Spartan Motors Inc. (Nasdaq: SPAR) today (Oct. 22) announced results for its 2009 third quarter highlighted
by continued profitability as a result of the swift actions taken by the company to aggressively realign its cost structure to current volume levels, according to a release.
Net earnings for the quarter were $0.8 million, or $0.02 per share, which includes pre-tax restructuring charges of $0.9 million. Excluding these charges, the adjusted earnings per share would have been $0.04 cents.
Consolidated net sales for the quarter were $89.7 million, down 62.2% from the same period last year due to the completion of a large-scale defense contract in the prior year’s quarter, coupled with the weaker macroeconomic
environment. Despite the lower volume levels, the actions taken by the company allowed it to maintain gross margins at 17.6% of sales and reduce operating expenses by 30.4% from the same quarter of the prior year.
In addition, an increased focus on the balance sheet drove a 115.3% increase in the cash balance over second quarter 2009, to end the quarter at $36.3 million.
“We are very pleased with our progress in the quarter, and in particular, our ability to maintain margins and continue our history of positive earnings in the face of a significant revenue decline following the conclusion of a large defense contract,” said John Sztykiel, Spartan Motors president and CEO. “We moved decisively in the quarter to realign our cost structure with current market demand.
”As a result, we took a significant one-time charge to our financials, which allows us to position the business at the right size and scale to drive continued profitability into the future. We are also starting to see an increase in order volume, with orders up 28% compared to the 2009 second quarter, which may be an early indication that demand is heading in the right direction.”
Spartan reported net sales of $89.7 million in the 2009 third quarter compared with net sales of $237.5 million in the same quarter of 2008. The majority of the decline was in other products sales, which includes specialty chassis for defense vehicles as well as service, parts and assemblies (SPA) sales. The decline was mostly due to the completion of a large-scale defense vehicle contract in 2008.
Spartan’s EVTeam operating unit, consisting of its Crimson Fire, Crimson Fire Aerials and Road Rescue subsidiaries, reported a 5.4% year-over-year increase in sales for the 2009 third quarter. Sales of fire truck chassis in the quarter also increased 19.9% compared to the same period in 2008. Spartan’s chassis sales to the Class A diesel motor home market decreased 29.9% year-over-year in the quarter.
Spartan reported consolidated gross margin of 17.6 % of sales in the third quarter of 2009, comparable to 18.1% in the same period in 2008.
Spartan attributed its continued strong gross margins to improved product mix from increased sales of fire trucks and service, parts and accessories and lower commodity costs, offset by $0.2 million in restructuring costs.
Operating expenses for the 2009 third quarter, which include $0.7 million in restructuring charges, declined by $6.4 million, or 30.4 % compared to the same period last year. Spartan attributed the improvement to the cost reduction activities taken by the company primarily in the third quarter, which include workforce reductions, plant and operation consolidations and overall improved cost management.
Excluding restructuring charges, adjusted operating income was 2.4% of sales and adjusted earnings were $0.04 per share. Including the restructuring charges of $0.9 million incurred during the quarter, earnings were $0.02 per
share compared to $0.45 per share during the same period last year.
Spartan reported positive operating cash flow of $30.7 million in the nine months ended Sept. 30, 2009, due to reduced working capital requirements. The company ended the third quarter with $36.3 million in cash and cash
equivalents and $15.2 million in long-term debt, a reduction from $74.3 million at Sept. 30, 2008. In the 2009 third quarter, Spartan reduced inventory levels by 3.2% and accounts receivable by 36.6% compared to levels at Dec. 31, 2008.
CFO Joe Nowicki added: “The operating results in the quarter are a preview of where we are moving as a company; to a business model where we can maintain solid gross margins and operating income despite volatile demand, while also strengthening our balance sheet along the way. Moving forward, we are taking further steps to lean out our business, including realigning the company to focus on both market-facing activities that drive value to customers, and leverage activities that drive efficiency and process improvements across the organization.”
On a consolidated basis, Spartan posted a year-to-date return on invested capital (ROIC) of 9.1%. Spartan uses ROIC, defined as operating income less taxes, on an annualized basis, divided by total shareholders’ equity, for
internal performance benchmarking.
Sztykiel concluded: “As society changes, markets are changing and so are the vehicles they use, which creates opportunities for Spartan to enter and grow in micro-niches, transforming them from commercial to custom. Some of these strategic opportunities are within existing markets with current OEM customers. Others are in new markets, where we can expand organically, such as our recent orders for custom ambulance chassis, or through strategic acquisitions that fit our business model and have immediate positive bottom-line impact. Our improved cost structure is not only allowing us to manage through the current economic challenges, but also facilitates aggressive growth into new and emerging markets in line with our strategic plan.”