Magnetek: Q1 Results

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MENOMONEE FALLS, Wisconsin - Magnetek, Inc. (“Magnetek” or “the Company”, NASDAQ: MAG) reported the results of its first quarter of fiscal year 2014, ended March 30, 2014.

First Quarter Results

In the first quarter of fiscal 2014, Magnetek recorded revenue of $24.1 million, a 4% decrease from the first quarter of fiscal 2013. The decrease in sales from the prior year quarter reflects sales declines of products for elevator and mining markets. Despite the lower sales volume, first quarter earnings per share from continuing operations increased to $.35 per share compared to prior year earnings from continuing operations of $.16 per share, mainly due to improved gross margins and lower pension expense.

“Challenging conditions persisted in most of our served markets during the first quarter, particularly in mining markets. We also experienced moderating demand in our served elevator markets due to customer inventory adjustments as well as seasonal factors in material handling markets, all of which resulted in a year-over-year decline in sales. However, our profitability improved significantly over last year, as we executed efficiently, drove our gross margins higher, and benefitted from reduced pension expense,” said Peter McCormick, Magnetek’s president and chief executive officer.

Gross profit amounted to $8.2 million (33.8% of sales) in the first quarter of 2014 versus $8.1 million (32.5% of sales) in the same period a year ago. The increase in gross profit and gross margin was primarily due to increased efficiency and lower overhead expenses.

Total operating expenses, consisting of research and development (“R&D”), pension expense and selling, general, and administrative costs, were $6.7 million in the first quarter of 2014, compared to $7.3 million in the first quarter of fiscal 2013. Compared to the prior year, most of the decrease in operating expenses was due to lower pension expense and, to a lesser extent, lower R&D expenses, partially offset by increased incentive compensation provisions.

Income from continuing operations after provision for income taxes in the first quarter of fiscal 2014 was $1.2 million, or $.35 per diluted share, compared to after-tax income from continuing operations of $0.5 million, or $.16 per diluted share, in the same period last year.

Including the results of discontinued operations, the Company recorded net income of $.31 per diluted share in the first quarter of 2014 versus net income of $.14 per diluted share in the first quarter of fiscal 2013.

Unrestricted cash balances increased by $0.5 million during the first quarter of fiscal 2014 to $15.4 million at March 30, 2014.

Operations and Outlook

Total first quarter 2014 bookings were $25.6 million, resulting in a book-to-bill ratio for the quarter of 106%. Total Company order backlog was $13.7 million at March 30, 2014, up 7% from $12.8 million at December 29, 2013.

“Market conditions were quite soft early in 2014, but our business activity picked up strongly later in the quarter, and we booked about 45% of our first quarter orders during the month of March. Material handling markets are seasonally slower in the March quarter, so we would expect sales in the second quarter to increase modestly from the $18 million level of the first quarter. While sales into elevator markets were just over $5 million in the first quarter, bookings were nearly $6 million, so we should also see an uptick in elevator sales in the second quarter. Conditions in mining markets remain extremely challenging, and we expect mining to remain difficult throughout 2014,” said Mr. McCormick. “We’re cautiously optimistic that the first quarter was the low point for us in terms of sales levels, and that the momentum we experienced late in the first quarter can continue into the second quarter and the remainder of the year,” continued Mr. McCormick.

“Our stated strategy for some time now has been to enhance the value of the Company by focusing on organic growth opportunities, consistently generating cash, and reducing our pension obligation. Over the past several years, we’ve been very successful with cash generation, and have deployed that cash through investments in our business and contributions to our pension plan. We’re finally seeing the benefit of years of significant contributions to our pension plan in the form of a lower pension obligation and reduced pension expense, which has enhanced the value of the Company,” continued Mr. McCormick. “What we haven’t seen in our business in recent quarters is robust organic growth, which we believe has largely been a function of end market conditions characterized by a continuing reluctance to invest. We’re continuing efforts to enter new markets and geographies, but some of these growth initiatives have a longer-term horizon. We’ve responded by taking actions to align our cost structure with our sales volume to better assure achievement of consistent profitability and cash flow. In summary, we believe our strategy to enhance value remains sound, and our profitability and cash flow are healthy even at current volumes. We began to see signs of improvement in market conditions near the end of the first quarter, and we believe we are well-positioned to achieve our growth objectives over time as end market conditions continue to improve going forward,” concluded Mr. McCormick.

Magnetek, Inc. (MAG) manufactures digital power and motion control systems used in material handling, people moving and energy delivery. The Company is headquartered in Menomonee Falls, Wis. in the greater Milwaukee area and operates manufacturing plants in Pittsburgh, Pa. and Bridgeville, Pa. as well as Menomonee Falls.

Magnetek, Inc.
Marty Schwenner
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