Print page
Email page
Download PDF
« Previous Release | Next Release »
Philadelphia, PA - November 14, 2008 -- Constar International Inc. (NASDAQ: CNST) today announced its financial results for the third quarter and nine months ended September 30, 2008.
Highlights include:
Credit Agreement EBITDA, excluding restructuring charges, was $6.7 million as compared to $17.3 million in the third quarter of 2007;
"Consumer demand for products using our containers declined significantly in the quarter due to reduced gas and convenience store sales of single serve beverages caused by record high gasoline prices and a collapse in discretionary spending. Compared to the prior year, this volume weakness offset all of our gains in new business and pricing. Major items that account for the lower quarterly income include a $3.8 million increase in energy costs, $1.3 million of overhead absorption loss due to inventory reductions, and $1.9 million of charges related to prior periods. In spite of our disappointing performance in the quarter, we finished the quarter with ample liquidity, and as of this date our borrowings are $16.5 million net of cash on hand, with $6.1 million of outstanding letters of credit," said Michael Hoffman, President and CEO of Constar.
Third Quarter Results:
Consolidated net sales were $230.1 million in the third quarter of 2008 compared to $225.8 million in the third quarter of 2007.
In the U.S., net sales were $184.7 million in the third quarter of 2008 compared to $181.4 million in the third quarter of 2007. The increase in U.S. net sales was principally driven by the pass-through of higher resin costs to customers, along with an increase in price, offset by a decrease in unit volume. Total U.S. unit volume decreased 7.3 percent from the third quarter of 2007. Custom unit volume increased 9.9 percent, while conventional unit volume declined 19.3 percent compared to the third quarter of 2007. Approximately 46.0 percent of the conventional unit volume decline in the U.S. was due to the expected continued shift of water bottlers to self-manufacturing and an additional 14.4 percent of the decline resulted from the previously disclosed loss of a conventional customer contract. In addition, the Company's customers experienced a decrease in demand for carbonated soft drink packages especially in the convenience store and gas station distribution channels.
In Europe, net sales were $45.4 million in the third quarter of 2008 compared to $44.4 million in the third quarter of 2007. The increase in European net sales in the third quarter of 2008 was primarily due to the pass-through of higher resin costs to customers offset by lower unit volume and the negative impact of foreign currency translations. Total European unit volume decreased by 10.3 percent compared to the third quarter of 2007 due to the previously disclosed loss of a customer in the Company's Holland operations.
Gross profit, excluding depreciation expense, decreased $9.6 million, or 41.0 percent, in the third quarter of 2008 compared to the third quarter of 2007. Gross profit, excluding depreciation expense, as a percentage of net sales decreased to 6.0 percent in the third quarter of 2008 from 10.4 percent in the third quarter of 2007. The decrease was the result of lower unit volumes and increases in energy costs, offset in part by increases in price and higher custom volumes. In addition the Company recorded an adjustment of $1.9 million to correct errors from prior periods.
Selling and administrative and research and technology expenses were $7.8 million in the third quarter of 2008, a decrease of $0.5 million from the third quarter of 2007. The decrease was primarily due to lower professional fees and facility costs.
Restructuring charges were $1.2 million for the third quarter of 2008 compared to no provision in the third quarter of 2007. The restructuring charges primarily relate to the restructuring actions taken due to the impact of the new Pepsi agreement, and the shutdown of the Company's Houston, Texas facility as a result of previously disclosed customer losses and a strategic decision to exit the Company's limited extrusion blow-molding business.
Gain on disposal of assets was $1.2 million for the third quarter of 2008 compared to $0.1 million for the same period in 2007. The increase is primarily due to the sale of assets in the third quarter of 2008 in conjunction with the closure of the manufacturing facility in Houston, Texas.
Operating loss was $2.6 million in the third quarter of 2008 as compared to operating income of $8.8 million in the third quarter of 2007. This decrease in operating income was due to the factors described above.
Interest expense decreased $0.8 million to $9.6 million in the third quarter of 2008 from $10.4 million in the third quarter of 2007 as a result of lower effective interest rates, partially offset by higher average borrowings.
Other net expense was $2.1 million in the third quarter of 2008 compared to other income of $0.2 million in the third quarter of 2007. The decrease in the third quarter of 2008 primarily resulted from the negative impact of foreign currency on intra-company balances.
Net loss in the third quarter of 2008 was $14.2 million, or $1.15 loss per basic and diluted share, compared to a net loss in the third quarter of 2007 of $1.2 million, or $0.09 loss per basic and diluted share.
Credit Agreement EBITDA excluding restructuring charges in the third quarter of 2008 decreased by $10.6 million, or 61.5 percent, to $6.7 million from $17.3 million in the third quarter of 2007.
The Company's Report on Form 10-Q for the quarter ended September 30, 2008 contains further discussion of the Company's financial results and liquidity.
First Nine Month Results:
Consolidated net sales were $687.8 million in the first nine months of 2008 compared to $678.7 million in the first nine months of 2007.
In the U.S., net sales were $544.8 million in the first nine months of 2008 compared to $529.6 million in the first nine months of 2007. The increase in U.S. net sales was principally driven by the pass-through of higher resin costs to customers, the impact of contractual price increases and the increase in custom unit volume, offset in part by lower conventional unit volume. Total U.S. unit volume decreased 6.8 percent from the first nine months of 2007. Custom unit volume increased 15.5 percent, while conventional unit volume declined 16.0 percent compared to the first nine months of 2007.
In Europe, net sales were $143.0 million in the first nine months of 2008 compared to $149.1 million in the first nine months of 2007. The decrease in European net sales in the first nine months of 2008 was primarily due to decreased unit volume, principally driven by the previously disclosed loss of a customer in the Company's Holland operation, offset in part by the pass-through of higher resin costs to customers. Total European unit volume decreased by 12.9 percent compared to the first nine months of 2007.
Gross profit, excluding depreciation expense, decreased $12.6 million, or 19.0 percent, in the first nine months of 2008 compared to the first nine months of 2007. Gross profit, excluding depreciation expense, as a percentage of net sales decreased to 7.8 percent in the first nine months of 2008 from 9.8 percent in the first nine months of 2007. The decrease was the result of lower unit volumes and higher energy costs, offset in part by increases in price.
Selling and administrative and research and technology expenses of $23.7 million in the first nine months of 2008 decreased by $0.4 million from the first nine months of 2007.
Restructuring charges were $2.0 million for the first nine months of 2008 compared to $3.2 million for the first nine months of 2007. The restructuring charges primarily relate to the restructuring actions taken due to the impact of the new Pepsi agreement, and the shutdown of the Company's Houston, Texas facility as a result of previously disclosed customer losses and a strategic decision to exit the Company's limited extrusion blow-molding business.
Gain on disposal of assets was $1.2 million for the nine months of 2008 compared to $0.3 million for the same period in 2007. The increase is primarily due to the sale of assets in the third quarter of 2008 in conjunction with the closure of the Company's manufacturing facility in Houston, Texas.
Operating income was $4.8 million in the first nine months of 2008 compared to $17.3 million in the first nine months of 2007. This decrease in operating income primarily relates to lower unit volume, as well as increases in energy costs and restructuring expenses.
Interest expense decreased $1.9 million to $29.0 million in the first nine months of 2008 from $30.9 million in the first nine months of 2007 as a result of lower effective interest rates, partially offset by higher average borrowings.
Other expense was $2.7 million in the first nine months of 2008 compared to other income of $1.1 million in the first nine months of 2007. The change from prior year primarily resulted from the negative impact of foreign currency on intra-company balances.
Net loss for the first nine months of 2008 was $26.8 million, or $2.16 loss per basic and diluted share, compared to a net loss for the first nine months of 2007 of $12.1 million, or $0.99 loss per basic and diluted share.
Free cash flow was negative $23.4 million for the first nine months of 2008 compared to negative free cash flow of $21.8 million for the same period in 2007. The decrease in free cash flow was driven by cash flow from operating activities, principally due to reduced operating results partially offset by lower capital spending.
Credit Agreement EBITDA, excluding restructuring charges, in the first nine months of 2008 decreased by $13.7 million, or 30.0 percent, to $32.1 million from $45.9 million in the first nine months of 2007.
Non-GAAP Measures
EBITDA is defined by the Company as net income (loss) before interest expense, provision for income taxes, depreciation and amortization. The Company's Credit Agreement formerly contained a definition of EBITDA that made adjustments for certain items. This definition was deleted and not replaced as part of the previously reported amendments to the Credit Agreement made in the first quarter of 2007. In the third quarter of 2008 and the first nine months of 2008, these adjustments would have amounted to $1.5 million and $3.6 million, respectively. In the third quarter of 2007 and the first nine months of 2007, the adjustments would have amounted to $1.6 million and $2.0 million, respectively. For consistency, the Company is reporting EBITDA on the same Credit Agreement basis, but excluding restructuring charges.
Credit Agreement EBITDA excluding restructuring charges is not a GAAP-defined measure and may not be comparable to credit agreement or adjusted EBITDA as defined by other companies. Management believes that investors, analysts and other interested parties view our ability to generate Credit Agreement EBITDA as an important indicator of the Company's operating performance. Management also believes that Credit Agreement EBITDA excluding restructuring charges is a useful measure in understanding trends because it eliminates various non-operational and non-recurring items. In addition, Credit Agreement EBITDA facilitates comparisons to operating performance in prior periods and is used by the Company in setting incentive plan targets. Investors are urged to take into account GAAP measures in evaluating the Company and to review the reconciliation of Credit Agreement EBITDA excluding restructuring charges to net income (loss) in the attached unaudited consolidated statements of operations.
Gross profit, excluding depreciation expense, is not a GAAP-defined measure and may not be comparable to gross profit as defined by other companies. The Company believes that gross profit, excluding depreciation expense, is a useful measure in understanding trends because it eliminates non-cash charges related to depreciation. Investors are urged to take into account GAAP measures in evaluating the Company, and to review the reconciliation of gross profit to gross profit, excluding depreciation expense in the attached unaudited consolidated statements of operations.
Free cash flow is derived from the Company's consolidated statement of cash flows and is defined as net cash provided by operating activities less net cash used in investing activities. Free cash flow is not a GAAP-defined measure and may not be comparable to free cash flow as defined by other companies. The Company uses free cash flow to evaluate performance and the Company's ability to incur and service debt. Investors are urged to take into account GAAP measures in evaluating the Company, and to review the separate line items for net cash provided by operating activities and net cash used in investing activities in the attached unaudited consolidated statements of cash flow.
Conference Call, Web Cast Information
The Company will hold a conference call on Friday, November 14, 2008 at 9:00 a.m. ET to discuss this news release. Forward-looking and other material information will be discussed on this conference call. The dial-in numbers for the conference call are (877) 545-1489 (domestic callers) or (719) 325-4898 (international callers). Please dial in at approximately ten minutes prior to the scheduled start time in order to give the operators time to connect you. The conference call will also be broadcast live over the internet and can be accessed via the Company's website: www.constar.net. Please log on approximately 15 minutes prior to the call to register and download any necessary audio software.
A replay of the conference call will be available from 12 noon ET that day through midnight ET, Friday, November 21, 2008 and can be accessed by calling (888) 203-1112 (domestic callers) or (719) 457-0820 (international callers) and entering pass code 1023471. The replay will also be accessible via the web at www.constar.net where it will be archived.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all information in this news release consists of forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve a number of risks, uncertainties and other factors, which may cause the actual results to be materially different from those expressed or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of the company to differ from expectations include the Company's relationship with its customers and suppliers; whether expected future volumes under the Pepsi contract are realized; whether the future product mix under that contract is consistent with the Company's expectations; whether the Company achieves expected restructuring savings associated with that agreement; the impact of self manufacturing on the Company's business; the Company's ability to secure new business, expand sales of custom products and improve the operating performance of its European business; and the impact of the foregoing factors on the Company's financial position. Other important factors are discussed under the caption "Risk Factors" in the company's Form 10-K annual report for the year ended December 31, 2007 and in subsequent filings with the Securities and Exchange Commission made prior to, on or after today. The Company does not intend to review, revise, or update any particular forward-looking statements in light of future events.
About Constar
Philadelphia-based Constar is a leading global producer of PET (polyethylene terephthalate) plastic containers for food, soft drinks and water. The Company provides full-service packaging solutions, from product design and engineering, to ongoing customer support. Its customers include many of the world's leading branded consumer products companies.
For more information contact:
Walter S. Sobon
Executive Vice President and Chief Financial Officer
(215) 552-3700
Ed Bisno
Bisno Communications
(212) 717-7578
Tables to Follow
