Baldor Electric Company (NYSE:BEZ) markets, designs, and manufactures electric motors and drives and is based in Fort Smith, Arkansas. Baldor today announced that sales and earnings for the first quarter 2001 will be less than planned and less than the first quarter of 2000. Earnings are expected to be in the range of $0.21 to $0.25 per share compared to a record $0.35 per share in the first quarter of 2000.
"While we serve a large number of markets, many of the markets we serve have shown a decline during the first quarter of 2001”, commented John A. McFarland, President & CEO. “We expect sales to decline in the quarter in a range of 4 to 6%."
"As sales have slowed, a number of actions have been taken to improve performance during the balance of the year. While our near-term expectations are guarded, we are optimistic over the long-term. We are confident in our ability to improve our performance during the remainder of the year", said McFarland.
The following questions and answers should help you better understand our current situation and our outlook for the balance of the year.
Q… Is it a broad based decline in orders, or are a few specific industries affecting the incoming order rate?
The decline in orders has been broad based. We're fortunate to serve a large number of end markets, which normally provides us with stability. However, we've seen a slow-down in many of the end markets we serve.
Q… Have you completed your previously announced plant consolidations in Europe and when do you believe these will begin to show some benefit?
We will complete our plant consolidation in Europe during this month. While sales have also slowed some in Europe, we believe we will begin to see improving profitability there during the second quarter. In the long-term, this consolidation will allow us to take much better care of our customers and be more profitable in Europe.
Q… Is your finished goods inventory in balance?
Yes. We have been adjusting our finished goods inventories downward because of our reduction in lead times to two weeks. Our finished goods inventory will decline slightly in the first quarter of 2001 and is in good balance.
Q… Are you making progress toward your goal of doubling your margins in the drives business?
Yes, we are making progress toward this goal. A number of cost reductions will be implemented and some current projects will be completed during the balance of this year. We feel these actions, along with the consolidation in Europe and the addition of some new products, will help us improve our profitability in this important part of our business. Drives are about 20% of our total sales.
Q… Have you completed the expansion of your plant in Ozark, Arkansas, and do you need this additional capacity with the reduction in orders you have experienced?
We are completing the expansion of the plant in Ozark, Arkansas, and the transition of products to that plant from our plant in Columbus, Mississippi, during March. This allows us to improve the performance of both plants while also increasing capacity at both plants. This increased capacity is needed, especially for large motors that are selling above the rates of last year.
Q… In December you announced a price increase. Have you been able to implement it?
Yes, we implemented our price increase on March 12th. This modest price increase is our first in 5 years. This increase will offset increases we have seen in material cost.
Q… Do you still have a focus on developing new products and are you making progress in this area?
Yes, we continue to focus on expanding our product line both for new and existing customers and for new markets. During March we introduced a new price sheet that contained approximately 500 new products. Some of these new products, like our commercial motor, are beginning to generate new business. We have also expanded our capability in larger motors, which we feel will add measurably to our sales later in the year.
Q… How is the acquisition of Pow'R Gard Generator Corporation going?
We are satisfied with our acquisition of Pow'R Gard Generator Corporation, announced in the 4th quarter of 2000. These products give us an entry into the fast growing standby generator market. We are finding many opportunities to expand the distribution of Pow'R Gard products through the Baldor sales organization. We expect Pow'R Gard sales to grow faster this year than our overall sales growth the past several years.
Q… Why is your outlook for profits during this quarter down so much more than sales?
Plant productivity has suffered due to the lower sales volume and a reduction we're making in finished goods inventory due to our lower lead times. We are adjusting to these lower volumes, but we are not adjusting in ways that would limit our flexibility to take care of increased volumes, as our customers require them later in the year. We could quickly adjust by laying off people, as other companies in our industry have done. However, we believe this would be a bad, long-term approach. We plan to adjust to these lower sales volumes without losing our good, experienced people.
Q… What does your balance sheet look like?
During the first quarter our cash flow has funded our needed capital investments, modest share repurchases, and debt reduction of over $6 million. We will experience improved cash flow during the quarter due to inventory reductions and quicker collection of our receivables. Our balance sheet is in excellent condition.
Q… What are your expectations for sales during the balance of the year?
Near-term we see continued difficulty, but we see improving sales in the last half of the year.
Q… Are you losing market share to someone else?
No. We do not believe we are losing market share to anyone else. In fact, we believe we may be gaining some market share in larger motors - one of our key strategies.
Q… Do you expect stronger sales as a result of the increasing cost of electricity and the uncertainty of electricity in some parts of our nation?
We continue to be optimistic about the opportunities we have as a result of higher electricity costs and the uncertainty of supply in some areas. With over 60% of the electricity generated in the United States being used to run electric motors, we are in a position to help industrial electricity consumers lower their costs through the use of Baldor high efficiency motors and drives. In some applications, electric motor users can save as much as half of the electricity consumed by using Baldor Super-E motors and variable speed drives. Many believe electricity will increase greatly in cost and some areas will be in short supply. We believe Baldor is well positioned to help solve many of these problems.
Q… When will you update us again?
We will provide up to date information at the Baldor Shareholders’ Meeting being held in Fort Smith on April 28, 2001.