AEP Industries Earnings Call Nuggets: Waxahachie Details and Polyethylene

AEP Industries (NASDAQ:AEPI) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Waxahachie Details

Dan Cashava – KSA Capital Partners: Brendan you had mentioned on the call that there were some transportation challenges in moving equipment around and other factors. When do you think those issues will resolve themselves and also you mentioned that to some degree they were fairly material?

J. Brendan Barba – Chairman, President and CEO: Well, maybe I should get a little bit into the detail of what caused that. Put an expansion on our plant in Waxahachie, Texas to support our canliner growth and with that, we put in racking systems to hold the stock, the canliner business that we’re in is basically a firm stock business, and if you want an idea of the magnitude of it, we’re adding 8,000 rack positions or 8,000 skids. We had nothing but trouble from the town of Waxahachie. They slowed us down to a point where we had no place to put the finished goods. We had to – until the racks were complete, until we received all of the approvals; and by the way, they also delayed the building which was also delayed, and we had equipment coming in, so we were right up against the limit. We did at our end of it and the town didn’t. So we took millions of pounds of product and five major customers and moved them to our Montgomery, Alabama plant at a cost of probably $0.025 a pound. We continue with that – all the lines are running, they are debugging lines, the racking won’t be done probably for – most of it will be done in July. There’s – about another 1,000 of the 8,000 plus comes in August. Probably in August or July, we will start moving some of those customers back, and again we will incur the cost to remove the product and ship it back to Waxahachie. And that’s also been somewhat disruptive in terms of service because it’s a couple of days to get the product out of the plant, put in stock, put away et cetera, that’s another day. So it slowed us down on service issues with the customers.

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Dan Cashava – KSA Capital Partners: And then just a follow-up to that maybe. Your volume in the quarter was down, I think, 1% to 1.2%, correct?

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

Dan Cashava – KSA Capital Partners: If I look at all of the companies that we track in packaging, particularly in films, that was certainly no worse and in many cases a lot better than most companies that reported their second quarter numbers. And so I guess – you don’t think you lost any share, do you?

J. Brendan Barba – Chairman, President and CEO: Well, when you say lost any share there’s in every months every quarter there’s bids that we participate in. That can be transactional bids where the customer says I need two truckloads this month, or it can be contractual. And those bids are where we are not – because we are price managing the business, those bids are where we are not as sharp as we used to be, and we lose some of those bids. That’s literally dozens and dozens in every month. So I couldn’t – it might even be 100 a month.

Dan Cashava – KSA Capital Partners: But that’s part of the strategy that you really began implementing not last quarter, but the last couple of years?

J. Brendan Barba – Chairman, President and CEO: Yes, we’ve been more in price management and stating that we want to improve margin et cetera. And that’s a gradual process, it takes time.

 

Polyethylene

Andrew Cash – SunTrust Robinson Humphrey: Just a couple. On the resin, if I heard that correctly, $0.09 per pound increased year-to-date. Was that all polyethylene or that include some other plastics as well?

J. Brendan Barba – Chairman, President and CEO: Well, we typically talk about polyethylene. Those increases were polyethylene. I don’t know if we had another. But PVC prices went up also, but not as much as $0.09. I don’t have that specific, if you want it I can get it for you…

Andrew Cash – SunTrust Robinson Humphrey: No, that’s okay. I am just curious if, with such a big move on a percentage wise that’s a big move for short period of time and based on what you were saying earlier about price increase buying, I guess I’m a little surprised that the volume wasn’t up year-over-year or is it just that the economy is that bad in the year?

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J. Brendan Barba – Chairman, President and CEO: Well, there is a combination of things that went on. Again we did not get all the volume out the door from either Webster or Transco as a result of some disruption of supply and I’m telling you now that, that is recovering nicely as we speak. We did price manage the business, how much of that is related to the general economy versus price managing the business versus the supply disruption, I could never give you that as a percent of the 2%. But (indiscernible) had some impact what’s going on.

Andrew Cash – SunTrust Robinson Humphrey: Just finally I don’t know do you have any exposure to the export market outside of North America?

J. Brendan Barba – Chairman, President and CEO: We export virtually nothing.

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