Magnetek: Q1 results
Magnetek, Inc. (“Magnetek” or “the Company”, NASDAQ: MAG) reported the results of its first quarter of fiscal year 2015, ended March 29, 2015.
First Quarter Results
In the first quarter of fiscal 2015, Magnetek recorded revenue of $26.6 million, a 10% increase from the prior year first quarter sales of $24.1 million, as sales of products for material handling applications increased $1.4 million year-over-year to $19.5 million, and sales of products for elevator applications increased nearly $1.0 million year-over-year to $6.2 million.
The higher sales volume, together with lower pension expense and tax provisions, resulted in an increase in first quarter earnings per share from continuing operations to $.67 per share compared to prior year earnings from continuing operations of $.35 per share.
“We remain encouraged by the strong year-over-year growth in our sales and profitability, as well as by the positive book-to-bill ratio in the first quarter. We experienced the typical seasonal softness in material handling markets, which resulted in a slow start to the year. However, as the quarter progressed, order and sales activity increased substantially. In addition, our profitability improved significantly over last year despite the uneven demand, as we 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 $9.4 million (35.3% of sales) in the first quarter of 2015 versus $8.2 million (33.8% of sales) in the same period a year ago. The increase in gross profit and gross margin was primarily due to higher sales volumes in the current year first quarter.
Total operating expenses, consisting of research and development (“R&D”), pension expense, and selling, general, and administrative costs, were $6.9 million in the first quarter of 2015, compared to $6.7 million in the first quarter of fiscal 2014. Compared to the prior year, operating expenses increased due to higher R&D spending related to new product development, higher variable selling expenses, and higher expenses related to information systems, partially offset by lower pension expense. In addition, prior year administrative costs include a non-recurring favorable adjustment related to a change in the Company’s paid time off policies.
Income from continuing operations after provision for income taxes in the first quarter of fiscal 2015 was $2.5 million, or $.67 per diluted share, compared to after-tax income from continuing operations of $1.2 million, or $.35 per diluted share, in the same period last year.
Including the results of discontinued operations, the Company recorded net income of $.63 per diluted share in the first quarter of 2015 versus net income of $.31 per diluted share in the first quarter of fiscal 2014.
Unrestricted cash balances decreased by $2.6 million during the first quarter of fiscal 2015 to $7.1 million at March 29, 2015.
Operations and Outlook
Total first quarter 2015 bookings were $28.6 million, resulting in a book-to-bill ratio for the quarter of nearly 108%. Total Company order backlog was $15.4 million at March 29, 2015, up 12% from $13.7 million at the end of the first quarter of fiscal 2014.
“As expected, market conditions in our largest served market, material handling, were quite soft early in 2015, but our business activity picked up strongly later in the quarter. We booked nearly 50% of our first quarter orders during the month of March, so we would expect sales in the second quarter to increase moderately from the level of the first quarter,” said Mr. McCormick. “In addition, first quarter margins were impacted not only by uneven demand patterns, but also by the west coast port shutdown. The port issue resulted in higher freight costs and increased inventory balances, and presented some real challenges to our supply chain and plant efficiency. With that now behind us, if demand as expected becomes more linear going forward, we should see higher profit margins and better asset management in the second quarter. We’re cautiously optimistic 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 strategy for some time now has been to increase the value of the Company by focusing on organic sales growth, consistent cash generation, and a reduction in 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 now seeing the benefit of years of significant contributions to our pension plan in the form of lower pension funding obligations and reduced pension expense, which has increased our earnings and certainly enhanced the value of the Company,” continued Mr. McCormick. “What we’ve also seen in our business over the past several quarters is fairly robust organic growth, which is very encouraging. We believe this growth has largely been a function of market share gains, combined with end market conditions characterized by a growing willingness to invest, as evidenced by the fact that our sales mix continues to shift toward larger projects. We’re also continuing our efforts to enter new markets and geographies, but some of those growth initiatives have a longer-term horizon. We’ll continue to efficiently align our cost structure with our sales volume to better assure achievement of growing profitability as our business grows. In summary, we believe our strategy to enhance value remains sound, and we believe we are well-positioned to continue to grow our sales and profitability over time,” 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.