Q2 2007 Angelica Corp Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter Fiscal 2007 Earnings Conference Call. At this time, all phone lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given to you at that time.

(OPERATOR INSTRUCTIONS)

Ladies and gentlemen, if I may have your attention today. Any forward-looking statements made during the course of this teleconference reflect the Company's current views with respect to future events and financial performance, and they are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and may cause actual results to differ materially suggested by such statements.

These potential risks and uncertainties include, but are not limited to, competitive and general economic conditions, and other factors identified in yesterday's press release and the Company's most current Form 10-K filed with the Securities and Exchange Commission.

Today's conference call is also being recorded and with that being said, I would now like to introduce our host. Here with opening remarks is Angelica Corporation's Chairman and CEO, Mr. Steve O'Hara. Please go ahead, sir.

STEVE O'HARA, CHAIRMAN AND CEO, ANGELICA CORPORATION: Thank you, Doug. Good morning, everyone. Thank you for joining us on our second quarter fiscal 2007 earning conference call. I apologize for my voice this morning. I am getting over a little cold. With me on today's call is Jim Shaffer, Angelica's CFO. Before Jim walks us through the details of yesterday's announcement, I'm going to make a few overall comments and I'll come back afterwards and make a few more.

We're happy to report that our Delightful Service initiative is showing progress is eight of our nine markets. However, we are disappointed to report that the difficulties in our Edison Service Center have not only inhibited progress in our former New York City/New Jersey market, but made this market unprofitable.

The progress that we anticipated in Edison did not materialize in the second quarter, so as we announced yesterday, we have decided to sell or close the Edison facility before the end of this year. We know that our investors are waiting for a payoff from out Delightful Service initiative in which includes 100% fill rates, higher quality of linen initially installed and zero-defect tolerances once installed, as well as innovative new products like Angel Sliders and Angel kits.

These new products address specific healthcare needs, such as better infection control and greater nurse and patient safety in a cost efficient manner. Continuing to work on correcting Edison would distract our focus from these major initiatives. Recognizing that Delightful Services is the cornerstone of our entire strategy, we believe it is appropriate to put the Edison distraction behind us.

After Jim walks you through some of the details of the earning release, I'll offer a few more thoughts on the subject. Jim?

JIM SHAFFER, CFO, ANGELICA CORPORATION: Thanks, Steve. Good morning, everyone. Revenues were $107.6 million in the second quarter fiscal 2007, a 2.2% increase from the $105.3 million recorded in the second quarter fiscal 2006. Despite the divestiture of non-healthcare business in the past 12 months, that represented $1.3 million of revenue in last year's second quarter.

Total healthcare revenues increased 3.3% while non-healthcare revenues declined by about $1 million, or 22%, due to the divestitures. Pricing improvements accounted for most of the 2.4% organic growth increase but was partially offset by a volume decrease of 2.1% primarily related to a customer contract that we did not renew due to its poor profitability.

For the first half of 2007, revenues were $215.4 million, a 1.4% increase from $212.3 million recorded in the first half of 2006. Organic growth contributed a 1.7% increase in revenues from pricing improvements that more than offset a 2.6% volume decline. Total healthcare revenues increased 2.6% in the first half this year, while non-healthcare revenues declined due to the prior divestiture of non-healthcare accounts.

Gross profit in the second quarter fiscal 2007 was $14 million, a 7.7% decrease from $15.1 million in the second quarter of 2006. Gross profit margin was 13% in the second quarter 2007, compared to 14.4% for last year's second quarter. The primary contributors to the gross margin decline were the operational difficulties at our Edison, New Jersey service center which negatively impacted the entire New York/New Jersey market as Steve mentioned.

That market's gross profit declined $1.9 million quarter-over-quarter as a result of higher production payroll, repairs and maintenance and delivery costs which we incurred to correct deficiencies at the Edison facility. Including the New York/New Jersey market --I'm sorry, excluding the New York/New Jersey market, the other eight markets realized a gross margin of 15.4% for the second quarter of fiscal 2007, up from 14.8% in last year's second quarter.

Merchandise costs increased from 17.3% of revenues in last year's second quarter, to 18.8% in this …