Baldor posts 2008 income gain despite bad fourth quarter

Fort Smith-based Baldor Electric Co. survived 2008 with a 6% increase in net income, but was hit with a 20% net income decrease in the fourth quarter of 2008.

Baldor designs, markets and manufacturers electric motors, motor drives and generators.

The company reported Thursday afternoon that its net income for 2008 was $99.42 million, up 6% over the $94.1 million in 2007. Total sales in 2008 were $1.95 billion, up 7% over the $1.82 billion in 2007.

Net income in the fourth quarter of 2008 was $18.6 million, down 20% from the $23.37 million posted in the same period of 2007. The per share earnings of 40 cents fell below the consensus estimate of 42 cents per share.

“Earnings during the quarter continued to be negatively impacted by increases in raw material costs. For the entire year, we paid nearly $100 million more for roughly the same amount of materials than we did during the prior year. We believe these costs will improve in 2009,” Baldor Chairman and CEO John McFarland noted in the earnings press release.

The increased costs hit the company in the wallet, with its cash flow from operations dropping from $163 million in 2007 to $103.2 million in 2008.

Baldor announced Dec. 15 it would eliminate 900 jobs from its workforce. The company stressed that the reduction would come from normal attrition rather than job cuts. Baldor officials estimated then that cost savings from the employee reduction would be about $60 million. The company, which operates in 28 plants in five countries, employed about 8,300 as of June 2008.

Overall, company officials expect to achieve $80 million in cost reductions announced in December.

“We expect 2009 to be a challenging year,” McFarland advised in the earnings release. “However, we have faced challenging years before. We believe we came out of those years stronger and in a better position to gain new customers and market share than anyone in our industry.”

Baldor shares (NYSE: BEZ) closed Thursday at $13.13, down 58 cents. During the past 52 weeks, the share price has ranged from a $39.90 high to a $10.71 low.

Other points covered in the Baldor earnings statement include:
• Sales of Super-E® premium-efficient motors continued to grow at more than 30% for the quarter and 25% for the year.

• During the quarter, international sales increased 18% and were a record 19% of total sales. For the period, sales increased at a double-digit rate in Latin America, Asia Pacific, and Canada and decreased slightly in Europe.

• During the quarter, the price Baldor paid for electrical steel was 65% higher than one year ago. Also, the company did not get the benefit of falling spot prices for copper because of its hedging strategy. Company officials anticipate lower copper costs in the second half of 2009.

• While Baldor is only required to make debt reduction of approximately $7 million during 2009, the company said it expects to repay a minimum of $125 million. The company’s total debt as of Jan. 3 was $1.32 billion.

• The company plans to invest $37 million in capital expenditures in 2009 compared to $46 million in 2008. This includes covering maintenance needs of approximately $15 million.