Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Matthew Dolan – Roth Capital Partners
Matthew Dolan – Roth Capital Partners
First looking at your gross margin, and Paul following up on your comments on pricing, a lot of detail there, but are you seeing or sensing any upcoming decrease in your ability to pass on these price expansions to your customer base with the overall economy and hospital spending the way it is, or do you anticipate that these will be able to offset the pressures going forward and I guess, the real question here is what would that imply for your gross margin in fiscal 2009 relative to what we saw in Q4 which was a few basis points below what we’ve seen in prior quarters?
Paul Meringolo
I think that as you can see from the margin side, we’re not this gigantic margin company. So I think the pricing that we ask for in the marketplace is absolutely fair and reasonable. We run a very tight ship here. So from a pricing standpoint I think—I don’t think we have any other choice but to stand firm when we go to our customers with increased price. I think from all perspectives we are the low cost producer and I think that if there is a competitor out there that’s willing to take the business below what we’re out there at—number one they would have had that business already. Number two it will be short-lived because I would believe anybody that’s importing from China is seeing the same pressure from a cost perspective, or they’re not good business people and eventually they’ll be in financial trouble and our customers will be back to us.
So we have to remain firm in our approach with our price increases but the one thing that will happen is, the increases that we’re looking for is purely just to cover our cost. If we’re able to do that, from a gross margin percentage standpoint, the margin will continue to be hit from a percentage standpoint, but I believe some of the things that we have in the works now from an increase standpoint, could take our margin back up to the 23% range.
Some of the things that we have to do from an efficiency side, as you can see, could add a point plus to margin as well. Just in Medegen alone. So I don’t want people to get this sinking feeling that we’re going to be a 19% margin company. I think we’ve got a lot of things in the works that are going to try in the next couple of quarters to offset that. This is not a switch that we’re going to flip and tomorrow it’s going to be 25% margin. Again this is a timing issue. We’re trying to be as reasonable as possible with our customers on some of these increases and trying to work with them from a timing and from an amount standpoint.
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