Spartech sees earnings growth, despite weak Q3
Spartech Corp. (NYSE: SEH) interim CEO Randy Martin said the company has been hurt by cost increases, but plans to increase earnings through operational improvements, organic growth and acquisitions. Martin made the remarks during a midday conference call.
Martin said Spartech, which makes plastic alloys and molded products, plans to consolidate plants and cut costs to enhance margins. Organic growth will be driven by product developments, customer outsourcing opportunities and market focus, he said.
“We’ve not recently seen consistent growth in our markets,” Martin said. “We believe we’ve been able to use this time to reduce our cost footprint, which should help as those markets recover. Overall, organic growth is an area we know we need to improve and we are adding resources to our sales force in efforts to do that.”
Martin said the company has been “very active” over the last 12 months in looking for acquisition targets. Last week, the company announced it agreed to buy plastics packaging maker Creative Forming Inc. for about $61 million.
“We believe our recent announcement fits the exact model we’re trying to achieve,” he said. “That model includes acquisitions that are enough like what we do today that we can realize immediate synergies, but also acquisitions that offer some unique adjacencies to our existing capabilities and provide added solutions.”
Material cost increases are negatively impacting the company’s margins, the interim chief executive said. Martin said polyethylene, which Spartech uses to make plastic packaging, saw a 33% price increase since January and 18% increase within the company’s third quarter. The price is scheduled to increase $0.04 on September 1 and $0.05 on Sept. 15.
Martin isn’t sure if the September 1 price increase will “stick,” but said the September 15 increase is “unlikely” to stay.
An analyst on the call said it appeared like the “wheels are falling off” after Spartech’s former CEO, George Abd, left the company in July for personal reasons.
Martin said when George left, there were only 15 days left in the quarter.
“I think to suggest that there was a direct impact from George’s leaving on the quarter, it really didn’t have the opportunity to have that,” Martin said.
After Wednesday’s closing bell, St. Louis-based Spartech lowered fiscal 2007 guidance to below Wall Street estimates. The firm now says it expects to earn between $1.30 and $1.35 per share for the year, while analysts expect $1.38 a share. On July 16, Spartech previously lowered its fiscal year guidance to a range of $1.45 to $1.50, from $1.55 to $1.62 per share.
Spartech reported after Wednesday’s close that third-quarter net income of $8.8 million, or $0.27 a share, compared with $10.6 million, or $0.33 a share, in the year-ago quarter. Analysts were expecting earnings of $0.32 per share.
For the three months ended August 4, Spartech’s revenue was $361.1 million, down 4.4% from $377.7 million a year earlier. The firm cited lower demand from the recreation, transportation and leisure markets for the sales drop.
In today’s trading, shares of the small cap are down $0.33, or 1.85%, at $17.55. Over the last 52 weeks, shares have ranged from $16.90 to $30.71.
