Steinway Posts Solid Q1 Results EPS $0.23 vs. $0.17
Steinway Posts Solid Q1 Results EPS $0.23 vs. $0.17
WALTHAM, Mass., May 8 /PRNewswire-FirstCall/ -- Steinway Musical Instruments, Inc. (NYSE:LVB) , one of the world's leading manufacturers of musical instruments, today announced results for the quarter ended March 31, 2008.
Revenue and gross profit for the first quarter remained in line with the first quarter of 2007. Operating profit increased 10% and Adjusted EBITDA improved 12%. For the quarter, EPS increased 35%, from $0.17 to $0.23. Adjusted Basic EPS of $0.22 compares to $0.17 in the first quarter of 2007. Adjustments for 2008 are detailed in the attached financial tables.
Band Operations
Band sales for the quarter decreased $1.0 million, or 3%. An increase in sales of professional instruments offset lower shipments of student horns and percussion instruments. The resulting higher mix of professional instrument sales led to improved gross margins for the quarter. Gross margins increased from 20.2% to 21.6%, despite $0.4 million of costs associated with the closure of the Company's Kenosha plant. An increase in unit production at the Company's Elkhart brass plant also had a positive impact on margins for the quarter.
Piano Operations
Worldwide piano sales for the first quarter increased $1.8 million, or 3%, over the prior year period. Overseas markets remain strong, with unit shipments of Steinway grand pianos up 3% and shipments of mid-priced pianos up 43%. Economic conditions continued to negatively impact domestic shipments of Steinway grand pianos, leading to a worldwide decline in Steinway grand unit shipments of 13%. Worldwide, unit shipments of mid-priced pianos increased 18%. This higher mix of mid-priced pianos led to a decrease in gross margins from 36.0% to 34.5%.
Comments
"We are satisfied with our overall results this quarter," stated CEO Dana Messina. "Positive results at our overseas piano business offset soft consumer demand in the United States. We are pleased with the smooth transition to our new management team and are excited about their progress."
Messina added, "Our band instrument turnaround continues to gain traction. Production levels at our Elkhart brass plant improved significantly, enabling us to increase professional instrument sales by more than 20% over the same period last year. We've seen strong demand with band instrument orders up 17% through April. The improved order rates, coupled with better delivery of sourced student product from our Asian suppliers, give us confidence that we will have improved sales results for 2008."
Messina continued with his expectations for band operations, "We continue to make progress reducing our manufacturing footprint. We are on track to complete the previously announced consolidation of a woodwind production facility by the end of the second quarter. Gross margins in the second and
third quarters will be negatively impacted by approximately $1.0 million in costs related to this effort."
Discussing management's outlook for piano operations, Messina said, "We continue to experience solid markets overseas and, unfortunately, a weak market here at home. Based on our expectation for a slow domestic consumer market, we will be reducing production in the second quarter. While we expect this action to assist us in maintaining appropriate inventory levels, the production slowdown will have a significant negative impact on our gross margins. We also expect reduced margins from our Asian operations as the strong euro is making our German pianos more expensive to purchase."
Conference Call
Management will be discussing the Company's first quarter results and outlook for the remainder of 2008 on a conference call tomorrow beginning at 8:30 a.m. ET. A live webcast and an archive of the call will be available to all interested parties on the Company's website, 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 in that it eliminates the impact of items that are either out of operating management's control or are otherwise unrelated to how well the Company is completing its manufacturing and operating responsibilities. In addition, the Company uses Adjusted EBITDA as the basis for determining bonuses for its managers.
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 as it factors out non-cash expenses such as depreciation and amortization. The Company's domestic credit agreement, which provides for borrowings up to $110.0 million and is a material credit agreement to the Company, contains a minimum Fixed Charge Coverage Ratio which is based on Adjusted EBITDA. A minimum ratio of 1.1 to 1.0 is required to be met if the Company has had less than $20.0 million of availability on its line of credit in the last thirty days. At the end of the most recent period the Company had remaining borrowing availability on the line of credit of $98.7 million (net of letters of credit) and therefore this covenant did not apply. Should this covenant apply and not be met, the Company could be required to make immediate repayment of its line of credit borrowings, if it were unable to obtain a waiver from the lenders.
There are limitations in the use of Adjusted EBITDA because the Company's actual results do include the impact of the noted Adjustments. Accordingly, Adjusted EBITDA should be used as a supplement to the comparable GAAP measures and should not be construed as a substitute for income from operations or net income, or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.
"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 03/31/2008 03/31/2007 Net sales $94,186 $93,432 Cost of sales 66,794 66,192 Gross profit 27,392 27,240 29.1% 29.2% Operating expenses: Sales and marketing 13,051 12,664 Provision for doubtful accounts 353 126 General and administrative 8,583 9,010 Amortization 198 196 Other operating expenses 403 877 Total operating expenses 22,588 22,873 Income from operations 4,804 4,367 Interest expense, net 2,157 2,152 Other income, net (673) (170) Income before income taxes 3,320 2,385 Income tax provision 1,345 955 Net income $1,975 $1,430 Earnings per share - basic $0.23 $0.17 Earnings per share - diluted $0.23 $0.17 Weighted average common shares - basic 8,579 8,419 Weighted average common shares - diluted 8,655 8,580 Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) 03/31/2008 03/31/2007 12/31/2007 Cash $30,750 $9,449 $37,304 Receivables, net 70,521 74,025 73,131 Inventories 162,933 165,686 152,451 Other current assets 24,606 24,332 22,843 Total current assets 288,810 273,492 285,729 Property, plant and equipment, net 94,158 94,900 94,150 Other assets 78,739 70,797 77,799 Total assets $461,707 $439,189 $457,678 Debt $2,508 $7,330 $2,285 Other current liabilities 64,454 56,972 64,701 Total current liabilities 66,962 64,302 66,986 Long-term debt 168,305 185,357 173,981 Other liabilities 55,282 54,234 52,932 Stockholders' equity 171,158 135,296 163,779 Total liabilities and stockholders' equity $461,707 $439,189 $457,678 STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended 3/31/08 GAAP Adjustments Adjusted Band sales $39,500 $- $39,500 Piano sales 54,686 - 54,686 Total sales 94,186 - 94,186 Band cost of sales 30,975 (432)(1) 30,543 Piano cost of sales 35,819 - 35,819 Total cost of sales 66,794 (432) 66,362 Band gross profit 8,525 432 8,957 Piano gross profit 18,867 - 18,867 Total gross profit 27,392 432 27,824 Band GM% 21.6% 22.7% Piano GM% 34.5% 34.5% Total GM% 29.1% 29.5% Operating expenses 22,588 - 22,588 Income from operations 4,804 432 5,236 Interest expense, net 2,157 - 2,157 Other income, net (673) 636 (2) (37) Income before income taxes 3,320 (204) 3,116 Income tax provision 1,345 (78)(3) 1,267 Net income $1,975 $(126) $1,849 Earnings per share - basic $0.23 $0.22 Earnings per share - diluted $0.23 $0.21 Weighted average common shares - basic 8,579 8,579 Weighted average common shares - diluted 8,655 8,655 Three Months Ended 3/31/07 GAAP Adjustments Adjusted Band sales $40,507 $- $40,507 Piano sales 52,925 - 52,925 Total sales 93,432 - 93,432 Band cost of sales 32,305 - 32,305 Piano cost of sales 33,887 - 33,887 Total cost of sales 66,192 - 66,192 Band gross profit 8,202 - 8,202 Piano gross profit 19,038 - 19,038 Total gross profit 27,240 - 27,240 Band GM% 20.2% 20.2% Piano GM% 36.0% 36.0% Total GM% 29.2% 29.2% Operating expenses 22,873 - 22,873 Income from operations 4,367 - 4,367 Interest expense, net 2,152 - 2,152 Other income, net (170) - (170) Income before income taxes 2,385 - 2,385 Income tax provision 955 - 955 Net income $1,430 $- $1,430 Earnings per share - basic $0.17 $0.17 Earnings per share - diluted $0.17 $0.17 Weighted average common shares - basic 8,419 8,419 Weighted average common shares - diluted 8,580 8,580 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects costs (primarily employee severance) associated with a plant closure. (2) Reflects a gain on early extinguishment of debt. (3) Reflects the tax effect of Adjustments. STEINWAY MUSICAL INSTRUMENTS, INC. (In Thousands) (Unaudited) Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA Three Months Ended 03/31/2008 03/31/2007 Cash flows from operating activities $(2,279) $(11,992) Changes in operating assets and liabilities 5,883 15,076 Stock based compensation expense (245) (264) Income tax provision, net of deferred tax benefit 2,642 2,307 Net interest expense 2,157 2,152 Provision for doubtful accounts (353) (126) Other (279) (47) Non-recurring, infrequent or unusual cash charges 432 - Adjusted EBITDA $7,958 $7,106 Reconciliation from Net Income to Adjusted EBITDA Three Months Ended 03/31/2008 03/31/2007 Net income $1,975 $1,430 Income tax provision 1,345 955 Net interest expense 2,157 2,152 Depreciation 2,487 2,373 Amortization 198 196 Non-recurring, infrequent or unusual items (204) - Adjusted EBITDA $7,958 $7,106
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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