Volt Information Sciences, Inc. (VOL)
F2Q08 Earnings Call
June 4, 2008 11:00 am ET
Ron Kochman – Head of Investor Relations, Vice President
Jack Egan – Senior Vice President, Chief Financial Officer
Steven Shaw – President, Chief Executive Officer
Good morning and welcome to the Volt Information Sciences Incorporated second quarter 2008 earnings conference call. (Operator instructions) I will now turn the meeting over to Mr. Ron Kochman, Head of Investor Relations and Vice President of Volt Information Sciences Incorporated. Sir, you may begin.
Good morning, I’m Ron Kochman, Head of Investor Relations and Vice President of Volt Information Sciences Inc and I would like to welcome you to Volt’s fiscal 2008 second quarter investment community conference call. In a moment Jack Egan, Senior Vice President and Chief Financial Officer will be reviewing our quarterly financials and then Steven Shaw our President and Chief Executive Officer will be providing additional commentary.
Before officially starting the discussion of our results, I’d like to read to you our standard corporate disclaimer. Statements in this conference call and associated webcast concerning the future results, performance, expectations or intentions are forward-looking statements.
Actual results, performance or developments may differ materially from forward-looking statements as a result of known or unknown risks, uncertainties and other factors including those identified in the company’s filings with the Securities & Exchange Commission, press releases and other public communication. Volt Information Sciences Inc undertakes no obligation to update any information presented in this discussion.
Now I’d like to turn the call over to Jack Egan, Volt’s Senior Vice President and Chief Financial Officer. Jack.
Thank you Ron and good morning. For the second quarter of fiscal 2008 that ended April 27, the company reported net income of $3.4 million or $0.15 per share compared to a net income of $6.4 million or $0.28 per share in the previous year’s comparable quarter.
The company reported a segment operating profit for the quarter of $16.2 million on $621 million in total net sales compared to a segment operating profit of $22 million on $568 million of sales in the previous year’s comparable quarter.
Income before minority interest and income taxes was $5.8 million for the quarter compared to $10.7 million the previous year. As I mentioned before, net sales increased by $52 million or 9% to $621 million from last year’s second quarter. The increase in the current quarter’s net sales was primarily due to increases of $22 million in each of the staffing services and telecommunication services segments and $7 million in the computer systems segment.
Cost of goods sold increased by $55 million or 10.5% to $577 million while SG&A increased by $1.6 million or 6.2% over the previous year to $26.6 million for the second quarter. Finally, depreciation and amortization expenses increased by $600,000 or 6.2% to $10.1 million.
I’d like to turn the conference call over to Steven Shaw, President, Chief Executive Officer of Volt Information Sciences for a further explanation and his insights into the factors that affected the quarter and his review of operations. And then he, Ron and I will be available to answer any questions you may have during the Q&A. Steve.
Thank you Jack and Ron and good morning. As Jack said earlier, the company reported net income of $3.4 million for the second quarter compared to $6.4 million in the comparable quarter for fiscal 2007. Segment operating profit was $16.2 million compared to $22 million for the second quarter of fiscal 2007.
The decrease in segment operating profit was primarily the result of a $7.6 million negative variance in staffing services. So let us begin today’s segment analysis there. For the second quarter, staffing services reported an operating profit of $6.2 million compared to an operating profit of $13.9 million in the second quarter of fiscal 2007, even though sales increased by $22 million or over 5% from the previous year.
The reason for the drop in the staffing segment profit was the result of the following: approximately $6.5 million or 85% of the decline in the staffing segment was related to VMC, our higher margin project management business which accounts of less than 10% of the segment’s revenue.
During the quarter, VMC had some substantial startup costs for new projects and also incurred costs in conjunction with additional projects that were winding down. The combination of these events represented about 40% of the reduction in profits at VMC for the quarter.
The other 60% of the decline at VMC was caused by cost overruns that were the result of building out and ramping up of a new multi-facility project. We feel these occurrences are all onetime events.
The remaining $1 million of negative year over year comparison was experienced in the technical staffing division. We are continuing to experience upward pressure on wages in certain technical skill sets which when combined with downward pressure on bill rates due to economic conditions are causing a contraction in gross margin.
The administrative and light industrial division reported slightly higher operating profit on basically flat revenue for the quarter. The improved operating results of the A&I division were the result of a reduction in payroll taxes and worker’s compensation costs which both declined as a percentage of direct labor.
The division has continued to focus on reducing overhead to lower their costs. For the past four quarters, overhead has been lower than the comparable prior fiscal year quarters. I want to emphasize that our traditional staffing business remains relatively strong even though we are in what I would consider to be difficult economic times.
The telephony directory segment is also operating in a challenging environment due to a combination of economic and competitive pressures. Two of the larger directory publishers have implemented significant discount pricing programs in some of our territories.
This is not uncommon during slower, difficult times. But we are adverse to lower our prices. Same book sales were down around 10% for the quarter as a result of this pricing pressure on the economy. We have been able to adjust to the current conditions with a reduction in printing and overhead expenses.
For the quarter, the telephony directory segment reported a $2.8 million operating profit on $18.3 million in revenue compared to a similar profit on $17.1 million in revenue the previous year. Our Uruguayan operation provided an increase in revenue without any corresponding increase in profitability.
The computer systems segment reported a $5.4 million operating profit on $52.1 million in revenue for the second quarter compared to an operating profit of $5 million on $45 million in revenue the previous year. This increase in the segment’s revenue for the second quarter over the comparable 2007 period was primarily the result of increased revenue from LSSi which we acquired in the fourth quarter of fiscal 2007.
Additional business from Maintech, our IT maintenance division was partially offset by a reduction in teleco related transaction revenue as a result of a major customer transitioning to a fixed maintenance fee based model from a transaction based model. Lower margin projects were recognized during the quarter and offset much of the additional profitability from LSSi and Maintech compared to the previous year.
The telecommunications services segment reported and operating profit of $1.9 million on $49.2 million of revenue compared to a $400,000 operating profit on $27.2 million in revenue the previous year, primarily as a result of the recognition of profits on several water and government projects.
The increase in revenue was related to the recognition of work that was accepted during the second quarter under the major fiber optic installation contract on which we took the first quarter reserve. The customer has recently agreed to begin partial payment for the non-disputed work under the contract which will allow the division to reduce its working capital requirements in the months to come.
In addition, yesterday, we closed on our renewal and amended $200 million securitization program arranged by PNC Bank which will continue to fund our future working capital requirements with competitive financing.
And on that note, I would like to open up the conference call for questions.
(Operator instructions) At this time there are no questions.
If there are no questions then this concludes the Volt Information Sciences second quarter conference call and we thank you for your participation this morning.
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