CLARCOR Inc. (CLARCOR) has reported net sales of $1.01 billion for the fiscal 2008, up 15%, compared with the net sales of $0.92 billion in the previous year-end. It has also reported a net earning of $96 million, or $1.86 per share, for the fiscal 2008, compared with the net earning of $91 million, or $1.78 per share, in the previous year-end.

Fiscal 2008 fourth quarter net earnings increased by 9% and diluted earnings per share increased by 6%. Fiscal 2008 net earnings increased 6% from 2007, and diluted earnings per share increased by 5%.

Fourth quarter operating margins in 2008 were 17.3% compared to 16.8% in 2007; full year operating margins improved to 14.3% in 2008 from 14.1% in 2007. Foreign currency fluctuations lowered fourth quarter 2008 sales and operating profit by $6 million and $1 million, respectively, but increased full year 2008 sales and operating profit by $9 million and $1 million, respectively.

Norm Johnson, CLARCOR’s chairman and chief executive officer, said, “Fiscal 2008 marked CLARCOR’s 16th consecutive year of sales and earnings growth, but it was certainly not a typical year. Fortunately, the diversity of our filtration businesses and the breadth of our product lines and customer base offset unusual fluctuations during 2008 in product demand and material costs in many of our markets. Rather than focusing on our operating segments as I usually do, I want to discuss our performance by market channel for 2008 and our expectations for 2009.”

“First though, I want to highlight that over 80% of our filtration products are sold into the replacement aftermarket. That is, our filter products are purchased, used and then repurchased continually during the year. In other words, these are not primarily one-time sales for which we have to constantly find new customers, but are sales of products that are continually in demand, in both good and bad times.”

“Market channels which demonstrated strong demand for most of 2008 included oil and natural gas exploration and transmission, aerospace (which for us means filters used on aircraft), filters used on agricultural, mining and construction machinery, aviation fuel filtration systems and filters, and dust collector systems and replacement cartridges. Markets that showed largely consistent or slower growth in demand during 2008 included environmental filters sold for non-automotive HVAC applications, filters used in plastic and fiber resin manufacturing and filters used in pharmaceutical manufacturing. Over-the-road truck mileage and locomotive traffic declined in 2008. However, our filter sales to the over-the-road truck market were about even with 2007; though filter sales to the railroad market declined slightly in 2008. Sales to the automobile manufacturers and automotive parts suppliers were less than 4% of our total sales in 2008. So even though sales to these customers dropped noticeably, the impact on CLARCOR overall was not significant.”

“Towards the end of 2008, we began to see a slowdown, as did many companies, in sales demand across most markets in the U.S. Importantly, and largely because of the broad diversification of our markets and products, growth still continued during the fourth quarter in many markets and particularly for aerospace, aviation fuel, dust collector cartridges and oil and gas, though at a slower rate than earlier in the year. Overseas, and mostly in Asia, growth was still good in the fourth quarter, but again not at the pace we saw in 2007 or earlier in 2008.”

“Our acquisition of Perry Equipment Corporation in December 2007 added approximately $29 million in sales in the fourth quarter and $116 million in sales for all of 2008.”

“Our packaging business grew in 2008 from 2007 with higher operating profit and increased margins. This was also the case for the fourth quarter as operating profit grew by over 35% and operating margins reached 11.3% compared to 8.8% in 2007. Because of the economic slowdown, we expect packaging sales and operating profit in 2009 to be approximately equal to sales and operating profit in 2008.”

“It was a very unusual year for raw material costs. There were significant increases in metals, oil and natural gas, resins and adhesives, packaging materials and filter media prices during the first three quarters of the year. We were largely successful at raising our sales prices to match these cost increases or offsetting them through productivity improvements in our manufacturing plants. Suddenly, in the fourth quarter, hydrocarbon and most metals prices declined significantly. Though these declines did not materially impact our input costs in the fourth quarter, we expect to see these declines reflected in our cost structure throughout 2009. In addition, we have implemented a very aggressive cost reduction program to further contain manufacturing overhead and administrative costs.”

“The CLC Air restructuring program remains a very important project. We were disappointed at the results at CLC Air in 2008 as we expected a significant improvement in operating profit, which did not materialize. We now believe the results we had expected in 2008 will be achieved in 2009, and the $14 million improvement in operating profit anticipated by the end of 2009 we now expect to occur by the end of 2010. More specifically, we had budgeted an operating profit at CLC Air in 2008, and this did not happen, though fourth quarter 2008 results were significantly better than 2007’s fourth quarter results and also better than any other quarter in 2008. Our goal for 2009 is an operating margin for this business of 3% to 5%, and in 2010 an operating margin of 7% to 9%. We will be consolidating our four Louisville, Kentucky area facilities into one location in Jeffersonville, Indiana in early 2009. We expect that this will be the last major plant consolidation effort in the restructuring plan. Most of the equipment we had ordered for all of our plants throughout the U.S. will be in place and in production by the middle of 2009.”

“So far, I have discussed the markets we serve, but not the results of our business segments. Not only did our operating profits set a record, but our 2008 operating margins of 14.3% were the highest in 16 years. Our Engine/Mobile segment operating margin declined slightly to 22.6% in 2008 from 23.0% in 2007. Our Industrial/Environmental segment improved its operating margin to 8.4% in 2008 from 6.1% in 2007. Our near-term operating margin goal for this segment remains at 10%. The improved margin is due to the higher margins we earn in our liquid filtration businesses, and the margin improvement will come from the success of our CLC Air restructuring program. Finally, our Packaging segment also improved its operating margin to 8.6% in 2008 from 7.2% in 2007.”

“Fiscal 2008 was another strong cash flow year for CLARCOR. Cash provided by operating activities was $107 million for 2008. We did not repurchase any of our common stock during the fourth quarter of 2008 as we felt that it was more prudent to reduce debt and maintain financial flexibility. Credit availability clearly became difficult towards the end of 2008 for even the most credit worthy U.S. companies. We are very fortunate to have a very strong balance sheet with debt, net of cash, to total capital of 6.2%. We are also fortunate to have a credit facility enabling us to borrow up to $250 million at an attractive borrowing rate. This credit facility does not expire until December 2012.”

“Because of declining interest rates during the quarter, we recorded a $500,000 charge to interest expense under our interest rate swap agreement. For the entire year, the mark-to-market charge to interest expense was approximately $2 million and reduced the increase in net earnings in 2008 by $1.3 million. At year-end, our liability under the agreement was approximately $2 million and this amount will reduce interest expense during fiscal 2009 and the first month of 2010.”