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Kadant Reports 2013 Second Quarter Results

Raises Adjusted Diluted EPS Guidance for 2013

WESTFORD, Mass. -- (BUSINESS WIRE) -- Jul. 29, 2013 -- Kadant Inc. (NYSE:KAI) reported its financial results for the second quarter ended June 29, 2013.

Second Quarter 2013 Highlights

  • GAAP diluted earnings per share (EPS) from continuing operations was $0.51 in the second quarter of 2013, compared to $0.56 in the second quarter of 2012.
  • Adjusted diluted EPS was $0.51 in the second quarter of 2013, excluding a gain of $0.12 on the sale of assets and acquisition-related restructuring costs of $0.12, compared to our adjusted diluted EPS guidance of $0.43 to $0.45, which excluded an estimated gain of $0.10 on the sale of assets.
  • Bookings were $87 million in the second quarter of 2013, including $7 million from acquisitions, compared to $77 million in the second quarter of 2012.
  • Revenues were $82 million in the second quarter of 2013, including $6 million from acquisitions, compared to $83 million in the second quarter of 2012. Our revenue guidance was $79 to $82 million, which included anticipated revenues from CBTI. Adjusting for revenues from Noss that were not included in the guidance, our adjusted revenue guidance was $81 to $84 million, which compares to our actual revenues of $82 million.
  • Gross profit margins were a record 48.6% in the second quarter of 2013, up 490 basis points from the second quarter of 2012.
  • Cash flows from continuing operations were $11 million in the second quarter of 2013, an increase of 30% compared to $9 million in the second quarter of 2012.
  • The acquisitions of Companhia Brasileira de Tecnologia Industrial (CBTI) and certain assets of the Noss Group (Noss) were completed.
  • Net cash was $48 million at the end of the second quarter.
  • Cash returned to shareholders through a dividend payment and common stock repurchases was $2.8 million in the second quarter of 2013.

Adjusted diluted EPS, adjusted diluted EPS guidance, and adjusted revenue guidance are non-GAAP measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures” and in the reconciliation tables below.

Management Commentary

“We were pleased we exceeded our diluted EPS guidance on an adjusted basis,” said Jonathan W. Painter, president and chief executive officer of Kadant. “We also had excellent gross margins and cash flows in the second quarter of 2013. Gross profit margins in the second quarter of 2013 were a record 48.6 percent. Operating cash flows from continuing operations were $11.1 million in the second quarter of 2013, increasing 30 percent over the second quarter of 2012. We ended the quarter with net cash (cash less debt) of $48.5 million, an increase of 61 percent over $30.1 million in the second quarter of 2012. Significantly, our operating cash flows from continuing operations over the last twelve months were $44.0 million, reflecting the strength of our business.

“Consolidated bookings increased to $87.1 million in the second quarter compared to $77.4 million in the second quarter of 2012, including a $7.4 million increase from acquisitions and a 54 percent increase in China bookings. We ended the quarter with a strong backlog of $106.3 million, including $9.0 million from acquisitions. After the quarter closed, we booked orders for paper drying and fabric cleaning systems in Europe with a combined value of $4.4 million.”

Second Quarter 2013

Kadant reported revenues of $82.2 million in the second quarter of 2013, a decrease of $0.8 million, or one percent, compared with $83.0 million in the second quarter of 2012. Revenues in the second quarter of 2013 included $6.1 million from acquisitions and a $0.6 million increase from foreign currency translation compared to the second quarter of 2012. Operating income from continuing operations was $8.4 million in the second quarter of 2013, including a $1.7 million gain on the sale of assets and a $1.9 million acquisition-related restructuring charge, compared to $9.4 million in the second quarter of 2012.

Net income from continuing operations was $5.8 million in the second quarter of 2013, or $0.51 per diluted share, compared to $6.5 million, or $0.56 per diluted share, in the second quarter of 2012. Net income from continuing operations in the second quarter of 2013 included a $1.3 million, or $0.12 per diluted share, after-tax gain on the sale of assets and a $1.3 million, or $0.12 per diluted share, after-tax restructuring charge. Adjusted net income, a non-GAAP measure, was $5.8 million, or $0.51 per diluted share, in the second quarter of 2013 compared to $6.5 million, or $0.56 per diluted share, in the second quarter of 2012.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)

   

Three Months Ended
June 29, 2013

   

Three Months Ended
June 30, 2012

($ in millions)

   

Diluted EPS

($ in millions)

   

Diluted EPS

Income and Diluted EPS from Continuing Operations Attributable to Kadant, as reported

$

5.8

$

0.51

$

6.5

$

0.56

Adjustments:
Gain on the sale of assets (1.3 ) (0.12 ) - -
Restructuring costs   1.3     0.12     -   -
Adjusted Net Income and Adjusted Diluted EPS $ 5.8   $ 0.51   $ 6.5 $ 0.56
 

Guidance

“We expect to achieve GAAP diluted EPS from continuing operations of $0.47 to $0.49 in the third quarter of 2013 on revenues of $88 to $90 million,” Mr. Painter continued. “Our third quarter of 2013 guidance includes estimated restructuring costs of $0.01. For the full year, we now expect revenues of $340 to $345 million, revised from our previous guidance of $336 to $343 million. We expect to achieve GAAP diluted EPS from continuing operations of $2.02 to $2.07, which includes a gain of $0.12 on the sale of assets and acquisition-related restructuring costs of $0.13. This compares to our previous GAAP diluted EPS guidance of $2.00 to $2.10, which included an estimated gain of $0.10 on the sale of assets. On an adjusted diluted EPS basis, excluding the restructuring costs and gain on sale, we are raising our guidance to $2.03 to $2.08 from our previous guidance of $1.90 to $2.00.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 30, 2013, at 11 a.m. eastern time to discuss its second quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to www.kadant.com and click on the “Investors” tab. To listen to the webcast via teleconference, call 877-703-6107 within the U.S., or +1-857-244-7306 outside the U.S. and reference participant passcode 83375884. Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. An archive of the webcast presentation will be available on our Web site until August 30, 2013.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its Web site at www.kadant.com under the “Investors” tab.

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 acquisitions and foreign currency translation, adjusted revenue guidance, adjusted operating income, adjusted net income, adjusted diluted EPS, adjusted diluted EPS guidance, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted 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 an 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.

We present increases or decreases in revenues excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted revenue guidance for the second quarter of 2013 includes $2 million of revenues from the Noss acquisition.

Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $1.9 million and a pre-tax gain on the sale of assets of $1.7 million in the three-month and six-month periods ended June 29, 2013. These items are excluded as they are not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs or other income or none at all.

Adjusted net income and adjusted diluted EPS exclude after-tax restructuring costs of $1.3 million ($1.9 million net of tax of $0.6 million) and an after-tax gain on the sale of assets of $1.3 million ($1.7 million gain net of tax of $0.4 million) in the three-month and six-month periods ended June 29, 2013.

Adjusted diluted EPS in the three-month periods ended June 29, 2013 and June 30, 2012 was calculated using the reported weighted average diluted shares for each period.

Adjusted diluted EPS guidance for the second quarter of 2013 excludes a gain on the sale of assets of $0.10 and for the full-year 2013 excludes restructuring costs of $0.13 and a gain on the sale of assets of $0.12.

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.

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

                       
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
 
Three Months Ended Six Months Ended
Consolidated Statement of Income     June 29, 2013     June 30, 2012     June 29, 2013     June 30, 2012
 
Revenues $ 82,165   $ 82,982   $ 158,369   $ 167,095  
 
Costs and Operating Expenses:
Cost of revenues 42,225 46,684 82,403 92,425
Selling, general, and administrative expenses 29,445 25,490 56,395 51,633
Research and development expenses 1,852 1,393 3,556 2,925
Restructuring costs and other (income) expense, net (a)(g)   218     -     218     307  
  73,740     73,567     142,572     147,290  
 
Operating Income 8,425 9,415 15,797 19,805
Interest Income 142 74 251 168
Interest Expense   (231 )   (196 )   (396 )   (405 )
 
Income from Continuing Operations before Provision
for Income Taxes 8,336 9,293 15,652 19,568
Provision for Income Taxes   2,492     2,705     4,459     5,843  
 
Income from Continuing Operations 5,844 6,588 11,193 13,725
 
Loss from Discontinued Operation, Net of Tax   (12 )   (3 )   (41 )   (64 )
 
Net Income 5,832 6,585 11,152 13,661
 
Net Income Attributable to Noncontrolling Interest   (72 )   (42 )   (108 )   (65 )
 
Net Income Attributable to Kadant $ 5,760   $ 6,543   $ 11,044   $ 13,596  
 
Amounts Attributable to Kadant:
Income from Continuing Operations $ 5,772 $ 6,546 $ 11,085 $ 13,660
Loss from Discontinued Operation, Net of Tax   (12 )   (3 )   (41 )   (64 )
Net Income Attributable to Kadant $ 5,760   $ 6,543   $ 11,044   $ 13,596  
 
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ 0.52   $ 0.57   $ 0.99   $ 1.18  
 
Diluted $ 0.51   $ 0.56   $ 0.98   $ 1.17  
 
Earnings per Share Attributable to Kadant:
Basic $ 0.52   $ 0.57   $ 0.99   $ 1.17  
 
Diluted $ 0.51   $ 0.56   $ 0.98   $ 1.16  
 
Weighted Average Shares:
Basic   11,178     11,575     11,170     11,614  
 
Diluted   11,331     11,679     11,299     11,704  
 
Decrease
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line     June 29, 2013     June 30, 2012     (Decrease)     Translation (b,c)
 
Stock-Preparation $ 28,493 $ 28,674 $ (181 ) $ (453 )
Doctoring, Cleaning, & Filtration (d) 27,666 27,546 120 (164 )
Fluid-Handling   23,094     23,741     (647 )   (715 )
 
Papermaking Systems Segment 79,253 79,961 (708 ) (1,332 )
Fiber-based Products   2,912     3,021     (109 )   (109 )
 
$ 82,165   $ 82,982   $ (817 ) $ (1,441 )
 
Increase
(Decrease)
Excluding Effect
Six Months Ended Increase of Currency
June 29, 2013     June 30, 2012     (Decrease)     Translation (b,c)
 
Stock-Preparation $ 51,495 $ 61,391 $ (9,896 ) $ (10,267 )
Doctoring, Cleaning, & Filtration (d) 53,528 52,611 917 384
Fluid-Handling   46,627     46,109     518     531  
 
Papermaking Systems Segment 151,650 160,111 (8,461 ) (9,352 )
Fiber-based Products   6,719     6,984     (265 )   (265 )
 
$ 158,369   $ 167,095   $ (8,726 ) $ (9,617 )
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line     June 29, 2013     March 30, 2013     (Decrease)     Translation (b,c)
 
Stock-Preparation $ 28,493 $ 23,002 $ 5,491 $ 5,465
Doctoring, Cleaning, & Filtration (d) 27,666 25,862 1,804 1,904
Fluid-Handling   23,094     23,533     (439 )   (278 )
 
Papermaking Systems Segment 79,253 72,397 6,856 7,091
Fiber-based Products   2,912     3,807     (895 )   (895 )
 
$ 82,165   $ 76,204   $ 5,961   $ 6,196  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Geography (e)     June 29, 2013     June 30, 2012     (Decrease)     Translation (b,c)
 
North America $ 40,350 $ 40,730 $ (380 ) $ (580 )
Europe 16,594 18,861 (2,267 ) (2,473 )
China 12,353 11,151 1,202 941
South America 7,801 5,714 2,087 2,131
Other   5,067     6,526     (1,459 )   (1,460 )
 
$ 82,165   $ 82,982   $ (817 ) $ (1,441 )
 
Increase
(Decrease)
Excluding Effect
Six Months Ended Increase of Currency
June 29, 2013     June 30, 2012     (Decrease)     Translation (b,c)
 
North America $ 79,228 $ 80,429 $ (1,201 ) $ (1,450 )
Europe 34,167 37,901 (3,734 ) (4,145 )
China 23,581 23,044 537 118
South America 11,992 11,508 484 673
Other   9,401     14,213     (4,812 )   (4,813 )
 
$ 158,369   $ 167,095   $ (8,726 ) $ (9,617 )
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography     June 29, 2013     March 30, 2013     (Decrease)     Translation (b,c)
 
North America $ 40,350 $ 38,878 $ 1,472 $ 1,461
Europe 16,594 17,573 (979 ) (768 )
China 12,353 11,228 1,125 1,030
South America 7,801 4,191 3,610 3,666
Other   5,067     4,334     733     807  
 
$ 82,165   $ 76,204   $ 5,961   $ 6,196  
 
Three Months Ended Six Months Ended
Business Segment Information     June 29, 2013     June 30, 2012     June 29, 2013     June 30, 2012
 
Gross Profit Margin:
Papermaking Systems 48.7 % 43.4 % 47.8 % 44.2 %
Fiber-based Products   47.1 %   52.8 %   51.4 %   54.8 %
 
  48.6 %   43.7 %   48.0 %   44.7 %
 
Operating Income:
Papermaking Systems $ 11,821 $ 11,772 $ 21,765 $ 23,876
Corporate and Fiber-based Products   (3,396 )   (2,357 )   (5,968 )   (4,071 )
 
$ 8,425   $ 9,415   $ 15,797   $ 19,805  
 
Adjusted Operating Income (c,f):
Papermaking Systems $ 12,039 $ 11,772 $ 21,983 $ 23,876
Corporate and Fiber-based Products   (3,396 )   (2,357 )   (5,968 )   (4,071 )
 
$ 8,643   $ 9,415   $ 16,015   $ 19,805  
 
Bookings from Continuing Operations:
Papermaking Systems $ 84,857 $ 74,794 $ 170,485 $ 149,012
Fiber-based Products   2,271     2,617     6,925     5,993  
 
$ 87,128   $ 77,411   $ 177,410   $ 155,005  
 
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 1,226 $ 503 $ 2,398 $ 761
Corporate and Fiber-based Products   168     80     174     80  
 
$ 1,394   $ 583   $ 2,572   $ 841  
 
Twelve
Three Months Ended Six Months Ended Months Ended
Cash Flow and Other Data from Continuing Operations     June 29, 2013     June 30, 2012     June 29, 2013     June 30, 2012 June 29, 2013
 
Cash Provided by Operations $ 11,091 $ 8,558 $ 18,072 $ 4,532 $ 43,996
Depreciation and Amortization Expense 2,475 2,029 4,428 4,272
 
 
Balance Sheet Data                 June 29, 2013     Dec. 29, 2012
 
Assets
Cash, Cash Equivalents, and Restricted Cash $ 64,487 $ 54,553
Accounts Receivable, net 63,025 59,359
Inventories 54,052 42,077
Unbilled Contract Costs and Fees 1,087 2,800
Other Current Assets 19,749 16,804
Property, Plant and Equipment, net 41,476 39,168
Intangible Assets 25,995 26,095
Goodwill 108,381 107,947
Other Assets   10,642     10,145  
 
$ 388,894   $ 358,948  
Liabilities and Shareholders' Investment
Accounts Payable $ 26,050 $ 23,124
Short- and Long-term Debt 16,025 6,875
Other Liabilities   92,437     78,982  
 
Total Liabilities 134,512 108,981
Stockholders' Equity   254,382     249,967  
 
$ 388,894   $ 358,948  
 
 
Adjusted Operating Income and Adjusted EBITDA Three Months Ended Six Months Ended
Reconciliation June 29, 2013   June 30, 2012   June 29, 2013   June 30, 2012
 
Consolidated
Net Income Attributable to Kadant $ 5,760 $ 6,543 $ 11,044 $ 13,596
Net Income Attributable to Noncontrolling Interest 72 42 108 65
Loss from Discontinued Operation, Net of Tax 12 3 41 64
Provision for Income Taxes 2,492 2,705 4,459 5,843
Interest Expense, net   89     122     145     237  
 
Operating Income 8,425 9,415 15,797 19,805
Restructuring costs and other income, net (a)   218     -     218     -  
 
Adjusted Operating Income (c) 8,643 9,415 16,015 19,805
Depreciation and Amortization   2,475     2,029     4,428     4,272  
 
Adjusted EBITDA (c) $ 11,118   $ 11,444   $ 20,443   $ 24,077  
 
Papermaking Systems
Operating Income $ 11,821 $ 11,772 $ 21,765 $ 23,876
Restructuring costs and other income, net (a)   218     -     218     -  
 
Adjusted Operating Income (c) 12,039 11,772 21,983 23,876
Depreciation and Amortization   2,356     1,909     4,191     4,033  
 
Adjusted EBITDA (c) $ 14,395   $ 13,681   $ 26,174   $ 27,909  
 
Corporate and Fiber-based Products
Operating Loss $ (3,396 ) $ (2,357 ) $ (5,968 ) $ (4,071 )
Depreciation and Amortization   119     120     237     239  
 
EBITDA (c) $ (3,277 ) $ (2,237 ) $ (5,731 ) $ (3,832 )
 

(a) Includes restructuring costs of $1,958, net of a gain of $1,740 on the sale of assets, in the three-month and six-month periods ended June 29, 2013.

(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) Represents a non-GAAP financial measure.

(d) This product line was formerly presented separately as doctoring, water-management, and other product lines. Prior period amounts have been recast to conform to the current presentation.

(e) Geographic revenues are attributed to regions based on customer location.

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

(g) Includes accelerated depreciation of $307 in the six-month period ended June 30, 2012 associated with the disposal of equipment in China related to a facility consolidation.

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry. Our stock-preparation; fluid-handling; and doctoring, cleaning, and filtration products 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 $332 million in 2012 and 1,600 employees in 17 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 economic and industry outlook. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading “Risk Factors” in Kadant’s quarterly report on Form 10-Q for the period ended March 30, 2013. 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; commodity and component price increases or shortages; international sales and operations; fluctuations in our exchange rates; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; our acquisition strategy; protection of patents and proprietary rights; failure of our information systems or breaches of data security; 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.

Source: Kadant Inc.

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

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