Clothing segment sales up at Xerium Technologies
Xerium Technologies Inc reported results for its third quarter ended September 30, 2008.
"As we completed the third quarter of our fiscal year, the first full quarter in which we were able to focus on operations improvement rather than debt restructuring, our served markets began to feel the current global economic strain," said Stephen Light, President, Chief Executive Officer and Chairman. "We are pleased that our strategy of generating cash to reduce debt, developing new products that help our customers produce high quality paper at lower costs and our reliance on the talent and commitment of our people, have positioned us well for this situation to date.
In the third quarter, we continued to execute according to our plans, made meaningful improvements to our operations, achieved measurable traction in our focus on working capital reduction, and substantially reduced our debt. Our view is that the global economy is likely to continue deteriorating over the coming months before a recovery begins, with the potential to directly impact our customers around the globe. Our ongoing contingency planning is identifying additional actions we can take to maximize our operating efficiencies and further reduce working capital and leverage. Simultaneously, we have increased provisions for bad debts and slow-moving and obsolete inventory in anticipation of the potential increased strain on our customers.
Gross margins were $52.8 million or 33.1% of net sales for the 2008 quarter, compared to $63.3 million or 41.2% of net sales for the 2007 quarter. The decline is mostly due to an $8.7 million ($8.1 million and $0.6 million in clothing and roll covers respectively) increase in provisions for slow moving and obsolete inventory, in light of our assessment of the impact of the current global economic slowdown on our customers and our industry.
Additionally, the decline was due to approximately a 1.2% market price reduction and approximately a 2% reduction due to currency effect on pricing related to sales prices indexed in U.S. Dollars by certain non-U.S. operations. Excluding the effect of the increased provisions for slow moving and obsolete inventory recorded in the third quarter, the gross margin for the 2008 quarter was 38.2%.
The recorded restructuring and impairment expenses of $3.6 million in the third quarter 2008 was an increase of $2.8 million from the 2007 quarter related to the Company's long-term strategy to streamline our operating structure and to improve long-term competitiveness by closing and/or transferring production from certain of our manufacturing facilities and through headcount reductions.
Income from operations increased 57.3% to $37.9 million for the 2008 quarter from $24.1 million for the 2007 quarter. Net income increased to $21.5 million or $.46 per diluted share from $7.1 million or $.16 per diluted share.
Net cash generated by operating activities was $11.8 million for the 2008 third quarter, compared to $18.4 million for the 2007 third quarter, partially as a result of increased interest expense of $2.2 million in the quarter.