Now that Xerium Technologies has emerged from bankruptcy and has posted two consecutive quarters of rising sales, the next step is a return to profitability.
"We certainly didn't go through everything we just did in order to continue to lose money," said Stephen Light, CEO of the Raleigh company, which makes products used to manufacture paper.
The 3,300-employee business saw its revenue plummet 28 percent to $500 million last year as its customers struggled through the recession. Light is not predicting when it will start making money again.
But he was decidedly upbeat about the company's prospects in a nearly hourlong interview in his office at the company's Six Forks Road headquarters.
Paper manufacturing, which declined last year, is expected to rise as much as 8 percent this year, he said. Meanwhile, the company has positioned itself to take full advantage of reviving sales by slashing its operating costs - including a 20 percent reduction in the number of factories it operates - reducing its annual debt payments by nearly 40 percent and halving the inventory of products it keeps on hand.
"We've weathered what some people would say is the worst recession since the Depression, and we have come out the other side with a much better balance sheet," he said.
Imperial Capital analyst Kevin Cohen hasn't issued quarter-by-quarter projections, but he forecasts that next year, Xerium will be profitable on an annual basis. In his latest report, issued in June, he wrote that investing in Xerium is a way for investors to "participate in a global rebound in the volume of pulp, paper, and board product produced." Cohen rates the company's debt a "buy" and rates its stock as "in-line," the equivalent of a "hold."
"The company's relatively low profile with the financial community at present following its recent emergence from creditor protection creates an opportunity for investors to own an underfollowed story with an improving macro backdrop," Cohen also wrote.
But that thinking hasn't yet taken hold on Wall Street. The company's shares have fallen 27 percent this year - and have fallen by more than half since rising above $26 in early May. On Monday, the company's shares fell 22 cents to close at $11.08.
Paper-making companies such as International Paper and Temple-Inland have also suffered significant declines in the past few months as investors fret that the economic recovery may not take hold and that the paper industry will consequently suffer.
Until recently Light, a turnaround specialist who has headed the company since February 2008, deliberately kept a low public profile. But with the company entering a new phase, he's engaging the media and analysts with meetings and by conducting quarterly conference calls to discuss the company's earnings.
"What would I have told you two years ago?" Light asked. "Anything that I would have offered would have been a promise."
The company's pre-packaged bankruptcy enabled it to reduce its debt from $620 million to $410 million and lower its annual debt payments by almost 40 percent to less than $50 million - an amount that Light says is "absolutely" manageable. The company emerged from bankruptcy at the end of May.
Unlike most bankruptcies, Xerium's did not wipe out shareholders in the process. Instead, pre-bankruptcy shareholders own 17.4 percent of the outstanding shares today, a number that could rise to 24 percent if those shareholders exercise their warrants for additional shares.
During Light's tenure the company has also been cutting expenses, including the elimination of about 800 jobs, or 20 percent of its worldwide work force. Today the company has about 15 employees at its Raleigh headquarters and 50 in Youngsville, and is shifting another 15 workers from the Boston area to Raleigh.
Cuts may not be over
Light hasn't declared an end to the job cuts or factory closings. "We will continue to look at all our facilities on an ongoing basis," he said. But earlier this year the company resumed matching its U.S. employees' 401(k) payments and reinstated merit pay increases after an 18-month freeze. In addition, the company has set aside $32 million in capital expenditures this year, up from $15 million last year, as part of efforts to increase its output of new products.
It's part of the company's strategy to capitalize on the creativity and initiative of its workers to produce new products that will differentiate it from the competition. The goal is to achieve 60 percent of its revenue from products developed within the previous five years by 2012. That's up from 30 percent today and 19 percent in 2008.
Now that the company is out of bankruptcy, Light said, "the future is up to us. It's not up to the bankers. It's a pretty exciting time."
