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Xerium Technologies Inc. Message Board

  • milkbaby47 milkbaby47 Apr 18, 2012 6:37 PM Flag

    Am considering a position in xrm

    But the debt load seems excessive. What was management's reason for taking on this level of debt? Note that insider ownership is almost nil. PEG ratio and other metrics look compelling, but...

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    • can you be more specific about their tight budget and professionalism?
      For example, can you explain despite low demand,fixed cost problems, and regional duplication why did they increase their production last financial year?
      do they really follow a real strategy rather than giving excuses every quarter?
      How did they reach 200th smart roll order just 2-3 weeks before the earnings call? are these are *just* orders or genuine orders? I hope we'll see that these are genuine orders and not just some "those type of sales orders" to increase accounts receivable during rainy times.

    • thats surprising I use to work for this company management was very good about the way they conducted business. Very professional they had a real tight budget and they was always in the good. great company I expect big things soon.

    • frigrdn21, you are really good at quickly digesting balance sheets and making quick decisions that can reap juicy short term returns. In this case, I have to agree with kc_nyg_5; a second bankruptcy is highly unlikely (never say never) and the company is finally seeing the benefits of the first everywhere but Europe.

      I have not done my "dig deep" review yet, but a few comments. Principal debt was reduced roughly $10 million in the last year. More would be better but the global manufacturing footprint is near completion and the company is well positioned to thrive with any economic rebound. In fact, ex-Europe it is happening now.

      Noted in the PR and on the call, "North American Rolls business experienced higher sales in mechanical services and new roll cores which include costs related to steel cores that are billed as a pass-through item to the customer. These mechanical products and services earn lower margins than our traditional roll covered products, but we accept them as a means to secure the more profitable cover work they accompany." I like the vertical integration and should help to support an increase of market share in rolls vs. the OEMs. Eliminating a European sales agency relationship added cost this quarter and will not hit break even for over two years, but I can see the logic of that move.

      On PMC, I was delighted to see that Albany's PMC revenues declined far more (-12% ex-currency) than did Xerium's (-3.9%).

      Lastly, I breathed a sigh of relief when Light said his retirement date will be later than December if a suitable replacment is not found. I have been frustrated by how long it has taken to replace upper management, but they do it right. (I wonder if Dan Loeb was listening and breathed something else when he heard that!)

    • xrmmike: Given your location, I can understand your opinion about management and I share it regarding the disastrous decision making by Apax and former CEO/Chairman Guterriez. The "what were they thinking?" moves date back to before the IPO, when an attempt to sell the company produced a best bid a few million dollars below the billion dollar target minimum. The failure to hit the target share price on the IPO, the outrageously high dividend on the reduced IPO, and the laissez fair approach Apax took in the first few years clearly disadvantaged the company even before the credit crisis occurred.

      It can certainly be argued that CEO compensation is too high for a company of this size in an industry with at best GDP growth potential. However, I would not expect the next CEO to be as highly compensated. Stephen Light was selected because of his success in turning around troubled companies and that's a value add that may to some extent justify his compensation.

      I am but a humble (as in far-from-rich) retail investor who took too little profit in the run up last year. A few years ago, I responded to an email from Stephen Light asking for feedback on the earnings call. His attitude that shareholders, large and small, are the owners of the company lead to further contact and tours of Stowe Woodward and Weavxx factories. As a result, I understand this company better than I had ever expected. I recap my experience primarily to reveal my potential bias regarding management.

      My view is that a plan was put in place very quickly after Apax selected Light. Tough decisions were made to position for the rapid secular decline of newsprint and more still to cope with the world-wide recession. Overall thought, the company has persisted in implementing the plan. Despite the leveling off and declines over the last few quarters (somewhat cyclical) and the current stock price (painfully low), I am reasonably confident there are better days ahead.

      Finally, it is clear that Xerium employees have had a rough time as have many other employed and unemployed people. I have experienced the lip service paid to "our employees are our most important asset" mantra where I previously worked. The fact that the company match was increased by 100 bps when the 401k match was restored suggests it is more than lip service at Xerium.

    • "another BK is almost a certainty."

      huh? the bottom on the business is in, that much is clear. even if they only do EBITDA of $19M per quarter, that's $76M annualized, less $38M for interest, less maintenance capex levels of $15M, you're left with $23M for debt repayment, which represents almost 40% of their market cap.

      a better guess for EBITDA is $85-90M, which leaves $30M of free cash flow. at these levels, i would not expect them to spend the full $30M on capex as debt reduction will be a higher priority.

      at these levels, covenants are not an issue until late 2013, if then at all.

      i think mgmt was pretty clear that permanent cost reductions are also a priority.

      this is not a great business, and in a perfect world it would be less leveraged. but if you're looking for a BK i suggest you look elsewhere.

      and if you think the banks, with the European holder out of there, want another BK then you have a very limited understanding of the current conditions in the bank loan market -- a waiver is a lay-up, chief.

    • This company has been plagued by mismanagement from the beginning, This company should have never went public, All the CEO's from the time it went public have only lined there pockets, They have no interest in the company being successful.

    • Things are looking bleaker then I thought. Business dropping despite some decent innovation progress. Debt interest payments are destroying their bottom line. Losses in currency differences are draining them as well. Another BK is almost a certainty. If I was in Light's place, I would force the debt holders to shed at least another $200M from the total or take their chances with Chapter 7, where they will recover .10 on the dollar.

    • They had over $600M in debt in 2010. They were forced into pre-packaged BK and shed $150M. Debt holders took 87% of common shares in exchange for the $150M. Old shareholders exchanged old shares for 13% of new shares, but the debt load is still a little too much. Light should have cut a better deal, since he had the debt holders on the ropes, but that's water under the bridge.
      As you can see by institutional and insider holdings, the debt holders bailed out soon after the exchange. The remaining institutional holders are mostly index funds. At $5, it's a good bet. They might have to force the debt holders into another Pre-packaged BK to reduce the debt to more manageable levels (around $200-250M) or sell the company. They might be able to get $600-700M for the company.

      • 1 Reply to frtgrdn21
      • interesting. thanks for that analysis and info. have either of you considered a position in their 2018 bonds?

        currently trading @ 85 cents on the dollar with a 8.875% coupon. gives you an annual yield well over 12%.

        cusip = 98416JAB6

        you are right, for a prepack, surprised they only got rid of $150MM.

        also i know that there are two different classes of notes out there. one is senior/secured and the other's are unsecured. based on the credit rating of the cusip above, i am going to guess that these bonds are unsecured. and folks like us might not be able to buy the secured float anyways.

 
XRM
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