Steinway Reports Q2 2007 Results Gross Margin Up from 25% to 31%
Steinway Reports Q2 2007 Results Gross Margin Up from 25% to 31%
WALTHAM, Mass., Aug. 2 /PRNewswire-FirstCall/ -- Steinway Musical Instruments, Inc. (NYSE:LVB) , one of the world's leading manufacturers of musical instruments, today announced results for the quarter and six months ended June 30, 2007.
Revenues for the second quarter remained level with the second quarter of 2006 as a 5% increase in piano sales offset a 7% decline in band sales. Increased production of professional level brass instruments and an increase in higher margin piano sales overseas contributed to an improvement in gross margin of 600 basis points. Operating expenses decreased 13% and net interest expense decreased 20%. The operating expense improvement reflects a $3.9 million reduction in bad debt expense versus the prior year period.
For the quarter, EPS improved by $0.47 as the Company generated earnings of $0.37 per share compared to a loss of $0.10 per share (Adjusted loss of $0.03 per share) in the prior year period. The 2006 Adjustments, primarily costs associated with a labor strike and a loss on the early extinguishment of debt, are detailed in the attached financial tables.
Band Operations
Sales of professional trumpets and trombones produced at the Company's Elkhart brass plant improved significantly over the prior year period. However, the impact of an ongoing dealer consolidation coupled with inventory reductions by some key accounts led to an overall sales decline of $2.9 million, to $37.9 million. Gross margins increased sharply to 22.7% from 13.3% on improved sales of higher margin professional instruments, greater production at the Company's Elkhart brass plant, and lower charges for excess or obsolete inventory versus the comparable period last year.
Sales for the six-month period ended June 30, 2007 declined to $78.4 million, or 17%, as a result of the impact of dealer consolidation and inventory reduction, as well as the labor strike in the early part of the year. Margins improved to 21.4% from 18.6% largely due to production increases at the Company's Elkhart brass plant and lower inventory reserve charges.
Piano Operations
Increased sales of the Company's mid-priced pianos and strong institutional sales contributed to an increase in overall piano sales to $54.4 million, an increase of $2.7 million. In addition, currency translation positively impacted revenues by $1.6 million. Overseas shipments of Steinway grand pianos were up 23%, mitigating the impact of a decrease in domestic grand shipments, resulting in a 20% decline worldwide. The Company's Essex pianos continue to perform well, leading to an 87% increase in worldwide shipments of mid-priced pianos for the quarter. The large increase in Steinway grand sales overseas coupled with improved factory performance resulted in an increase in gross margins to 36.7% from 34.3% for the same period last year.
Year-to-date, piano revenues were up 14%, to $107.3 million, with worldwide unit shipments of mid-priced pianos up 87% and shipments of Steinway grands down 7%. For the six-month period, gross margins improved from 33.7% to 36.3%.
Comments
"Our overall results for the quarter were good," stated CEO Dana Messina. "We met our prior year sales figure, significantly improved gross margins and controlled our operating expenses. As a result, operating profit and Adjusted EBITDA improved dramatically for the quarter."
Discussing second quarter results of the piano segment, Messina said, "Our overseas piano business remains strong. In June, we shipped over 50 Steinway pianos to the Cork School of Music. Domestically, our year-to-date results have been softer than we'd like but we have fared much better than our competitors. Looking at the next six months, we expect our overall piano business to be stable."
Messina continued, "We are making great progress at our Elkhart brass plant. Our new workers are making high quality instruments and are becoming more efficient daily. As a result, unit production of professional instruments has doubled versus the first quarter of this year. Unfortunately, some of our larger band dealers have reduced purchasing in an effort to better control their inventory levels. Looking at the next six months, we expect that trend to continue."
"In conclusion, despite mixed sales results by market and division, we've improved our gross margins significantly and reduced our expenses with a predictable impact on overall earnings. We're very comfortable with our position relative to our industry peers and expect to continue to monitor industry conditions for opportunities to add market share."
Conference Call
Management will be discussing the Company's second quarter results and outlook for the remainder of 2007 on a conference call today beginning at 5:00 p.m. ET. A live webcast and an archive of the call will be available to all interested parties on the Company's website, http://www.steinwaymusical.com/ .
About Steinway Musical Instruments
Steinway Musical Instruments, Inc., through its Steinway and Conn-Selmer divisions, is one of the world's leading manufacturers of musical instruments. Its notable products include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones, Ludwig snare drums and Steinway & Sons pianos.
Non-GAAP Financial Measures Used by Steinway Musical Instruments
The Company uses the non-GAAP measurement Adjusted EBITDA, which it defines as earnings before net interest expense, income taxes, depreciation and amortization, adjusted to exclude non-recurring, infrequent or unusual items. The Company uses Adjusted EBITDA because it is useful to management and investors as a measure of the Company's core operating performance. The Company also believes Adjusted EBITDA is helpful in determining the Company's ability to meet future debt service, capital expenditures and working capital requirements. In addition, certain of the Company's debt covenants are based upon Adjusted EBITDA calculations and the Company uses Adjusted EBITDA as the basis for determining bonuses for its managers. However, Adjusted EBITDA should not be construed as a substitute for income from operations or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.
The Company has provided other non-GAAP measurements which present operating results on a basis excluding certain non-comparable items. The Company has provided Adjusted financial information because management uses it to make meaningful comparisons of performance between periods. However, there are limitations in the use of such information because the Company's actual results do include the impact of these Adjustments. The non-GAAP measures are intended only as a supplement to the comparable GAAP measures.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995
This release contains "forward-looking statements" which represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties which could cause actual results to differ materially from those indicated in this release. These risk factors include the following: changes in general economic conditions; recent geopolitical events; increased competition; work stoppages and slowdowns; impact of dealer consolidations on orders; ability of new workers to meet desired production levels; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new product and distribution strategies; ability of suppliers to meet demand; concentration of credit risk; fluctuations in effective tax rates resulting from shifts in sources of income; and the ability to successfully integrate and operate acquired businesses. Further information on these risk factors is included in the Company's filings with the Securities and Exchange Commission.
Contact: Julie A. Theriault Telephone: 781-894-9770 Email: ir@steinwaymusical.com STEINWAY MUSICAL INSTRUMENTS, INC. Condensed Consolidated Statements of Income (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended Six Months Ended 6/30/2007 6/30/2006 6/30/2007 6/30/2006 Net sales $92,257 $92,423 $185,689 $187,617 Cost of sales 63,692 69,274 129,884 138,476 Gross profit 28,565 23,149 55,805 49,141 31.0% 25.0% 30.1% 26.2% Operating expenses: Sales and marketing 11,429 11,063 24,093 22,733 Provision for doubtful accounts 592 4,505 718 4,562 General and administrative 8,141 7,811 17,151 16,189 Amortization 196 197 392 426 Other operating expenses 158 (32) 1,035 115 Total operating expenses 20,516 23,544 43,389 44,025 Income (loss) from operations 8,049 (395) 12,416 5,116 Interest expense, net 2,523 3,152 4,675 5,900 Other (income) expense, net (21) 2,368 (191) 8,228 Income (loss) before income taxes 5,547 (5,915) 7,932 (9,012) Income tax provision (benefit) 2,394 (5,054) 3,349 (6,309) Net income (loss) $3,153 ($861) $4,583 ($2,703) Earnings (loss) per share - basic $0.37 ($0.10) $0.54 ($0.33) Earnings (loss) per share - diluted $0.36 ($0.10) $0.53 ($0.33) Weighted average common shares - basic 8,521 8,332 8,470 8,242 Weighted average common shares - diluted 8,662 8,332 8,622 8,242 Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) 06/30/2007 06/30/2006 12/31/2006 Cash $9,701 $21,118 $30,409 Receivables, net 77,284 90,307 75,161 Inventories 177,144 155,284 154,623 Other current assets 24,906 30,052 22,485 Total current assets 289,035 296,761 282,678 Property, plant and equipment, net 94,714 96,448 95,598 Other assets 70,325 64,886 68,899 Total assets $454,074 $458,095 $447,175 Notes payable and current portion of long-term debt $2,889 $5,960 $4,595 Other current liabilities 60,602 62,353 61,453 Total current liabilities 63,491 68,313 66,048 Long-term debt 194,749 187,544 173,816 Other liabilities 55,314 46,266 49,310 Stockholders' equity 140,520 155,972 158,001 Total liabilities and stockholders' equity $454,074 $458,095 $447,175 STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of 2006 GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended 6/30/06 GAAP Adjustments Adjusted Band sales $40,759 $- $40,759 Piano sales 51,664 - 51,664 Total sales 92,423 - 92,423 Band cost of sales 35,324 (1,220)(1) 34,104 Piano cost of sales 33,950 - 33,950 Total cost of sales 69,274 (1,220) 68,054 Band gross profit 5,435 1,220 (1) 6,655 Piano gross profit 17,714 - 17,714 Total gross profit 23,149 1,220 24,369 Band GM% 13.3% 16.3% Piano GM% 34.3% 34.3% Total GM% 25.0% 26.4% Operating expenses 23,544 - 23,544 (Loss) income from operations (395) 1,220 825 Interest expense, net 3,152 - 3,152 Other expense (income), net 2,368 (3,063)(2) (695) (Loss) income before income taxes (5,915) 4,283 (1,632) Income tax (benefit) provision (5,054) 3,660 (3) (1,394) Net (loss) income ($861) $623 ($238) Loss per share - basic ($0.10) ($0.03) Loss per share - diluted ($0.10) ($0.03) Weighted average common shares - basic 8,332 8,332 Weighted average common shares - diluted 8,332 8,332 Six Months Ended 6/30/06 GAAP Adjustments Adjusted Band sales $93,825 $- $93,825 Piano sales 93,792 - 93,792 Total sales 187,617 - 187,617 Band cost of sales 76,329 (1,291)(4) 75,038 Piano cost of sales 62,147 - 62,147 Total cost of sales 138,476 (1,291) 137,185 Band gross profit 17,496 1,291 (4) 18,787 Piano gross profit 31,645 - 31,645 Total gross profit 49,141 1,291 50,432 Band GM% 18.6% 20.0% Piano GM% 33.7% 33.7% Total GM% 26.2% 26.9% Operating expenses 44,025 - 44,025 Income from operations 5,116 1,291 6,407 Interest expense, net 5,900 - 5,900 Other expense (income), net 8,228 (9,674)(2) (1,446) (Loss) income before income taxes (9,012) 10,965 1,953 Income tax (benefit) provision (6,309) 7,676 (3) 1,367 Net (loss) income ($2,703) $3,289 $586 (Loss) earnings per share - basic ($0.33) $0.07 (Loss) earnings per share - diluted ($0.33) $0.07 Weighted average common shares - basic 8,242 8,242 Weighted average common shares - diluted 8,242 8,242 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects $59 charges relating to the step-up of inventory and $1,161 of unabsorbed overhead associated with a labor strike. (2) Reflects loss on extinguishment of debt. (3) Reflects the tax effect of Adjustments at the Company's effective rate for the period. (4) Reflects $130 charges relating to the step-up of inventory and $1,161 of unabsorbed overhead associated with a labor strike. STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation from Income from Operations to Adjusted EBITDA (In Thousands) (Unaudited) Three Months Ended 06/30/2007 06/30/2006 Income (loss) from operations $8,049 $(395) Other income (expense), net 21 (2,368) Depreciation 2,448 2,575 Amortization 196 197 Non-recurring, infrequent or unusual items - 4,283 Adjusted EBITDA $10,714 $4,292 Six Months Ended 06/30/2007 06/30/2006 Income from operations $12,416 $5,116 Other income (expense), net 191 (8,228) Depreciation 4,821 5,013 Amortization 392 426 Non-recurring, infrequent or unusual items - 10,965 Adjusted EBITDA $17,820 $13,292
First Call Analyst:
FCMN Contact:
Source: Steinway Musical Instruments, Inc.
CONTACT: Julie A. Theriault of Steinway Musical Instruments, Inc.,
+1-781-894-9770, ir@steinwaymusical.com
Web site: http://www.steinwaymusical.com/
Profile: International Entertainment
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