A. Schulman Down, But Not Out

A. Schulman Inc. (SHLM - Snapshot Report) reported fiscal fourth-quarter results before the opening bell today. The company swung to a GAAP net loss of $7.9 million from a GAAP net profit of $4.7 million in the year-ago quarter. Excluding charges related to restructuring and asset impairment, adjusted earnings per share came in at $5.4 million, or 21 cents per share, beating the Zacks Consensus Estimate by 4 cents.

A. Schulman is an international supplier of high-performance plastic compounds and resins, which are used in a variety of consumer, industrial, automotive and packaging applications. The company is engaged in three types of business, including engineered plastics, master batch and distribution services and employs about 2,200 people across 16 manufacturing facilities in North America, Europe and Asia.

The Akron, OH-based company’s sales slipped 35.3% year over year to $320.6 million as sluggish demand in end markets amid the global economic downturn led to a 21.8% decline in tonnage. Moreover, sales were also affected by adverse foreign currency translation coupled with a drop in market price for resins.

In terms of segments, sales in Europe declined 35.3% year over year to $236.1 million, while North American sales plunged 39.8% to $70.3 million. The only bright spot was Asia, which witnessed a modest 2.9% growth in sales to $14.3 million.

Gross profit fell 12.6% year over year to $52.2 million, while gross margin came in at 16.3%, an improvement of 420 basis points (bps) compared to the year-ago period. Margin growth was primarily driven by favorable product mix coupled with the company’s extensive cost-reduction initiatives.

The company’s operating income (calculated as gross profit less selling, general and administrative expenses) slipped 40% year over year to $9.2 million. The decline was mainly caused by lower gross profit, costs related to consolidation of back-office operations to the shared service center in Europe and higher bad debt expenses.

The company generated $181.5 million of cash from operations during fiscal 2009, compared to $155.8 million in fiscal 2008. The higher cash generation was primarily driven by the company’s multi-year working capital management efforts. During the fiscal year, A. Schulman deployed $24.8 million towards capital expenditure, $15.8 million towards dividends and $7.3 million towards debt repayment.

Moving forward, the company expects gradual improvement in the master batch business and a possible return to lower levels in Engineered Plastics division until the economy reflects a sustained upswing in durable goods consumption. Meanwhile, the Zacks Consensus Estimate on the company’s earnings for the fiscal year ending Aug 2010 is currently pegged at 88 cents per share, which has moved up 2 cents over the past 2 months.

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