JLG post a loss for first quarter
JLG Industries has announced revenues for the first quarter of its fiscal year to October 31st of $306.7 million, up 44 percent from the same period in 2003.
In spite of the record sales levels the company reported a net operating loss of $8.3 million compared to an operating income of $9.76 million last year. The explanation for the poor Result is highlighted in the gross margin which dropped from the normal 18 percent level to eight percent, arising from an estimated unrecovered steel cost increase of $26.8 million and production inefficiencies resulting from component shortages.
The net loss for the period was 8.7 million compared to a net profit last year of $500,000
JLG had warned that the first quarter, historically its most difficult, would be a challenge this year, but steel increases and production challenges exceeded predictions. The second quarter is also expected to be difficult with price increases only coming in gradually on orders placed from September the strong backlog of over $200 million slows the flow-through of the price increase.
The second half, typically a better period anyway, will also benefit from the fact that all equipment shipped will include all planned and implemented price increases.
"As we mentioned in our last quarterly call, we had expected the first quarter to be our most challenging of the current fiscal year," stated Jim Woodward, executive vice president and chief financial officer.
"This expectation was based on seasonally lower sales, the anticipated high price of steel and other raw materials, capitalized variances carried into the quarter, continued inefficiencies resulting from capacity constraints in the supply base, and a strong order backlog which was not subject to our announced September price increase. At that time, we forecasted net unrecovered steel costs in the quarter in excess of $20 million. As the price of steel increased even further than forecast, the actual impact was $27 million. We had previously forecast weighted average steel prices for the year to be up 75 percent over the prior year. We now forecast that the increase will be over 100 percent. Component availability from suppliers remained constrained and resulted in manufacturing inefficiencies of $6 million during the quarter.
Commenting on the outlook, Bill Lasky, chairman of the board, president and CEO stated, "Our near term focus is on how we respond to increasing raw material costs, specifically steel, in the face of our customers' expectations of prices and how we overcome supplier constraints. Although we achieved significant cost reductions and integration synergies last year, the price increases we implemented did not cover the higher cost of steel and associated variances. Therefore, we are compelled to pass through additional price increases to our customers to offset these rising costs".
"We expect to achieve an effective six percent price increase in January in the form of an increased steel surcharge, base price increases and reductions in customer discounts. Every shipment after December 31st will be subject to the new pricing, including orders currently in the backlog.
"Despite the volatility of steel pricing and component shortages, we maintain optimism for the year. Order patterns remain strong and our customers indicate a continued need for new equipment. Therefore, we are reaffirming our previous estimate of revenue growth of 10 to 25 percent for fiscal 2005. We are also targeting earnings per share in the range of $1.00 to $1.15 for fiscal 2005. This represents a significant improvement over fiscal 2004 and assumes stability in commodity prices and improved supplier deliveries as capacity investments are realised.
"Our second quarter will continue to be challenged by these issues but will be mitigated by a reduced amount of capitalized variances entering the quarter and the price increases effective in January. We expect the second half of our fiscal year, our seasonally strongest, to see the full benefits of the price increases, reduced supplier shortages and therefore improved manufacturing efficiencies and the favorable impact of our current cost reduction activities