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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, ladies and gentlemen, and welcome to the fourth quarter 2006 PGT, Incorporated earnings conference call. My name is Tawanda. And I will be your coordinator for today. [OPERATOR INSTRUCTIONS]
I would now like to turn the call over to Mr. Jeff Jackson, CFO. Please proceed, sir.
JEFF JACKSON, CFO, PGT, INC.: Thank you, and good morning ladies and gentlemen. Welcome to PGT's fourth quarter 2007 conference call. I'm Jeff Jackson, CFO of PGT. And I'm joined by Rod Hershberger, President and CEO, who will represent PGT on this morning's call. Rodney will provide an overview of the company's performance for the quarter and fiscal year 2006. And I will provide the specific details.
We'll also discuss our continued efforts to advance our value enhancing strategy, discuss our thoughts on current market trends and conditions, and then take your questions.
We welcome those of you listening via the Webcast. Before we begin, let me remind everyone who is listening that today's conference call contains statements concerning the company's future prospects, business strategies, industry trends. Such statements are considered to be forward-looking statements under the Product Securities Litigation Reform Act of 1995.
These statements are based on current expectations, which are subject to risk and uncertainty. Actual results may vary materially from those contained in the forward-looking statements, because of certain risk factors, such as those listed in yesterday's press release, and in our prospectus filed with the SEC on June 27, 2006. We undertake no obligations to publicly update or revise any forward-looking statements.
If you have not seen the press release, a copy is posted on the investor relations Web site of our corporate Web site at www.pgtinc.com. Included in the press release are the unaudited consolidated balance sheets, a summary of consolidated statement of operations prepared in accordance with generally accepted accounting principles known at GAAPs, and pro forma information which was quantitatively reconciled to GAAP.
Our company uses non-GAAP measures as a key metric for evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial statements in accordance with GAAP. Rather, we believe the presentation of earnings, excluding certain items, provide additional information to investors to facilitate the comparison of past and present performance.
With that, let me turn the call over to Rod Hershberger. Rod?
ROD HERSHBERGER, PRESIDENT AND CEO, PGT, INC.: Thanks, Jeff, and good morning everyone. We have a number of items to share this morning, and we'll do so in the following order. First, I'll highlight our results for the fourth quarter and our 2006 fiscal year, and then provide an overview of some key strategic initiatives for 2007. Jeff will follow with a detailed review of our fourth quarter in 2006 fiscal year financials.
First, let me comment on the quarter. As I mentioned in our press release, the building industry continues to see significant deterioration in new construction starts as evidenced by a decline in new housing permits of 48% in the fourth quarter of 2006 versus the same period in 2005, while our revenues decreased 22.6% in the same period.
We were able to offset some of the decline in the industry by gaining market share through penetration of the shutter market or as we refer to it, the active impact-resistant market, and by focusing on our repair and remodeling [technical difficulty - audio drop] which was up approximately 6% over the same period last year.
For the fourth quarter, a combination of decreased volume and the rising cost of aluminum, partially offset by a favorable mix shift toward our WinGuard-branded and Architectural Systems product lines, and a decrease in SG&A spending, resulted in an adjusted net loss of $1.3 million, versus adjusted net income of $4.6 million in the prior year's quarter.
The declining revenues was drive by lower unit volumes, partially offset again by higher net price realization and product mix shift toward our WinGuard-branded and Architectural Systems product lines.
Sales of new construction and repair and remodeling, or as we'll refer to it through the rest of this conversation as R&R, accounted for 58% and 42% of our sales, respectively, compared to 69% and 31% for the same period in 2005.
We continue to invest in our marketing efforts. We increased our investment in advertising by almost two times from our 2005 level, $0.7 million versus $0.4 million, as we have funded our East Coast advertising campaign, focused primarily on Florida, the Gulf Coast and the Carolina markets.
We remain disciplined in our spending with our sales, general, and administrative expenses, which we have decreased by $5.1 million from the prior year quarter.
Pro forma diluted net loss per share was $0.05 for the fourth quarter, versus net income per share of $0.17 for the same period the prior year.
For the 2006 fiscal year, we delivered record sales of $371.6 million and record profitability. Adjusting for certain items related to the IPO and other non-recurring items, our net income was $26.3 million and pro forma earnings per diluted share was $0.94 per share versus $0.68 per share for 2005.
We continue to manage our capital structure well. Debt repayments totaled $154 million in 2006. And we recently repaid, in the first quarter of 2007, an additional $20 million.
As I mentioned before, like many building material suppliers in the industry, we are facing a challenging operating environment and expect the current market conditions to continue over the near term. The national housing market has been significantly impacted by the amount of excess inventory of homes, while in the past, the housing market has been affected by different market drivers. As a result, projecting sales is difficult.
We will try to mitigate these trends by, one, focusing on long-term growth strategy of product innovation by continuing to introduce new products and improving existing products; two, continuing to shift our product sales mix to higher-margin items, such as our WinGuard-branded and Architectural Systems product lines.
Finally, we are striving to serve the markets that have higher demand. Historically, when there have been slowdowns in new construction business, we have been able to successfully shift our sales mix toward R&R. The fundamentals for R&R activity remain good and we expect modest growth for the next few quarters.
While we continue to believe that we can outperform the overall industry by offering a superior product and unparalleled service to our customers, we are mindful that we need to reduce costs during industry downturns. However, as in the past, we view market downturns as an opportunity to gain market share from our competitors. So to that end, we have embarked on a two-pronged approach.
First of all, in order to grow market share, we've instituted several new programs over the last quarter. For instance, we've introduced new incentive programs offered to both our distributors, dealers, and the end customer.
We've increased marketing and sales efforts outside our dominant markets, including northern Florida, the Gulf Coast and the Carolinas. And finally, we've accelerated the new product rollouts and product line expansions …