Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Nishu Sood - Deutsche Bank.
Nishu Sood - Deutsche Bank
I am trying to understand what you are seeing incrementally that has led to such a substantial reduction for your expectations for the fourth quarter. If I look at the components, your sales are kind of coming in line with where you’d expected, components costs may have not seen the benefit yet of declining commodity costs but I certainly wouldn’t have expected them to get worse. The only thing you mentioned was a product transition cost but I’m sure that can’t account for all of the shortfall here. So what exactly is it that you’re seeing and factoring in here that has led to such a sharp reduction in your expectations for the fourth quarter?
Nolan D. Archibald
Well, you mentioned commodity costs. They continue to be a strong headwind for us. You mentioned the transition costs that I mentioned in my prepared remarks. With several new listings that we’ve gained at our major retailers, we’re going to have some increased transition costs. And we are just very concerned about a very unpredictable economy out there. We find it very, very difficult to predict in this volatile economy. Lastly, Europe has decreased significantly as far as the macro economic conditions in Western Europe.
Steve, would you like to add anything?
Stephen F. Reeves
I think the main driver is Europe and our more pessimistic outlook relative to the top line there. In addition, when we provided guidance back in July it was probably at the low water mark for the US dollar versus most major currencies. Based on where currencies are today the translation effect of our international operations is greatly reduced from where we had provided prior guidance. The European economic issues and the currency translation are the two big drivers. There are other puts and takes including a little bit higher interest expense.
Nishu Sood - Deutsche Bank
About a year or two ago your European operation had achieved rough parity in terms of operating margins with the rest of the world with the US. How has that looked in the third quarter and how will that be in the fourth quarter?
Nolan D. Archibald
Year-to-date we’ve done still pretty well in Europe relatively speaking. In fact our European and international operations have very good margins right now but we see a slowing in Europe so those margins are going to be affected somewhat. We still have strong operating margins relative to other businesses.
- To read the full transcript on Seeking Alpha, click here »
