LESCO Shares First Quarter Statistics

CLEVELAND – Michael DiMino, president and chief executive officer of LESCO, is optimistic, yet realistic about the company’s performance during the first quarter of 2002. “It’s not a great quarter, but it’s good,” he said during a first quarter earnings conference call broadcast online earlier today. “We will get better, and there’s a lot of room for improvement for us.”

Since first quarter sales increased 3 percent over last year’s numbers, jumping from $90.7 million to $93.5 million, LESCO is already on track for further improvements for customers, shareholders and employees. In addition, gross profit on sales is up 10 percent, from $27.4 million to $30.1 million, said Jeffrey Rutherford, senior vice president and chief financial officer of LESCO.

DiMino, who has headed up the company since former president Bill Foley’s resignation earlier this month, attributed the moderate first quarter growth to the sheer nature of the industry – landscape and lawn care professionals are simply not purchasing products during the off-season. “We always have a poor first quarter relative to our customers and the way they work,” he said. “It’s not a robust quarter in terms of sales opportunities.” Nevertheless, mild weather in the first few months of 2002 has helped the company jumpstart sales for the rest of the year, he added.

As part of the company’s strategic growth plan, LESCO management plans to focus on customer satisfaction, shareholder value, business process improvement, expense controls and associate productivity, according to a slide presentation accompanying the conference call. Further, in order to create value, the company will need to maintain return on invested capital so that it is greater than the capital costs, DiMino stated. “We’re managing expenses so we can keep surprises down to a small amount,” he said.

In terms of individual business segments, LESCO’s lawn care sales experienced a 7.6 percent increase over that of first quarter 2001, while the golf segment remained fairly flat (increasing 0.9 percent) and national accounts decreased slightly, by about 5 percent. “We’re very careful about our business approach on a national bases, and we’re not afraid to walk away from unprofitable business if necessary,” DiMino remarked.

Change in product segments between first quarter 2001 and first quarter 2002 varied, according to the slide presentation. Fertilizer and combination products went up 2.24 percent; control products rose 11.9 percent; equipment, parts and service decreased 3.8 percent; turfgrass seed products rose 11.5 percent, and other; which includes pest control, golf accessories, irrigation and miscellaneous, fell 9.3 percent. “Our product mix is going in the right direction for us, and is helping us with our overall gross margin strategy,” DiMino said.

With the 10 percent increase in gross profit on sales and an increase of 195 basis points, LESCO is well on its way to achieving another goal: a 150 basis point improvement for 2002. “We’re excited by the first leg of this marathon,” DiMino commented. “We came out of the gate in a healthy fashion.”

First quarter costs include warehouse delivery expenses, which rose 2 percent from $9.4 million to $9.6 million, selling expenses, rising 3 percent from $17.8 million to $18.3 million, and general and administrative costs, which increased 15 percent between first quarters 2001 and 2002, from $7.5 to $8.6 million. Additional costs include interest expenses, which fell 32 percent, from $1.9 to $1.3 million, between first quarter 2001 and 2002.

DiMino also discussed LESCO’s far-reaching plan for the rest of 2002, which focuses on the following points:

• Four to 5 percent sales growth
• Gross margin increase of 150 basis points
• Expense increase of approximately $2 million or 1 percent of sales

To help offset some of the rising costs, LESCO already has implemented a 1- to 2-percent increase in product price. “It will help us with an overall increase in margins,” DiMino noted.

And, even though drought has plagued much of the country for the past few months, current costs and business choices have not been affected by the lack of rain, DiMino pointed out. “What we’re doing is being cautious so that all of the numbers we have talked about will not be affected,” he said. “Drought could affect us in the northeast in June or July, but it doesn’t appear that it’s going to be an issue or affect long-term guidance this year.”

As DiMino settles into his new position as president and chief executive officer of LESCO, he appeared confident that the company would thrive during the remaining three quarters of 2002 and beyond. “The good news is we have a solid base to go from, a lot of capacity and the ability to make excellent product,” he said.

To listen to a re-broadcast of today’s LESCO conference call, click here.

The author is Assistant Editor – Internet of Lawn & Landscape magazine and can be reached at kmohn@gie.net.