Twin Disc CEO: Demand for products continues to increase

Will Atkinson | Apr 22, 2008 3:48pm EDT | Comment

Rating: Unrated [rate it]

Twin Disc, Inc. (Nasdaq:TWIN) CEO Michael Batten said demand for the boat equipment maker’s commercial and high-end pleasure craft marine products continues to increase. Batten said the company does not see any weakness in the European mega yacht market. Batten made the comments during an afternoon conference call.

“The final three months should be another good quarter and we remain optimistic about the fiscal year 2009,” Batten said.

There is continuing high-wealth demand from the United States and Europe, but Batten said the fastest growth rate is coming from Russia, China, the Middle East and India. The firm has continued demand for mega yacht products in the United Kingdom and Italy. Mega yacht demand is fairly recession proof, Batten said.

“You’re dealing with people who are exceedingly wealthy and they’re not going to be terribly affected by what’s happening in terms of normal economy,” Batten said. “Yes, a terrible market crash might give some pause but you’re talking about people that can afford to buy a $50 million to $100 million yacht. You’re pretty well insulated.”

The chief executive also said the firm is also looking at acquisition targets that would complement the company’s manufacturing and distribution segments.

“We’re looking at all the areas. We’re not targeting one particular area or another,” Batten said. “We’re targeting marine and land-based opportunities.”

Before Tuesday’s opening, Twin Disc reported third-quarter net sales of $85.8 million, down from $86.4 million a year earlier. Net earnings for the three months ended March 28 totaled $7.9 million, or $0.70 per share, compared with $7.5 million, or $0.64 per share, a year earlier.

“Overall, we are pleased with the results of the third quarter,” Batten said. “They compare well against the same period last year, which was the best third quarter in the company’s history.”

Lower sales volume, higher sales of low-margin products and lower sales of high-margin products hurt the Racine, Wis.-based firm’s quarterly results, Batten said. These negative trends were partially offset by higher pricing and expanded outsourcing, he said.

Quarterly gross profit declined to $26.6 million from $28.2 million a year ago. Order backlog for the next six months has reached a record high, the CEO said.

“We are encouraged by recent order activity in both our industrial and oil and gas transmission markets,” Batten said. “We expect that our foreign sales will exceed domestic sales this year and have a stabilizing affect on revenues.”

Marketing, engineering and administrative expenses fell to $15 million from $15.9 million during the prior-year period. As a percentage of sales, the expenses were 17.4% compared with 18.4% a year ago.

“We remain focused on lowering our operating costs,” Batten said.

Batten said the firm is not in a position to apply all its debt capacity to stock buybacks.

“Yes, [stock buybacks] enhance the value of the shares on a short-term basis but it doesn’t necessarily address the long-term value enhancement of the company,” Batten said.

In afternoon trading, TWIN shares are up 12.42%, or $1.87, at $16.93. Over the last 52 weeks, share have ranged between $12.07 and $41.99.