Propex earnings impacted by slow housing market; company able to reduce costs by $11 million

By Lisa Kerner

Charlotte, N.C., May 14 - The ongoing weakness of the housing market hurt earnings at Propex Inc. but the company believes the problems will ease during the remainder of the year and has plans to cut costs and expand its sales, president and chief executive officer Joseph F. Dana said during the company's first-quarter earnings call on Monday.

"Although we generated an adjusted EBITDA of $12.7 million, the continuing decline of the housing market negatively impacted our business more than we expected," Dana said.

"We were impacted by unusual and erratic weather conditions which created havoc with our construction business."

Despite the slumping housing market and poor weather, Dana remained somewhat optimistic.

"For the balance of the year, we expect the declining housing market to moderate and the general construction business to stabilize," he noted.

Going forward, Propex plans to focus on new product development, growing market share, optimizing its manufacturing footprint, reducing costs and improving working capital.

Chief financial officer Lee McCarter said that despite a significant decline in volumes from last year, Propex "is on track to meet cost savings objectives of $11 million in 2007."

For the three months ended April 1, Propex reported total net revenue of $154.2 million, down 19.4% from $191.2 million in the prior-year period. The decline was attributed to a decrease in North America furnishings net revenue of $36.1 million, a decrease in North America industrial products net revenue of $9.2 million and a decrease in North America geosynthetics net revenue of $1.7 million.

Selling, general and administrative expenses were down to $23.8 million for the quarter, from $26.0 million for the three months ended March 31, 2006. Propex attributed this decrease to lower costs as a result of the integration of SI Corp.

Income before interest and taxes increased for the quarter by $12.7 million to $3.2 million, from a loss of $9.5 million for the same quarter in 2006.

Propex is an Atlanta-based producer of primary and secondary carpet backing and a manufacturer and marketer of polypropylene synthetic fabrics used in other industrial applications.

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