06.08.09

Kadant: Results for Second Quarter 2009

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Kadant Inc. reported revenues from continuing operations of $50.1 million in the second quarter of 2009, a decrease of $42.3 million, or 46 percent, compared to $92.4 million in the second quarter of 2008. Revenues in the second quarter of 2009 included a $4.2 million, or 5 percent, decrease from foreign currency translation. Operating loss in the second quarter of 2009 was $1.2 million compared to operating income of $10.1 million in the second quarter of 2008. Included in operating loss from continuing operations in the second quarter of 2009 was $1.0 million in restructuring costs. Net loss in the second quarter of 2009 was $1.2 million, or $.10 per diluted share, versus net income of $6.9 million, or $.50 per diluted share, in the second quarter of 2008. Net loss in the second quarter of 2009 includes a $0.7 million, or $.06 per diluted share, after-tax restructuring charge. Adjusted net loss, a non-GAAP measure, in the second quarter of 2009 was $0.5 million, or $.04 per diluted share, compared to net income of $6.9 million, or $.50 per diluted share, in the second quarter of 2008.

Adjusted Net (Loss) Income and Adjusted Diluted (Loss) Earnings per Share (EPS) Reconciliation (non-GAAP)
          

Three Months Ended
July 4, 2009
          

Three Months Ended
June 28, 2008
    
    ($ in millions)           Diluted EPS         ($ in millions)           Diluted EPS     
Net (Loss) Income and Diluted EPS Attributable to Kadant, as reported         

$ (1.2)
        

$ (.10)
        

$ 6.9
        

$ .50
    
Less: Restructuring costs, net of tax               0.7                     .06                     -               -     
Adjusted Net (Loss) Income and Adjusted Diluted EPS         $     (0.5     )         $     (.04     )         $     6.9         $     .50     

“The weak demand for paper and the low paper machine operating rates are reflected in the drop in our second quarter revenues,” said William A. Rainville, chairman and chief executive officer of Kadant. “However, we had a number of encouraging achievements in a very challenging operating environment in the second quarter. We exceeded our EPS guidance, primarily due to better-than-expected operating results and a lower tax provision. In addition, our product gross margins were a solid 41 percent, cash flows from operations remained healthy at $4.8 million, and we reduced our net debt by $5.0 million, ending the quarter at $2.3 million. At the end of the second quarter and in the first weeks of July, we saw a number of orders being placed for our stock preparation systems, particularly in China, where we booked two orders at the end of June for OCC stock preparation systems valued at approximately $1.8 million. And more recently, one of Latin America’s largest tissue producers selected us to supply a turnkey stock preparation system for approximately $8 million. Although we have been notified of our selection and have received a down payment, the contract is not finalized and will not be recorded as a booking until we receive a signed contract.

“We continue to see positive results from previously announced cost-reduction actions focused on streamlining our operations to reflect lower business levels. Our selling, general, and administrative expenses were 29 percent lower in the second quarter of 2009 compared to the same period in 2008, and $3 million lower than the first quarter of 2009. Nevertheless, our cost reduction efforts have not been able to keep pace with our revenue declines.

“Bookings in our Papermaking Systems segment in the second quarter experienced a small sequential increase from the first quarter suggesting signs of stabilization, but we do not expect a significant increase in revenues until 2010. In addition, the lower-than-expected bookings in the second quarter have caused us to lower our outlook for revenues in the third quarter and full year. We have adjusted our 2009 guidance accordingly and we expect to report a GAAP diluted loss per share of $.28 to $.30 from continuing operations in the third quarter of 2009 on revenues of $46 to $48 million. This includes $.14 of incremental tax provision and $.04 of estimated restructuring costs. For the full year, we expect to report a GAAP diluted loss per share of $.60 to $.65 from continuing operations on revenues of $210 to $220 million, revised from our previous guidance of GAAP diluted loss per share of $.55 to $.65, on revenues of $220 to $230 million. The full year guidance includes $.37 of incremental tax provision and $.15 of estimated restructuring costs.”

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 adjusted net (loss) income, adjusted diluted earnings per share, and earnings before interest, taxes, depreciation, and amortization (EBITDA).

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 operations and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

We use non-GAAP financial measures, in addition to GAAP financial measures, as the basis for measuring our underlying operating performance and comparing such performance to that of prior 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.

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 diluted EPS in the three-month periods ended July 4, 2009 and June 28, 2008 was calculated using the reported weighted average diluted shares for each period.

Adjusted net (loss) income and adjusted diluted EPS exclude restructuring costs, net of tax, of $0.7 million, or $.06 per diluted share, in the second quarter of 2009. We believe that these incremental costs are not indicative of our core operating costs and not comparable to other periods, which have differing levels of incremental costs or none at all.

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

Conference Call

Kadant will hold its earnings conference call on Thursday, August 6, 2009, 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 17626299. 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 September 4, 2009.
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
                                                    
                Three Months Ended         Six Months Ended
Consolidated Statement of Operations (a)           July 4, 2009           June 28, 2008           July 4, 2009           June 28, 2008
                                        
Revenues         $     50,132               $     92,406               $     115,089               $     178,270     
                                        
Costs and Operating Expenses:                                 
    Cost of revenues             29,348                 53,843                 69,665                 105,647     
    Selling, general, and administrative expenses             19,248                 26,924                 41,453                 52,293     
    Research and development expenses             1,722                 1,497                 3,192                 3,105     
    Restructuring costs and other income, net (b)               1,013                     -                     1,770                     (473     )
                      51,331                     82,264                     116,080                     160,572     
                                        
Operating (Loss) Income             (1,199     )             10,142                 (991     )             17,698     
Interest Income             92                 511                 299                 1,052     
Interest Expense               (507     )               (640     )               (1,320     )               (1,235     )
                                        
(Loss) Income from Continuing Operations before Income Tax (Benefit) Provision                                 
        (1,614     )             10,013                 (2,012     )             17,515     
Income Tax (Benefit) Provision               (398     )               2,977                     2,066                     5,265     
                                        
(Loss) Income from Continuing Operations             (1,216     )             7,036                 (4,078     )             12,250     
                                        
Loss from Discontinued Operation, Net of Tax               (5     )               (5     )               (9     )               (9     )
                                        
Net (Loss) Income             (1,221     )             7,031                 (4,087     )             12,241     
                                        
Net Loss (Income) Attributable to Noncontrolling Interest               28                     (143     )               3                     (240     )
                                        
Net (Loss) Income Attributable to Kadant         $     (1,193     )         $     6,888               $     (4,084     )         $     12,001     
                                        
Amounts Attributable to Kadant:                                 
        (Loss) Income from Continuing Operations         $     (1,188     )         $     6,893             $     (4,075     )         $     12,010     
        Loss from Discontinued Operation, Net of Tax               (5     )               (5     )               (9     )               (9     )
        Net (Loss) Income Attributable to Kadant         $     (1,193     )         $     6,888               $     (4,084     )         $     12,001     
                                        
(Loss) Earnings per Share from Continuing Operations                                 
    Attributable to Kadant:                                 
        Basic         $     (0.10     )         $     0.50               $     (0.33     )         $     0.86     
        Diluted         $     (0.10     )         $     0.50               $     (0.33     )         $     0.85     
                                        
(Loss) Earnings per Share Attributable to Kadant:                                 
        Basic         $     (0.10     )         $     0.50               $     (0.33     )         $     0.86     
        Diluted         $     (0.10     )         $     0.50               $     (0.33     )         $     0.85     
                                        
Weighted Average Shares                                 
        Basic               12,265                     13,703                     12,386                     13,935     
                                        
        Diluted               12,265                     13,822                     12,386                     14,048     
                                        
                Three Months Ended         Six Months Ended
Business Segment Information (c)           July 4, 2009           June 28, 2008           July 4, 2009           June 28, 2008
                                        
Revenues:                                 
        Pulp and Papermaking Systems         $     47,995             $     90,453             $     109,982             $     173,711     
        Other               2,137                     1,953                     5,107                     4,559     
                                        
                $     50,132               $     92,406               $     115,089               $     178,270     
                                        
Gross Profit Margin:                                 
        Pulp and Papermaking Systems             41     %             42     %             40     %             41     %
        Other               45     %               29     %               39     %               35     %
                                        
                      41     %               42     %               39     %               41     %
                                        
Operating (Loss) Income:                                 
        Pulp and Papermaking Systems         $     700             $     14,740             $     3,582             $     25,618     
        Corporate and Other               (1,899     )               (4,598     )               (4,573     )               (7,920     )
                                        
                $     (1,199     )         $     10,142               $     (991     )         $     17,698     
                                        
Bookings from Continuing Operations:                                 
        Pulp and Papermaking Systems         $     45,586             $     82,041             $     90,852             $     169,373     
        Other               1,735                     1,647                     4,826                     3,999     
                                        
                $     47,321               $     83,688               $     95,678               $     173,372     
                                        
Capital Expenditures from Continuing Operations:                                 
        Pulp and Papermaking Systems         $     743             $     1,282             $     1,855             $     2,707     
        Corporate and Other               140                     257                     185                     442     
                                        
                $     883               $     1,539               $     2,040               $     3,149     
                                        
                Three Months Ended         Six Months Ended
Cash Flow and Other Data from Continuing Operations           July 4, 2009           June 28, 2008           July 4, 2009           June 28, 2008
                                        
Cash Provided by Operations         $     4,820             $     4,615             $     18,587             $     10,943     
Depreciation and Amortization Expense             1,876                 1,918                 3,719                 3,776     
                                        
                                        
Balance Sheet Data (a)                                   July 4, 2009           Jan. 3, 2009
                                        
Assets                                 
Cash and Cash Equivalents                         $     27,066             $     40,139     
Accounts Receivable, net                             35,557                 54,517     
Inventories                             42,066                 55,762     
Other Current Assets                             20,400                 26,589     
Property, Plant and Equipment, net                             41,495                 41,638     
Intangible Assets                             29,030                 30,115     
Goodwill                             96,749                 95,030     
Other Assets                               14,440                     13,127     
                                        
                                $     306,803               $     356,917     
Liabilities and Shareholders' Investment                                 
Accounts Payable                         $     14,543             $     24,212     
Short- and Long-term Debt                             29,364                 55,411     
Other Liabilities                               70,271                     82,901     
                                        
    Total Liabilities                         $     114,178             $     162,524     
    Shareholders' Investment                         $     192,625               $     194,393     
                                        
                                $     306,803               $     356,917     
                                        
                Three Months Ended         Six Months Ended
EBITDA Data           July 4, 2009           June 28, 2008           July 4, 2009           June 28, 2008
                                        
Consolidated                                 
        Net (Loss) Income Attributable to Kadant         $     (1,193     )         $     6,888             $     (4,084     )         $     12,001     
        Net (Loss) Income Attributable to Noncontrolling Interest             (28     )             143                 (3     )             240     
        Loss from Discontinued Operation, Net of Tax             5                 5                 9                 9     
        Income Tax (Benefit) Provision             (398     )             2,977                 2,066                 5,265     
        Interest Expense, net               415                     129                     1,021                     183     
                                        
        Operating (Loss) Income             (1,199     )             10,142                 (991     )             17,698     
        Depreciation and Amortization               1,876                     1,918                     3,719                     3,776     
                                        
        EBITDA (b)         $     677               $     12,060               $     2,728               $     21,474     
                                        
Pulp and Papermaking Systems                                 
        GAAP Operating Income         $     700             $     14,740             $     3,582             $     25,618     
        Depreciation and Amortization               1,759                     1,786                     3,488                     3,516     
                                        
        EBITDA (b)         $     2,459               $     16,526               $     7,070               $     29,134     
                                        
Corporate and Other (c)                                 
        GAAP Operating Loss         $     (1,899     )         $     (4,598     )         $     (4,573     )         $     (7,920     )
        Depreciation and Amortization               117                     132                     231                     260     
                                        
        EBITDA         $     (1,782     )         $     (4,466     )         $     (4,342     )         $     (7,660     )
                                        
(a) On January 4, 2009, the Company adopted SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an Amendment of Accounting Research Bulletin No. 51." Prior period amounts have been reclassified to conform to the current year presentation.
 
(b) Includes restructuring costs of $1,013 and $1,770 in the three- and six-month periods ended July 4, 2009, respectively. The six-month period ended June 28, 2008 includes net restructuring costs and other income of $473 related to restructuring costs of $121 and a gain from the sale of assets of $594.
 
(c) "Other" includes the results from the Fiber-based Products business.

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 $329 million in 2008 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, the effect of cost-savings initiatives, and pending orders. There can be no assurance that we will be able to record and recognize revenue on pending orders. 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 4, 2009. These include risks and uncertainties relating to worldwide and local economic conditions as well as 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 and compliance with covenants; 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.
Thomas M. O’Brien, 978-776-2000

Source: Kadant Inc.
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