AEP Industries Earnings Call Insights: Resin Prices, Volume

On Tuesday, AEP Industries Inc (NASDAQ:AEPI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Resin Prices

Richard Kus – Jefferies: Excellent quarter. Congratulations. Can you guys talk a little bit about how much – I know, it’s probably difficult for you to quantify, but how much of an impact did customers holding off on placing orders in anticipation of resin price declines did you really see there?

J. Brendan Barba – Chairman, President and CEO: I can’t really quantify it. It’s so many different businesses. Its effect is different in different business, so I can tell you that the majority of it was customers holding off. So, let’s say, we were looking at 4% or 5% volume increase we did to the vast majority of the difference would be from customers just not placing orders.

Richard Kus – Jefferies: Okay. And then as I look at some competitors in the industry, it seems like you guys are doing pretty well on volumes given the economic environment, do you think you’re picking up any market share there?

J. Brendan Barba – Chairman, President and CEO: Yes.

Richard Kus – Jefferies: Okay. And has the better – has the industry been better disciplined at passing through resin prices, which is something that has really helped your margins through this period?

J. Brendan Barba – Chairman, President and CEO: Yes.

Richard Kus – Jefferies: Okay. And then with regards to your discussions on shortening the lag time and customers contracts, how have those discussions been going, and have they gotten easier now that resin has fallen?

J. Brendan Barba – Chairman, President and CEO: It’s always a battle. So, we’re – but sometimes we are fighting the battle. There was one recently where we didn’t even bid on it. We just thought the terms were even worse than we currently offer, and we just didn’t anticipate, so we’re walking away from things that don’t make sense to us.

Richard Kus – Jefferies: Can you provide any color on how much or I guess what percent of your business have you been able to shift over to some shorter contract terms versus previously?

J. Brendan Barba – Chairman, President and CEO: No because most of the contracts haven’t matured any new bids are what we are really handling.

Richard Kus – Jefferies: I see.

J. Brendan Barba – Chairman, President and CEO: They have to expire before we can change anything.

Richard Kus – Jefferies: Then lastly can you talk a little bit, you had mentioned north of $10 million for expected synergies from Webster. What kind of run rate have you realized so far?

Paul M. Feeney – EVP, Finance and CFO: We probably have a run rate already in the bank of somewhere around $5 million. That’s a run rate. But understand when we acquired Webster their profit in the prior year was the loss of $7 million. So we are still under pressure, regarding Webster profitability, we don’t expect Webster is going to become consistently profitable until towards the end of this year.

Richard Kus – Jefferies: Was it EBITDA positive in the second quarter.

Paul M. Feeney – EVP, Finance and CFO: No it was not but in the month of April they came very close to pretty good numbers. So what I can tell you is, Webster is improving.

J. Brendan Barba – Chairman, President and CEO: Just to clarify one thing the vast majority of the benefit in savings comes when the equipment is installed. We can’t take costs out until in any significant manner and any significant ones that are thought to take place again starting in July.

Richard Kus – Jefferies: Then lastly you had mentioned that you thought the company was going to continue to get better for the rest of the year. What were you referring to there, is that sales EBITDA basis?

J. Brendan Barba – Chairman, President and CEO: Yeah. I mean, every divisions seems to be – places where we didn’t need equipment before then now we’re asking for it. We have been expanding and picking up new business and things are really going quite well, I can always make that statement.

Volume

Roger Spitz – Bank of America Merrill Lynch: Paul, did you say that you now expect volumes to be closed to a below 1 billion pounds this fiscal year?

Paul M. Feeney – EVP, Finance and CFO: Yes. We expect total volumes to be, right now we’re projecting its slightly below 1 billion pounds, but it will be about $1.2 billion in sales.

Roger Spitz – Bank of America Merrill Lynch: I think, you had previously – on previous calls you were saying there is going to be little above, is that reduction due to with prices coming down and customers sort of holding off little bit that that’s a delta and that you don’t expect when prices finally bottom, they might do some make up volume?

Paul M. Feeney – EVP, Finance and CFO: Volume was down from where we expected it in the second quarter 2%, so that’s had some effect on it.

Roger Spitz – Bank of America Merrill Lynch: Is that fiscal year 2012 CapEx, is that expected to be 25 or 33?

Paul M. Feeney – EVP, Finance and CFO: 33.

Roger Spitz – Bank of America Merrill Lynch: 33, okay.

Paul M. Feeney – EVP, Finance and CFO: We moved it up from about 29 to about 33. And that’s really to accommodate a commitment we made to purchase a new corporate office in New Jersey.

Roger Spitz – Bank of America Merrill Lynch: And what is your sense of 2013 CapEx?

Paul M. Feeney – EVP, Finance and CFO: We’re expecting 2013 CapEx to be in the area of $30 million also. One of the final payments that has to be made on our Webster activity and some of our activities in our other businesses are really not expected to be made until 2013.