also liquidated its Spain operations and should realize $1 million by the end of the calendar year from the liquidation. The company is also selling its Holland operations through an ongoing auction process.
The proceeds from the asset sales will be used for either an acquisition, to pay back debt, or buy shares. Barba said the firm won’t make a decision until the operations in Holland are completely sold.
The chief executive said AEP is looking at acquisition targets each month. He said it’s “not easy” for the company to do an acquisition either due to cost factors or the redundancy of a nearby plant already owned by AEP.
“We’re looking at a number of things. So far, nothing has made sense to us,” Barba said. “We will never do an acquisition just to say we’re doing an acquisition. We look hard at each of them.”
In response to an analyst’s question, he said AEP is looking both at big and small deals.
Paul Feeney, AEP’s chief financial officer, said the company is “unhappy” with its stock price. Over the past 13 months, he said the company has bought back about 2 million shares, or about 23% of total shares outstanding. He hinted the company may buy back more shares in the near future.
“We certainly have demonstrated our willingness to invest in ourselves,” Feeney said. “We haven’t been able to do that in the past month but in a couple of days, we might very well be back in there doing that. That’s not a promise we’re going to do it but we have the latitude to do it and we may end up deciding to do that.”
Before Monday’s opening bell, AEP announced third quarter net income of $4.8 million, or $0.63 a share, down 75% from $20.1 million, or $2.28 per share, a year earlier. Net income during the third quarter of 2006 included $12.5 million in income tax benefits. Thomson Financial does not list any analysts that cover AEP.
“We saw fierce competitions,” Barba said. “We struggled to maintain a 2% increase in volume and had difficulty passing on price increases.”
During the most recent three-month period, AEP’s net sales decreased 2% to $205 million, from $208.9 million in the year-ago quarter. The company said in a press release that the decrease was primarily the result of a 5% decrease in average selling prices.
Barba said the company believes the price of resin has peaked for calendar 2007, will continue to be tight in 2008 and will free up in 2009. The price of resin is being driven up primarily by strong international demand, he said, but also has been impacted by rising oil prices. Barba said on Sept. 1, the price of resin increased and it will increase again on Sept. 15.
“If we believe those price increases will stick, we will make an announcement [about the price increases] probably by next week,” he said. “It’s really too early to tell. We’re in the process of evaluating it.”
Gross profit during the quarter decreased 12% to $35.6 million, from $40.5 million in the same period of 2006. AEP said in a statement that the decrease was primarily the result of a $6 million increase in the cost of inventory, compared with a $4.2 increase in the same three months a year earlier.
Operating expenses during the three months increased 4.6% to $25.1 million, from $24 million on a year-over-year basis.
Barba said AEP’s fourth quarter seasonality is generally the strongest for the company. In the fourth quarter of 2006, AEP’s net sales were $207.2 million and net income was $24.4 million, or $3.04 per share.
In midday trading, shares of the small cap are up $0.10, or 0.28%, at $36.21. Over the last 52 weeks, shares have ranged from $33 to $55.95.
