Baldor shareholders updated on ‘tough’ year

Fort Smith-based Baldor Electric Co. held its annual shareholders’ meeting Saturday (May 2), just days after the company reported another quarter of declining sales and income. With that, one might think the mood would be somber.

It was anything but somber, thanks to a management optimistic about potential growth and a share price that has gained more than $6 between April 15 and May 1. Shares of Baldor (NYSE: BEZ) closed May 1 at $23.24, up $3.26 for the week.

Baldor CEO John McFarland drew a roar of laughter when noting the recent marriage between two Baldor employees was good because the company was able save on health care costs.

“We take these cost savings seriously, don’t we?” McFarland joked.

‘TOUGH ENVIRONMENT’
All kidding aside, the company is serious about its cost cutting and the “tough environment” that has put serious downward pressure on the company’s operating margins, McFarland said.

Baldor, a maker, designer and marketer of electric motors, motor drives, power transmissions and generators, reported April 29 first-quarter net sales of $402.47 million, down 14% from the first quarter of 2008. Net income — excluding a one-time accounting gain from debt-modification proceeds — in the quarter was $14.8 million, or 42% lower than the same quarter in 2008.

McFarland and Ron Tucker, Baldor president and chief operating officer, said the company is on track to cut $80 million in costs from its 2009 budget, with $9 million of that coming from consolidation of manufacturing operations. Part of the savings come from a planned workforce reduction of 900 that began in December and is expected to be complete by June 2009. The reductions, McFarland stressed, come from normal attrition and not through layoffs.

Tucker said the cost savings and other operational efficiencies resulted in a higher operating margin of 11.2% in the first quarter compared to 10.8% in the fourth quarter. Tucker said the improved operating margins in the face of a difficult economy might be a reason the share price has seen recent gains.

Tucker said the second quarter of 2009 is likely to be another tough quarter, with a potential 20% decline in sales. He said conditions should improve in the second half of the year and, at the latest, the first half of 2010. His reasons for confidence are that many if its distributors have purged inventories and soon will have to restock, raw material costs will decline, recently implemented cost reductions will begin to appear as savings and the overall economy should improve.

Baldor, which posted record sales in 2008 of $1.95 billion, employs between 7,500 and 8,000 in 28 plants in five countries and sales offices serving more than 80 countries. About 2,000 are employed in the Fort Smith area.

SHAREHOLDER PROPOSALS
In the formal business portion of the meeting, the company’s four shareholder proposals were approved.
• Proposal 1: Re-elected to the nine-member Baldor Board of Directors were Merline Augustine Jr. (board member since 2000), Baldor CEO John McFarland (board member since 1996) and Robert Proost (board member since 1988) be re-elected to the board for terms ending in 2012.

• Proposal 2: Shareholders approved Ernst & Young as the company’s public accounting firm. Ernst & Young received $1.949 million for audit and accounting fees in 2008.

• Proposal 3: Shareholders approved amending the 2006 Equity Incentive Plan by increasing to 1.5 million the shares available to the plan. As of March 16, the plan had 837,483 shares available in a plan open to about 4,800 Baldor employees.

• Proposal 4: Shareholders approved a plan for tax deductible executive incentive compensation. The IRS now requires deductions of compensation up to $1 million if the compensation meets certain criteria. The IRS code requires the plan be approved by shareholders.