Ameron Reports Solid Earnings Despite Difficult Market Conditionsadmin
Ameron International Corporation reported net income of $15.0 million, or $1.63 per diluted share, in the third quarter ended August 31, 2008, compared to $21.1 million, or $2.32 per diluted share, in the third quarter ended August 26, 2007. Sales in the third quarter of 2008 totaled $170.1 million, compared to sales of $165.0 million in the third quarter of 2007. Net income in the third quarter of 2007 included $5.3 million of tax benefits associated with the liquidation of the Company’s wholly-owned subsidiary in the UK and $.5 million of after-tax income from discontinued operations related to the Company’s former coatings business.
James S. Marlen, Ameron’s Chairman and Chief Executive Officer stated, “On a comparable basis, without the nonrecurring tax benefits or income from discontinued operations, results in the third quarter of 2008 were only slightly lower than in 2007 despite difficult market and economic conditions. Third-quarter results represented a solid operating performance. The strength of the Fiberglass-Composite Pipe business and TAMCO’s steel rebar business generally offset the lower sales and earnings of the Water Transmission and Infrastructure Products Groups.”
Diluted earnings per share in the nine months ended August 31, 2008, totaled $4.48, compared to diluted earnings per share of $5.01 in the nine months ended August 26, 2007. Sales totaled $479.7 million in the nine months ended August 31, 2008, compared to sales of $442.2 million in the first nine months of 2007. Net income in the first nine months of 2007 included tax benefits of $5.3 million related to the UK subsidiary and after-tax income of $1.6 million from discontinued operations.
The Fiberglass-Composite Pipe Group continued to operate at record levels with higher sales and segment income in the third quarter of 2008, compared to the third quarter of 2007. Sales increased $7.4 million, or 12%, in the third quarter of 2008, while segment income increased $3.2 million, or 17%. The sales increase was attributed principally to the continued strength of operations in Asia, the acquisition of the business of Polyplaster, Ltda. in Brazil which occurred in the fourth quarter of 2007, favorable foreign currency translation and higher demand for onshore oilfield piping worldwide. Operations in Europe had lower sales due to the timing of industrial orders. Market conditions remain favorable worldwide and across all segments including marine, offshore and onshore oilfield markets. The major drivers of the business, which include energy demand and shipbuilding, remain positive. Shipyards in Korea, China, Japan and Singapore continue to operate with multiyear backlogs, while onshore oilfields and offshore oil exploration and production remain strong. The business currently has a record order backlog, and market conditions suggest continued strong demand.
The Water Transmission Group’s sales increased $4.5 million, or 9%, in the third quarter of 2008, compared to 2007. The increase was principally the result of increased water pipe sales. Wind tower sales were also up slightly. The Water Transmission business continues to be confronted by soft water pipe market conditions throughout the western U.S. region, especially for large-diameter water transmission lines. The Group incurred a greater loss in the third quarter of 2008 than in 2007. The loss was $2.3 million higher in 2008 due principally to underutilization of plant capacity, low project margins and manufacturing inefficiencies. Bid activity in the principal markets of California, Nevada and Arizona was abnormally low the past few years caused by a variety of factors, including declining construction, constrained municipal funding, higher project costs, and the timing of geographic needs for water supply. Although the expected market recovery continues to lag, bid activity should increase throughout 2009. Over the longer term, the market for large-diameter water pipelines is expected to grow to meet the needs for new and upgraded water infrastructure systems driven by population growth, demographics and existing water shortages. A number of significant projects that are critical to satisfy the water supply requirements of the region are in the planning stages by various water agencies. The wind energy market in the U.S. continues to experience significant growth and is expected to remain strong. The Company successfully entered the wind tower market and has made substantial progress toward providing a cost-competitive, high-quality product. The outlook for wind towers remains favorable.
The Infrastructure Products Group had lower sales and segment income in the third quarter of 2008, compared to the third quarter of 2007. Sales declined $6.7 million, or 13%, primarily due to lower sales by the Pole Products Division. Sales by Ameron’s Hawaii Division also declined slightly. Segment income was $3.0 million lower, or 33%, in the third quarter of 2008, compared to 2007. The segment income decrease was due primarily to lower sales and also to margin pressures on the Hawaii Division associated with competitive pricing, higher energy and fuel costs and a product mix shift. The Pole Products Division continues to be adversely affected by the housing slowdown that significantly reduced the demand for decorative concrete poles for residential lighting. The steel pole product line used principally for highway lighting and traffic control applications continues to be steady. Although the construction sector in Hawaii was generally solid in the third quarter, there are indications of a slowdown due to the weakening economy, less tourism and project financing constraints.
TAMCO, Ameron’s 50% owned steel mini-mill, had higher sales and net income in the third quarter of 2008, compared to 2007. Ameron’s share of TAMCO’s net income totaled $4.2 million after taxes, an increase of $1.1 million, or 36%, compared to the third quarter of 2007. Sales increased significantly to $114 million from $63 million in the third quarter of 2007, an increase of $51 million, or 80%. The sales increase was driven primarily by higher selling prices for steel rebar which kept pace with increases in scrap costs. Generally, demand for steel rebar remained firm, primarily for public projects including bridges and highways. The short-term outlook for TAMCO is positive, although the recent decline in scrap prices may indicate softening steel demand worldwide as well as in local markets. Longer term, the outlook for TAMCO remains favorable given the infrastructure construction requirements forecast for the California, Nevada and Arizona markets.
James Marlen concluded, “While the Water Transmission and Infrastructure Products businesses faced difficult market conditions, overall, the Company performed well. Earnings for the first nine months of 2008 were higher on a comparable basis than in 2007, and third quarter results were steady. In the short term, the Company’s construction and water pipe markets are expected to remain challenged; and fourth-quarter results are not expected to be as high as third-quarter results. We continue to implement several internal and external initiatives to expand Ameron’s market presence and to improve our competitiveness. I remain optimistic that, as our markets recover, the Company is very well positioned to deliver superior performance.”
Ameron International Corporation is a multinational manufacturer of highly-engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets. Traded on the New York Stock Exchange (AMN), Ameron is a leading producer of water transmission lines and fabricated steel products, such as wind towers; fiberglass-composite pipe for transporting oil, chemicals and corrosive fluids and specialized materials and products used in infrastructure projects. The Company operates businesses in North America, South America, Europe and Asia. It also participates in several joint-venture companies in the U.S. and the Middle East.