29.07.10

Kadant: Q2 2010 Results

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Kadant Inc. reported revenues from continuing operations of $69.1 million in the second quarter of 2010, an increase of $19.0 million, or 38 percent, compared to $50.1 million in the second quarter of 2009. Revenues in the second quarter of 2010 included a $0.7 million, or 1 percent, decrease from foreign currency translation compared to the second quarter of 2009. Operating income from continuing operations in the second quarter of 2010 was $7.3 million compared to a loss of $1.2 million in the second quarter of 2009. Operating loss in the second quarter of 2009 included restructuring costs of $1.0 million. Net income in the second quarter of 2010 was $5.2 million, or $.42 per diluted share, versus a net loss of $1.2 million, or $.10 per diluted share, in the second quarter of 2009. Net loss in the second quarter of 2009 included after-tax restructuring costs of $0.7 million, or $.06 per diluted share.

"Our performance in the second quarter met or exceeded our expectations in several key areas," said Jonathan W. Painter, president and chief executive officer of Kadant. "Diluted EPS was $.42 in the second quarter of 2010, compared to our GAAP diluted EPS guidance of $.38 to $.40. Our reported diluted EPS included $.02 of incremental tax provision due to a higher effective tax rate compared to our guidance and $.01 of expenses related to a small acquisition we completed earlier this month. Our stronger EPS results were largely due to higher product gross margins which, at 45 percent, were the highest quarterly margins in the company's history. Gross margins were higher than last year's quarter in both our capital and aftermarket products and reflected better margins on capital projects as well as lower manufacturing costs resulting from the restructuring efforts we undertook in 2009.

"Revenues of $69.1 million were at the high end of our guidance, which was $67 to $69 million, and were up 38 percent over the second quarter of 2009, including a 66 percent increase in water management revenues. Revenues in this product line were at their highest level since the fourth quarter of 2006, and were particularly strong in both capital and aftermarket products in North America.

"Our working capital management continued to improve and our cash results were also encouraging. Operating cash flows were $9.0 million in the second quarter, an increase of 86 percent over the second quarter of 2009. We ended the quarter with a net cash position of over $24 million, or approximately $1.93 per diluted share.

"Bookings also exceeded our expectations. Bookings in the second quarter were $74 million, up 57 percent over the second quarter of 2009 and 6 percent over the first quarter of 2010. The sequential increase was largely due to several large stock preparation system orders, while our bookings for parts and consumables were down 6 percent sequentially. Sequential bookings in our fluid-handling and accessories product lines declined 14 percent and 7 percent, respectively, supporting our earlier view of a weaker second half of 2010.

"Overall, we had an outstanding first half of 2010, but as we look at the second half of the year we expect several key factors to influence our results. We expect a slowdown in bookings from the levels in the first half, which we believe included some pent-up demand from earlier periods. Also, we believe that gross margins will decline from the first half levels partly due to an unfavorable product mix in the second half of the year. And finally, our higher effective tax rate has the effect of lowering diluted EPS by $.04 for the year compared to our previous guidance. As a result, we expect to report GAAP diluted EPS of $.21 to $.23 from continuing operations in the third quarter of 2010 on revenues of $60 to $62 million. For the full year, we expect to achieve GAAP diluted EPS of $1.20 to $1.25 from continuing operations, revised from our previous estimate of $1.10 to $1.20, on revenues of $255 to $260 million, revised from our previous estimate of $255 to $265 million."

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 certain gains and losses 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 in the six-month period ended July 3, 2010 exclude net pre-tax gains of $0.3 million, including restructuring costs of $0.2 million, net of gains of $0.5 million from the sale of assets and a curtailment of a pension liability. Adjusted EBITDA and adjusted operating income exclude restructuring costs of $1.0 million and $1.8 million in the three and six-month periods ended July 4, 2009, respectively.

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

Conference Call

Kadant will hold its earnings conference call on Thursday, July 29, 2010, at 11 a.m. Eastern time. To listen, call 800-709-2159 within the U.S., or 973-582-2810 outside the U.S. Please reference Event ID number 86959297. You can also listen to the call live on the Web by visiting www.kadant.com and clicking on "Investors." An audio archive of the call will be available on our Web site until August 27, 2010.
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
                                
        Three Months Ended         Six Months Ended
Consolidated Statement of Operations         July 3, 2010         July 4, 2009         July 3, 2010         July 4, 2009
                                
Revenues         $     69,136             $     50,132             $     130,257             $     115,089     
                                
Costs and Operating Expenses:                                 
Cost of revenues             37,968                 29,348                 72,214                 69,665     
Selling, general, and administrative expenses             22,681                 19,248                 43,805                 41,453     
Research and development expenses             1,206                 1,722                 2,578                 3,192     
Restructuring costs and other income, net (a)             (21     )             1,013                 (323     )             1,770     
            61,834                 51,331                 118,274                 116,080     
                                
Operating Income (Loss)             7,302                 (1,199     )             11,983                 (991     )
Interest Income             32                 92                 70                 299     
Interest Expense             (339     )             (507     )             (697     )             (1,320     )
                                

Income (Loss) from Continuing Operations before Income Tax Provision (Benefit)
            6,995                 (1,614     )             11,356                 (2,012     )
Income Tax Provision (Benefit)             1,717                 (398     )             2,433                 2,066     
                                
Income (Loss) from Continuing Operations             5,278                 (1,216     )             8,923                 (4,078     )
                                
Loss from Discontinued Operation, Net of Tax             (5     )             (5     )             (9     )             (9     )
                                
Net Income (Loss)             5,273                 (1,221     )             8,914                 (4,087     )
                                

Net Loss (Income) Attributable to Noncontrolling Interest
            (53     )             28                 (83     )             3     
                                
Net Income (Loss) Attributable to Kadant         $     5,220             $     (1,193     )         $     8,831             $     (4,084     )
                                
Amounts Attributable to Kadant:                                 
Income (Loss) from Continuing Operations         $     5,225             $     (1,188     )         $     8,840             $     (4,075     )
Loss from Discontinued Operation, Net of Tax             (5     )             (5     )             (9     )             (9     )
Net Income (Loss) Attributable to Kadant         $     5,220             $     (1,193     )         $     8,831             $     (4,084     )
                                

Basic and Diluted Earnings (Loss) per Share from Continuing Operations Attributable to Kadant
        $     .42             $     (.10     )         $     .71             $     (.33     )
                                

Basic and Diluted Earnings (Loss) per Share Attributable to Kadant
        $     .42             $     (.10     )         $     .71             $     (.33     )
                                
Weighted Average Shares                                 
Basic             12,426                 12,265                 12,418                 12,386     
                                
Diluted             12,549                 12,265                 12,521                 12,386     
                                
                                Increase
                                Excluding Effect
        Three Months Ended                 of Currency
Revenues by Product Line         July 3, 2010         July 4, 2009         Increase         Translation (b,d)
                                
Stock-Preparation Equipment         $     25,004             $     16,444             $     8,560             $     9,132     
Fluid-Handling             20,070                 15,101                 4,969                 4,997     
Accessories             12,711                 10,877                 1,834                 1,952     
Water-Management             8,567                 5,151                 3,416                 3,385     
Other             601                 422                 179                 146     
                                
Pulp and Papermaking Systems Segment             66,953                 47,995                 18,958                 19,612     
Other (c)             2,183                 2,137                 46                 46     
                                
        $     69,136             $     50,132             $     19,004             $     19,658     
                                
                                Increase
                                (Decrease)
                                Excluding Effect
        Six Months Ended         Increase         of Currency
        July 3, 2010         July 4, 2009         (Decrease)         Translation (b,d)
                                
Stock-Preparation Equipment         $     42,759             $     45,618             $     (2,859     )         $     (2,738     )
Fluid-Handling             40,135                 30,838                 9,297                 8,238     
Accessories             25,206                 22,404                 2,802                 2,331     
Water-Management             15,071                 10,286                 4,785                 4,531     
Other             1,251                 836                 415                 310     
                                
Pulp and Papermaking Systems Segment             124,422                 109,982                 14,440                 12,672     
Other (c)             5,835                 5,107                 728                 728     
                                
        $     130,257             $     115,089             $     15,168             $     13,400     
                                
        Three Months Ended         Increase         
Sequential Revenues by Product Line         July 3, 2010         April 3, 2010         (Decrease)         
                                
Stock-Preparation Equipment         $     25,004             $     17,755             $     7,249             
Fluid-Handling             20,070                 20,065                 5             
Accessories             12,711                 12,495                 216             
Water-Management             8,567                 6,504                 2,063             
Other             601                 650                 (49     )         
                                
Pulp and Papermaking Systems Segment             66,953                 57,469                 9,484             
Other (c)             2,183                 3,652                 (1,469     )         
                                
        $     69,136             $     61,121             $     8,015             
                                
        Three Months Ended         Six Months Ended
Business Segment Information (c)         July 3, 2010         July 4, 2009         July 3, 2010         July 4, 2009
                                
Revenues:                                 
Pulp and Papermaking Systems         $     66,953             $     47,995             $     124,422             $     109,982     
Other             2,183                 2,137                 5,835                 5,107     
                                
        $     69,136             $     50,132             $     130,257             $     115,089     
                                
Gross Profit Margin:                                 
Pulp and Papermaking Systems             45     %             41     %             44     %             40     %
Other             51     %             45     %             51     %             39     %
                                
            45     %             41     %             45     %             39     %
                                
Operating Income (Loss):                                 
Pulp and Papermaking Systems         $     10,895             $     700             $     17,199             $     3,582     
Corporate and Other             (3,593     )             (1,899     )             (5,216     )             (4,573     )
                                
        $     7,302             $     (1,199     )         $     11,983             $     (991     )
                                
Adjusted Operating Income (Loss) (d):                                 
Pulp and Papermaking Systems         $     10,874             $     1,713             $     16,876             $     5,352     
Corporate and Other             (3,593     )             (1,899     )             (5,216     )             (4,573     )
                                
        $     7,281             $     (186     )         $     11,660             $     779     
                                
Bookings from Continuing Operations:                                 
Pulp and Papermaking Systems         $     72,811             $     45,586             $     139,779             $     90,852     
Other             1,445                 1,735                 4,664                 4,826     
                                
        $     74,256             $     47,321             $     144,443             $     95,678     
                                
Capital Expenditures from Continuing Operations:                                 
Pulp and Papermaking Systems         $     534             $     743             $     1,060             $     1,855     
Corporate and Other             219                 140                 232                 185     
                                
        $     753             $     883             $     1,292             $     2,040     
                                
        Three Months Ended         Six Months Ended
Cash Flow and Other Data from Continuing Operations         July 3, 2010         July 4, 2009         July 3, 2010         July 4, 2009
                                
Cash Provided by Operations         $     8,963             $     4,820             $     8,408             $     18,587     
Depreciation and Amortization Expense             1,697                 1,876                 3,355                 3,719     
                                
                                
Balance Sheet Data                         July 3, 2010         Jan. 2, 2010
                                
Assets                                 
Cash and Cash Equivalents                         $     47,206             $     45,675     
Accounts Receivable, net                             39,355                 36,436     
Inventories                             40,903                 37,435     
Unbilled Contract Costs and Fees                             4,416                 3,370     
Other Current Assets                             7,424                 8,355     
Property, Plant and Equipment, net                             36,400                 38,415     
Intangible Assets                             26,443                 28,071     
Goodwill                             92,670                 97,622     
Other Assets                             11,528                 12,277     
                                
                        $     306,345             $     307,656     
Liabilities and Shareholders' Investment                                 
Accounts Payable                         $     21,877             $     17,612     
Short- and Long-term Debt                             23,000                 23,250     
Other Liabilities                             67,189                 72,763     
                                
Total Liabilities                         $     112,066             $     113,625     
Shareholders' Investment                         $     194,279             $     194,031     
                                
                        $     306,345             $     307,656     
                                
        Three Months Ended         Six Months Ended
EBITDA Data         July 3, 2010         July 4, 2009         July 3, 2010         July 4, 2009
                                
Consolidated                                 
Net Income (Loss) Attributable to Kadant         $     5,220             $     (1,193     )         $     8,831             $     (4,084     )

Net Income (Loss) Attributable to Noncontrolling Interest
            53                 (28     )             83                 (3     )
Loss from Discontinued Operation, Net of Tax             5                 5                 9                 9     
Income Tax Provision (Benefit)             1,717                 (398     )             2,433                 2,066     
Interest Expense, net             307                 415                 627                 1,021     
Restructuring costs and other income, net (a)             (21     )             1,013                 (323     )             1,770     
                                
Adjusted Operating Income (Loss) (d)             7,281                 (186     )             11,660                 779     
Depreciation and Amortization             1,697                 1,876                 3,355                 3,719     
                                
Adjusted EBITDA (d)         $     8,978             $     1,690             $     15,015             $     4,498     
                                
Pulp and Papermaking Systems                                 
GAAP Operating Income         $     10,895             $     700             $     17,199             $     3,582     

Restructuring costs and other income, net (a)
            (21     )             1,013                 (323     )             1,770     
                                
Adjusted Operating Income (Loss) (d)             10,874                 1,713                 16,876                 5,352     
Depreciation and Amortization             1,578                 1,759                 3,119                 3,488     
                                
Adjusted EBITDA (d)         $     12,452             $     3,472             $     19,995             $     8,840     
                                
Corporate and Other (c)                                 
GAAP Operating Loss         $     (3,593     )         $     (1,899     )         $     (5,216     )         $     (4,573     )
Depreciation and Amortization             119                 117                 236                 231     
                                
EBITDA (d)         $     (3,474     )         $     (1,782     )         $     (4,980     )         $     (4,342     )
                                
                                

(a) Includes pre-tax restructuring costs of $198, net of a pre-tax gain of $219, in the three-month period ended July 3, 2010 and pre-tax restructuring costs of $1,013 in the three-month period ended July 4, 2009. Includes pre-tax restructuring costs of $181, net of a pre-tax gain of $504, in the six-month period ended July 3, 2010 and pre-tax restructuring costs of $1,770 in the six-month period ended July 4, 2009.
                                

(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 prior period.
                                

(c) "Other" includes the results from the Fiber-based Products business.
                                

(d) Represents a non-GAAP financial measure.

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry, with a range of products and services for improving efficiency and quality in pulp and paper production, including paper machine accessories and systems for stock preparation, fluid handling, and water management. Our fluid-handling products are also used to optimize production in the steel, rubber, plastics, food, and textile 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 $226 million in 2009 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, demand for our products, and industry and economic outlook. 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 quarterly report on Form 10-Q for the period ended April 3, 2010. 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; international sales and operations; competition; soundness of suppliers and customers; our debt obligations; restrictions in our credit agreement; soundness of financial institutions; litigation and warranty costs related to our discontinued operation; our acquisition strategy; future restructurings; factors influencing our fiber-based products business; 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.

Contact:
Kadant Inc.
Investor contact:
Thomas M. O'Brien, 978-776-2000

SOURCE: Kadant Inc.
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