Flexsteel Industries, Inc. (NASDAQ:FLXS)
F4Q09 (Qtr End 06/30/09) Earnings Call
August 20, 2009 11:30 am ET
Timothy Hall - VP of Finance and CFO
Ron Klosterman - President and CEO
Good afternoon. My name is Mindy and I will be your conference operator today. At this time, I would like to welcome everyone to the Flexsteel Industries Inc. fourth quarter and fiscal year operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator Instructions).
Thank you, and now it gives me great pleasure to turn this call over to Timothy Hall, Vice President of Finance and Chief Financial Officer.
Thank you, Mindy. Good morning, everyone, and welcome to our fiscal-year 2009 fourth quarter and fiscal year operating results conference call. We appreciate your participation this morning. Joining me this morning from our corporate headquarters in Dubuque, Iowa, is Ron Klosterman, Flexsteel’s President and Chief Executive Officer.
During our call today, we may make forward-looking statements that are subject to risk and uncertainty. A discussion of the factors that cause actual results to differ materially from what we expect now is contained in the company’s SEC filings, including the most recent 10-K filed September 15, 2008, and the press release dated August 19, 2009, announcing the fiscal year 2009 operating results. Any forward-looking statements are opinion as of now, and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after today’s call. I have a few comments before I turn the call over to Ron for his comments and review of operation and business outlook.
As noted in the press release, our fourth quarter net sales each of our product categories declines in quarter versus prior-year quarter. Our residential seating was off 15% to $57 million; our commercial seating decreased 33% to $15 million; and our vehicle seating decreased 76% to $3 million. Overall, our net sales for the quarter declined 26% to $75 million.
For the fiscal year 2009, again, each of our product applications were lower than for fiscal year 2008. Our residential sales fell 10.6% to $231 million; commercial net sales were $77 million which is a decrease of about 15%; recreational vehicles’ net sales were down to $16 million or a 71% decrease. The decrease in net sales for the RV, which was our hardest hit application. Initially higher fuel prices caused sales to drop off some, but as credit tightened consumer confidence fell and disposable income began to shrink. The RV industry couldn’t recover from those things.
Our commercial seating products held up strong early in the fiscal year, but fell off considerably as the U.S. economy contracted and credit tightened. Our residential product category held up reasonably well in relation to our competition. However, residential furniture, as with all of our applications, is a deferrable purchase, and the tighter credit, higher unemployment, and lower low consumer confidence do not indicate that there will be a quick turnaround.
During fiscal year 2009, we closed the New Paris, Indiana, facility. The facility is currently held for sale. We also stopped production at our Lancaster, Pennsylvania, plant, and we’ve completed the transition of the Lancaster facility to a distribution facility. Overall, our total employment is now down 30% from where it was a year ago. The total cost to this facility consolidation and reconfiguration was about $2.6 million, and that includes $2 million for employee-separation cost and about $600,000 for facility-closing cost.
On our balance sheet, you will notice that as our business slowed, we worked hard to adjust our receivables and inventory to match up with the levels that we were running through our sales volume. As a result, our accounts receivable have decreased $12.5 million and our inventory has decreased $12 million. The cash that was generated from operation was approximately $17.3 million and was used to lower our debt by approximately $16 million, pay dividends of approximately $3 million, and we had $1.2 million in capital expenditures.
At this time, I’ll turn the call over to Ron Klosterman for his comments. Ron?
Thank you, Tim, and good morning, everyone. While fiscal year 2009 was certainly a year of responding to the very severe economic recession that both our country and our company has experienced, and Tim has outlined the very significant actions that we executed during the year to adjust our business and to bring it more inline with the current economic environment we find ourselves operating within.
I think our June quarter maybe indicative of the adjustments that we’ve made, and it appears at this time that if we can maintain a revenue level north of $70 million that our company can operate at a breakeven or a modest level of profitability. As that top line shrinks or expands, the tighter those numbers get, and when you’re down to an income level that’s 1 to 1.5% of top line revenue, obviously it only takes a few hundred thousand dollars of changes within the business model to pretty significantly impact that bottom line net income number.
Looking ahead, we’re hopeful that we are at or near the bottom of this economic cycle, although at this time we are not seeing any signs of growth. Our residential business seems to be stabilizing, and we’re hopeful that we could see some modestly better business in the next few quarters, just through experiencing normal seasonal improvement. Usually, the fall and winter months are better than the other months of the year business-wise, and that could help strengthen our top line revenue a little bit.
The commercial office and hospitality business continues to suffer. Order rates remain at very depressed levels, and we really think that this is likely to continue into 2010 and in some cases, perhaps, even into the second half of 2010.
Tim touched and outlined the recreational vehicle business. It has had incredible drops this last year to levels that we have never experienced before, very low levels. We believe that retail inventory levels at the RV dealers have come down dramatically, and it is likely that any uptick in the retail volume of RV will require that the original equipment manufacturers increase their production, and therefore we would benefit in providing them seating for those units.
Unfortunately, the RV business continues to be faced with the limited credit availability, very tight credit for both dealers to floor plan more units and the consumers to receive credit on the purchase of units. So this makes it difficult to forecast when we may see a significant recovery in the RV business.
Overall, we believe at this time that we’re well positioned for the eventual economic upturn that will come, and look forward to it, although, as I said, it’s hard to predict at this point in time.
So, with that, I think we’ll open it up for any questions that you may have. Mindy, we’ll turn the call back over to you.
(Operator Instructions). At this time, there are no questions.
All right. This is Ron again. Let me just add a couple of comments, and then we’ll close here. As we look ahead, we will continue to manage our business and focus on strengthening our balance sheet that we did this past year with the reduction of our debt, and we’ll continue to work to improve our profitability.
And lastly, in closing, I just want to acknowledge our Board of Directors and our management team for their leadership through this very challenging year and as we move into the beginning of our fiscal year 2010, which also looks like it will hold its share of challenges. And I also want to thank all of our associates here at Flexsteel in their efforts in helping it take us through this very difficult and extraordinary economic time that we face.
So, with that, we’ll close for today and we look forward to speaking with you again in October at the end of our September quarter. Thank you.
This concludes today’s Flexsteel Industries, Inc. fourth quarter and fiscal year operating results conference call. You may now disconnect your lines.
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