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Continental Materials Corporation Reports Unaudited Fiscal Third Quarter Results

Nov, 15 2013





Continental Materials Corporation (NYSE MKT: CUO) today reported a net loss of $242,000 for the third quarter ended September 28, 2013 or 15 cents per diluted share compared to the net loss of $191,000 or 11 cents per diluted share for the third quarter ended September 29, 2012.

Consolidated sales in the third quarter of 2013 were $28,865,000, a decrease of $301,000 or 1.0% compared to the third quarter of 2012. Sales in the Concrete, Aggregates and Construction Supplies (CACS) segment declined $858,000 (6.8%). An increase in ready mix concrete sales was more than offset by lower sales of aggregates and construction supplies. The lower aggregate sales reflect the low production yields from the Company's Pueblo gravel operation. Sales in the Door segment were $908,000 (29.5%) higher in the third quarter of 2013 compared to the comparable 2012 quarter. Sales in the Heating and Cooling segment were $796,000 (10.4%) lower in the third quarter of 2013 compared to the same period in 2012. The lower sales for this segment are attributable to a still weak demand for fan coils due to a slow pace of new hotel construction. Sales in the Evaporative Cooling segment were $531,000 (9.4%) higher in the third quarter of 2013 compared to the third quarter of the prior year. The higher evaporative cooler sales reflect a combination of moderately higher unit volume and an increase in average selling prices.

The operating loss in the third quarter of 2013 was $337,000 compared to an operating loss of $165,000 in the third quarter of the prior year. The operating loss of the CACS segment was $520,000 higher in the third quarter of 2013 compared to the same quarter of 2012.

Net interest expense was $95,000 in the third quarter of 2013 compared to $135,000 in the third quarter of 2012. The lower interest expense was largely due to the decreased level of debt.

Consolidated sales in the first nine months of 2013 were $87,935,000, an increase of $4,626,000 or 5.6% compared to the first nine months of 2012. Sales at all four of the Company's segments were higher in 2013 except for the Heating and Cooling segment. Sales in the CACS segment increased $2,063,000 (7.0%) while sales in the Door segment improved by $2,582,000 (27.1%). The increase in sales in these two segments is reflective of the continuing but moderate improvement in the southern Colorado construction markets. Sales in the combined HVAC businesses were only about .5% higher in the first nine months of 2013 compared to the first nine months of 2012 as a $791,000 improvement in the Evaporative Cooling segment was offset by a $580,000 decline in the Heating and Cooling segment.

The results for the first nine months of 2013 include charges of $726,000 pertaining to WEI. This subsidiary was established for the purpose of serving as the exclusive North American distributor of a product being developed by a third party. The performance of the product in a series of laboratory tests was not satisfactory. The owner of the technology and intellectual property ceased further development in 2013. The sole employee of WEI was terminated in February 2013. A settlement with this employee was reached in July 2013. The expenses for 2013 include a charge of $352,000 to establish a reserve for a note receivable from this employee and a severance payment of $225,000. The 2013 expenses also include approximately $50,000 of legal expenses incurred in connection with negotiating the settlement agreement. The expenses of WEI in the first nine months of 2012, including compensation of the sole employee, were approximately $268,000. The Company expects that any future expenses related to WEI, if any, will be minimal.

The operating loss, including the WEI expenses of $726,000, in the first nine months of 2013 was $1,096,000 compared to an operating loss of $2,329,000 in the first nine months of the prior year. The prior year operating loss included $268,000 of expenses associated with WEI. The lower operating loss is reflective of improved operating results at all four of the Company's segments. Substantially lower legal and depreciation expenses in the CACS segment were partially offset by the losses in its Pueblo aggregates operation.

In the first nine months of 2013 net interest expense was $274,000 compared to $400,000 in the first nine months of 2012. As discussed in the three-month discussion above, the lower interest expense was largely due to the decreased level of debt.

Income taxes are recorded based upon the effective rate for the year estimated at the end of each quarter. The effective rate estimated as of September 28, 2013 was a benefit of 36.5% compared to an estimated benefit of 37.0% for the first nine months of 2012.


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