28.04.11

Kadant Inc: Results for First Quarter 2011

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Kadant Inc. (NYSE:KAI) reported revenues from continuing operations of $71.7 million in the first quarter of 2011, an increase of $10.6 million, or 17 percent, compared to $61.1 million in the first quarter of 2010. Revenues in the first quarter of 2011 included a $1.0 million, or 1 percent, increase from foreign currency translation compared to the first quarter of 2010. Operating income from continuing operations in the first quarter of 2011 was $8.3 million, or 11.6 percent of revenues, compared to $4.7 million, or 7.7 percent of revenues, in the first quarter of 2010. Operating income in the first quarter of 2010 included income of $0.3 million related to a gain on the sale of real estate. Net income from continuing operations in the first quarter of 2011 was $5.8 million, or $.47 per diluted share, compared to $3.6 million, or $.29 per diluted share, in the first quarter of 2010. Net income from continuing operations in the first quarter of 2010 included an after-tax gain on the sale of real estate of $0.2 million, or $.02 per diluted share.

"We''re off to an excellent start in 2011," said Jonathan W. Painter, president and chief executive officer of Kadant. "Diluted EPS from continuing operations was $.47 in the first quarter of 2011 compared to our guidance of $.35 to $.37. The increase was due to record quarterly gross margins of 47.6 percent, with strong margin performances across all our product lines and territories.

"Revenues of $71.7 million in the first quarter of 2011 were within the range of our guidance and were up 17 percent compared to last year. Operating income from continuing operations was $8.3 million and, at 11.6 percent of revenues, reached the highest quarterly profitability level in almost eight years. Operating cash flows were only slightly positive, as expected, and were significantly impacted by the build up in inventory as we began sourcing material for several large systems orders that are scheduled for delivery later in the year. Nevertheless, we ended the quarter with $57.6 million in cash and $17.6 million in total debt, for a net cash position of $40.0 million, an increase of $19.5 million compared to a year ago.

"We also had a solid quarter in bookings. Consolidated bookings were $84.3 million, up 20 percent over last year''s first quarter and, with a book-to-bill ratio of 1.2, resulted in a backlog at quarter end of over $109.3 million – one of our highest levels ever. We were particularly pleased with the performance in our fluid-handling business where bookings of $27.0 million reached their highest level in almost three years. In addition, bookings in our higher-margin parts and consumables business grew to $48.7 million for the quarter.

"Our strong backlog position, combined bookings of $184.1 million in the past two quarters, and increased gross margins, have all contributed to an improved outlook for the rest of the year. As such, we expect to achieve diluted EPS of $.54 to $.56 in the second quarter of 2011 on revenues of $78 to $80 million. For the full year, we expect diluted EPS of $2.15 to $2.25, revised from our previous guidance of $1.65 to $1.75, on revenues of $315 to $325 million, revised from our previous estimate of $300 to $310 million."

Conference Call

Kadant will hold a webcast with a slide presentation on Thursday, April 28, 2011, at 11 a.m. eastern time to discuss its first quarter performance, as well as future expectations. To view this webcast, go to www.kadant.com and click on the "Investors" tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 outside the U.S. and reference participant passcode 83375884. An archive of the webcast presentation will be available on our Web site until May 27, 2011.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenues excluding the effect of foreign currency translation, adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.

We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends. In addition, we exclude from certain financial measures restructuring costs and gains on the sale of assets to give investors additional insight into our quarterly and annual operating performance, especially when compared to quarters in which such items had greater or lesser effect, or no effect. In addition, these items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain a better understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors'' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Adjusted EBITDA and adjusted operating income exclude pre-tax gains of $0.3 million in the first quarter of 2010.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables.

Financial Classification

Parts and consumables bookings are now being reported on a consolidated basis with the inclusion of amounts from our "other" category within the papermaking systems segment and fiber-based products.
                    
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
                            
                Three Months Ended
Consolidated Statement of Income           April 2, 2011           April 3, 2010
                        
Revenues         $     71,680               $     61,121     
                        
Costs and Operating Expenses:                 
    Cost of revenues             37,587                 34,246     
    Selling, general, and administrative expenses             24,473                 21,124     
    Research and development expenses             1,312                 1,372     
    Restructuring and other income (a)               -                     (302     )
                      63,372                     56,440     
                        
Operating Income             8,308                 4,681     
Interest Income             99                 38     
Interest Expense               (257     )               (358     )
                        
Income from Continuing Operations Before Provision                 
    for Income Taxes             8,150                 4,361     
Provision for Income Taxes               2,273                     716     
                        
Income from Continuing Operations             5,877                 3,645     
                        
Loss from Discontinued Operation, Net of Tax               (4     )               (4     )
                        
Net Income             5,873                 3,641     
                        
Net Income Attributable to Noncontrolling Interest               (82     )               (30     )
                        
Net Income Attributable to Kadant         $     5,791               $     3,611     
                        
Amounts Attributable to Kadant:                 
        Income from Continuing Operations         $     5,795             $     3,615     
        Loss from Discontinued Operation, Net of Tax               (4     )               (4     )
        Net Income Attributable to Kadant         $     5,791               $     3,611     
                        
                        
Basic and Diluted Earnings per Share from Continuing                 
    Operations Attributable to Kadant         $     .47               $     .29     
                        
Basic and Diluted Earnings per Share Attributable to Kadant         $     .47               $     .29     
                        
Weighted Average Shares:                 
        Basic               12,267                     12,411     
                        
        Diluted               12,408                     12,492     
                                                    
                                        

Increase
Excluding Effect
of Currency
Translation (b,c)
                                    
                Three Months Ended             
Revenues by Product Line           April 2, 2011           April 3, 2010           Increase     
                                        
Stock-Preparation         $     23,323         $     17,755         $     5,568             $     5,380     
Fluid-Handling             22,633             20,065             2,568                 2,103     
Doctoring             14,063             12,495             1,568                 1,408     
Water-Management             6,815             6,504             311                 203     
Other               700               650               50                     12     
                                        
    Papermaking Systems Segment             67,534             57,469             10,065                 9,106     
Fiber-based Products               4,146               3,652               494                     494     
                                        
                $     71,680         $     61,121         $     10,559               $     9,600     
                                        
                                        

Increase
(Decrease)
Excluding Effect
of Currency
Translation (b,c)
                                    
                                    
                Three Months Ended         

Increase
(Decrease)
    
Sequential Revenues by Product Line           April 2, 2011           Jan. 1, 2011           
                                        
Stock-Preparation         $     23,323         $     28,928         $     (5,605     )         $     (5,599     )
Fluid-Handling             22,633             21,570             1,063                 706     
Doctoring             14,063             13,812             251                 148     
Water-Management             6,815             6,584             231                 175     
Other               700               603               97                     79     
                                        
    Papermaking Systems Segment             67,534             71,497             (3,963     )             (4,491     )
Fiber-based Products               4,146               1,759               2,387                     2,387     
                                        
                $     71,680         $     73,256         $     (1,576     )         $     (2,104     )
                                        
                                        
                                        

Increase
Excluding Effect
of Currency
Translation (b,c)
                                    
                Three Months Ended             
Revenues by Geography (d)           April 2, 2011           April 3, 2010           Increase     
                                        
North America         $     35,140         $     29,718         $     5,422             $     5,107     
Europe             21,265             20,961             304                 245     
China             8,777             5,353             3,424                 3,023     
South America             1,583             1,091             492                 387     
Australia               769               346               423                     344     
                                        
    Papermaking Systems Segment         $     67,534         $     57,469         $     10,065               $     9,106     
                                        
                                        

Increase
(Decrease)
Excluding Effect
of Currency
Translation (b,c)
                                    
                                    
                Three Months Ended         

Increase
(Decrease)
    
Sequential Revenues by Geography (d)           April 2, 2011           Jan. 1, 2011           
                                        
North America         $     35,140         $     33,392         $     1,748             $     1,594     
Europe             21,265             22,998             (1,733     )             (1,736     )
China             8,777             12,339             (3,562     )             (3,814     )
South America             1,583             2,317             (734     )             (839     )
Australia               769               451               318                     304     
                                        
    Papermaking Systems Segment         $     67,534         $     71,497         $     (3,963     )         $     (4,491     )
                                
                Three Months Ended
Business Segment Information           April 2, 2011           April 3, 2010
                        
Revenues:                 
        Papermaking Systems         $     67,534             $     57,469     
        Fiber-based Products               4,146                     3,652     
                        
                $     71,680               $     61,121     
                        
Gross Profit Margin:                 
        Papermaking Systems             47.4     %             43.5     %
        Fiber-based Products               50.8     %               50.7     %
                        
                      47.6     %               44.0     %
                        
Operating Income:                 
        Papermaking Systems         $     10,697             $     6,304     
        Corporate and Fiber-based Products               (2,389     )               (1,623     )
                        
                $     8,308               $     4,681     
                        
Adjusted Operating Income (c,e):                 
        Papermaking Systems         $     10,697             $     6,002     
        Corporate and Fiber-based Products               (2,389     )               (1,623     )
                        
                $     8,308               $     4,379     
                        
Bookings from Continuing Operations:                 
        Papermaking Systems         $     80,268             $     66,968     
        Fiber-based Products               4,031                     3,219     
                        
                $     84,299               $     70,187     
                        
Capital Expenditures from Continuing Operations:                 
        Papermaking Systems         $     1,164             $     526     
        Corporate and Fiber-based Products               -                     13     
                        
                $     1,164               $     539     
                        
                Three Months Ended
Cash Flow and Other Data from Continuing Operations           April 2, 2011           April 3, 2010
                        
Cash Provided by (Used In) Operations         $     367             $     (555     )
Depreciation and Amortization Expense             1,865                 1,658     
                        
                        
Balance Sheet Data           April 2, 2011           Jan. 1, 2011
                        
Assets                 
Cash and Cash Equivalents         $     54,963             $     61,805     
Restricted Cash             2,687                 -     
Accounts Receivable, net             52,261                 49,897     
Inventories             51,517                 41,628     
Unbilled Contract Costs and Fees             1,538                 875     
Other Current Assets             11,961                 9,402     
Property, Plant and Equipment, net             37,469                 36,911     
Intangible Assets             26,502                 26,793     
Goodwill             100,608                 97,988     
Other Assets               10,002                     11,473     
                        
                $     349,508               $     336,772     
Liabilities and Shareholders'' Investment                 
Accounts Payable         $     26,054             $     23,756     
Short- and Long-term Debt             17,625                 22,750     
Other Liabilities               86,655                     82,965     
                        
    Total Liabilities         $     130,334             $     129,471     
    Shareholders'' Investment         $     219,174               $     207,301     
                        
                $     349,508               $     336,772     
                        
Adjusted Operating Income and Adjusted EBITDA         Three Months Ended
Reconciliation           April 2, 2011           April 3, 2010
                        
Consolidated                 
        Net Income Attributable to Kadant         $     5,791             $     3,611     
        Net Income Attributable to Noncontrolling Interest             82                 30     
        Loss from Discontinued Operation, Net of Tax             4                 4     
        Provision for Income Taxes             2,273                 716     
        Interest Expense, net             158                 320     
        Restructuring and other income (a)               -                     (302     )
                        
        Adjusted Operating Income (c)             8,308                 4,379     
        Depreciation and Amortization               1,865                     1,658     
                        
        Adjusted EBITDA (c)         $     10,173               $     6,037     
                        
Papermaking Systems                 
        Operating Income         $     10,697             $     6,304     
        Restructuring and other income (a)               -                     (302     )
                        
        Adjusted Operating Income (c)         $     10,697             $     6,002     
        Depreciation and Amortization               1,744                     1,541     
                        
        Adjusted EBITDA (c)         $     12,441               $     7,543     
                        
Corporate and Fiber-based Products                 
        Operating Loss         $     (2,389     )         $     (1,623     )
        Depreciation and Amortization               121                     117     
                        
        EBITDA (c)         $     (2,268     )         $     (1,506     )

(a) Represents restructuring income of $17 and a gain on the sale of real estate of $285 in the three-month period ended April 3, 2010.

(b) Represents the increase (decrease) resulting from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the current period.

(c) Represents a non-GAAP financial measure.

(d) Geographic revenues data is attributed to regions based on selling locations. For North America and China, this also approximates revenues based on where the equipment is shipped to and installed. Our European geographic data, however, includes revenues shipped to and installed outside of Europe, including South America, Africa, the Middle East, and certain countries in Asia (excluding China).

(e) See reconciliation to the most directly comparable GAAP financial measure under Adjusted Operating Income and Adjusted EBITDA Reconciliation.

About Kadant

Kadant is a leading supplier to the global pulp and paper industry. Our stock-preparation, fluid-handling, doctoring, and water-management equipment and systems are designed to increase efficiency and improve quality in pulp and paper production. Many of our products, particularly in our fluid-handling product line, are also used to optimize production in other process industries. In addition, we produce granules from papermaking byproducts for agricultural and lawn and garden applications. Kadant is based in Westford, Massachusetts, with revenues of $270 million in 2010 and 1,600 employees in 16 countries worldwide. For more information, visit www.kadant.com.

The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our expected future financial and operating performance and demand for our products. Important factors that could cause actual results to differ materially from those indicated by such statements are set forth under the heading "Risk Factors" in Kadant''s annual report on Form 10-K for the period ended January 1, 2011. These include risks and uncertainties relating to our dependence on the pulp and paper industry; significance of sales and operation of manufacturing facilities in China; our ability to expand capacity in China to meet demand; commodity and component price increases or shortages; international sales and operations; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; litigation and warranty costs related to our discontinued operation; our acquisition strategy; protection of patents and proprietary rights; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Contacts:

Kadant Inc.
Investor contact:
Thomas M. O''Brien, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715

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