CLEVELAND – Lesco, a provider of products for the professional green and pest control industries, announced first quarter results for the period ending March 31, 2004.
First quarter 2004 results
Net sales in the first quarter of 2004 increased 8 percent to $102.0 million from $94.5 million in the first quarter of 2003. Golf gross sales declined 4 percent to $17.2 million versus $17.9 million last year. Service-center sales grew 10 percent to $68.3 million from $62.0 million, while same-store service-center sales increased 5 percent to $64.9 million compared to $61.8 million in the same quarter last year.
“The early spring is an important selling season for our pre-emergent products,” said Michael P. DiMino, president and c.e.o. “Our key product focus during this period is pre-emergent fertilizers, which are blended fertilizers treated with a pre-emergence herbicide that kills weeds prior to their emergence from the soil. We are very encouraged that our pre-emergent sales increased 20 percent over the prior year.”
Cost of products was $68.9 million in the first quarter of 2004 compared to $63.8 million in the first quarter of 2003, resulting in a 32.4% product margin for both periods. Distribution costs for the quarter were $9.5 million, or 9.3% of net sales, compared to $10.3 million, or 10.9% of net sales for the same period last year. Gross profit increased to 23.1 percent of net sales, or $23.6 million, compared with $20.3 million, or 21.5 percent of net sales, in the same quarter last year.
Selling expense increased to $21.8 million in the first quarter of 2004 from $20.7 million for the same period in 2003. This increase included new service-center selling expense of $1.2 million in 2004 versus $0.3 million in 2003. In the first quarter of 2004, there were 30 new Service Centers operating versus 10 in the prior-year first quarter. Excluding new service centers, selling expense was $20.6 million versus $20.5 million, and improved as a percentage of net sales by about 80 basis points to 20.9 percent from 21.7 percent.
General and administrative expense was flat at $7.3 million in the first quarter compared with $7.4 million in the same period last year. As expected, merchant discount/provision for doubtful accounts expense increased to $1.6 million from about $0.5 million while interest expense decreased to about $0.4 million from $1.3 million.
Due to the seasonality of the Company’s industry segments, the first quarter is LESCO’s lowest sales volume quarter and has historically generated net losses. Loss before income tax decreased to $7.6 million in the first quarter of 2004 from $9.2 million in the first quarter of 2003. For the first quarter of 2004, the company reported on a generally accepted accounting principles basis a net loss of $8.0 million, or $0.92 per share, compared with a net loss of $5.7 million, or $0.68 per share last year.
The company’s GAAP results don't reflect a tax benefit related to the company’s first quarter 2004 operating loss because of the required accounting treatment for deferred tax assets. Assuming a tax rate of 39 percent, which Lesco typically uses to evaluate year-over-year performance, the company would have reduced its loss to $4.6 million, or $0.54 per share, compared with last year’s first quarter loss of $5.7 million, or $0.68 per share. This represents an improvement of 21 percent on a per share basis. The tax expense of $0.3 million for the first quarter of 2004 reflects an adjustment to the estimated tax refunds for prior years.
“Although our GAAP results are somewhat hard to interpret due to the required tax accounting, we are delivering on our initiatives,” DiMino said. “Our top line growth of 8 percent resulted in an 18-percent improvement in pre-tax loss, demonstrating our operating model’s ability to leverage our expense structure.”
Strengthened Balance Sheet
On a year-over-year basis, the company’s first-quarter 2004 balance sheet was strengthened by the 2003 sale of its receivables portfolio and credit financing activity and by the first quarter improvement of its cash flows from operations. First quarter 2004 cash flows from operations improved $37 million on a GAAP basis when compared with the same period last year. Lesco reduced its debt levels, with revolving bank debt reduced to $17.6 million and long-term debt reduced to $5.9 million, compared with $92.1 million and $9.9 million, respectively, in the same quarter of 2003.
2004 guidance unchanged
The company reiterated previously announced guidance for 2004 and anticipates full-year revenue growth between 3 percent to 6 percent, including a 3-percent to 5-percent increase in same-store sales. Its golf sector is anticipated to be flat to down 3 percent. For the full year, the company reiterated it expects diluted EPS in the range of $0.30-$0.40.