Clarcor Earnings Call Insights: On-Road vs. Off-Road Market, Gas Projects

On Thursday, Clarcor Inc. (NYSE:CLC) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

On-Road vs. Off-Road Market

Brian Drab – William Blair: First question, just on the sales to your independent distributors domestically you talked about February and March numbers. Can you give us any insight into what happened in April and May?

David Fallon – VP – Finance and CFO: April and May continued to be relatively flat. If you look at the March orders those were down 3%. There is a little bit of a recovery in April and then May ticked down a little bit. So, overall the quarter was flat and it was really a significant drop off from what we experienced in February.

Brian Drab – William Blair: Then David in your prepared comments you said that there were certain off-road products that I think were weaker. It sounds like most of the weaknesses was in the on-road market. Is that fair and what were some of the certain off-road end markets that showed some weakness?

David Fallon – VP – Finance and CFO: Yes, and as we discussed previously, we don’t know exactly what our very specific air between off-road and on-road is. We estimate that probably 60%, 65% of our products are on-road. We build a filter for an engine. We are not absolutely positive where every filter is going on to an engine to specific application. But broadly based, the off-road we have ag which continues to be fairly strong for us. We internally give that a green light. Mining was relatively flat. We give that a yellow. And construction equipment was certainly down. We internally grade that a red.

Brian Drab – William Blair: Okay. And then if I could ask a couple more quick ones, regarding these new OEM programs, what else happened there that allowed you to win business with these major OEMs that you haven’t been able to – that you didn’t have in this type of position within the past?

Chris Conway – CEO: I think the breadth of our product line and our ability to cover their needs effectively is one of the key things, just the whole ability to support them in an aftermarket way is one of the key elements that they are looking at.

Brian Drab – William Blair: Okay. That’s fair. All right I’ll follow-up with you more later.

Gas Projects

Brian Sponheimer – Gabelli & Company: So, just staying with the Engine business, talk about you mix on the on-highway business between the independent distributors and the OE distributors and your respective exposure there?

David Fallon – VP – Finance and CFO: Our independent distributor market is certainly our largest market. We estimate that’s probably 60% of our total sales. The remaining 40% is split-up between many channels, including the OES. The OES segment alone is probably 10% to 15% of the remaining 40% there.

Brian Sponheimer – Gabelli & Company: How would you characterize the results within that channel in the quarter?

David Fallon – VP – Finance and CFO: The decline in our sales to aftermarket independent distributors was – or the flatness, I would say was a little bit more pronounced than what we saw on the OES side.

Brian Sponheimer – Gabelli & Company: Just if I could moving along to the Industrial division, you noted that some of you strengthened in that gas market on a global basis, but more or less left out. Have you seen a material drop off in net gas projects as the pressure on natural gas has come in over the course of last few months?

Chris Conway – CEO: I don’t think, Brian this is Chris. I don’t think what we’re seeing as a drop off on the project side as much as maybe on the capping of wells and everything has cut back on some of the aftermarket side. Our shift, what’s happened is there has been a shift of resources across the industry into what are called the natural gas liquid market, where they go into wet fields that have extractable they can use to feed refineries. So, we’re seeing a lot of deployment of project work, a lot of shift field service people into areas like the Southern Texas area, into the Eastern Ohio Utica area, the Marcellus area where they’ve – the resources are directed more at what they call natural call natural gas liquid plays.

Brian Sponheimer – Gabelli & Company: Finally If I could just, you had $140 million in cash, $126 million in net cash and we’re more likely to see some sort of material pick up in cash flows as the year goes on despite your CapEx build. Any change in priorities as far as use of that cash as you get to a point where you’re well north of $120 million, $130 million, $140 million in net cash in the balance sheet?

David Fallon – VP – Finance and CFO: I would say our priorities have remained relatively consistent with prior years, prior period. The one thing that I need to remind everybody about is that even though the balance sheet shows the $140 million of cash, we have about $75 million that is offshore. So, that $75 million is essentially trapped offshore unless we want to bring it back and recognize a pretty significant tax hit. So, if you look at the domestic cash which is a little bit over $60 million, I would say our priorities for that it continues with what we’ve said in the past which is to invest on internal technology expansion in R&D to find an opportunistic acquisition and we look at acquisitions everyday and number three to evaluate stock repurchases.