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ESCO Announces 2012 Earnings Update, Test Segment Restructuring, And 2013 Preliminary Outlook

ST. LOUIS, Oct. 9, 2012 /PRNewswire/ -- ESCO Technologies Inc. (NYSE: ESE) today provided an update to its previous earnings guidance for 2012, along with announcing it has initiated certain restructuring activities within the Test business to significantly improve the segment's future operating profit contribution. The Company is also providing its preliminary outlook for fiscal 2013.

2012 Earnings Update Although the Company has not formally completed the financial closing process for the fiscal year ended September 30, 2012, Management's preliminary expectations are that pretax earnings will be approximately $8.7 million lower than previously communicated, resulting in earnings of $1.70 to $1.73 per share.

The reduction in 2012 pretax earnings is the result of three items that occurred at Aclara in late September: the timing of expected sales and the related profit; specifically identified unanticipated costs; and a sales forecast shortfall. The respective pretax earnings impact is identified within each category.
  1. The timing-related pretax earnings impact of specifically identified sales coming from firm order backlog that were pushed out of 2012 into 2013 was $5 million. This amount represents contractually committed projects with firm purchase orders in backlog in which the related sales were moved out of 2012 because certain customers temporarily delayed acceptance, or because the Company was not in a position to deliver the related items prior to September 30. The sales and earnings impact related to these customers will be recognized in 2013 when the products and services are delivered.
  2. Approximately $2.5 million of specifically identified costs incurred during the fourth quarter of 2012 which were not anticipated in the earnings plan previously communicated. Of this amount, approximately $1.3 million related to additional spending to support the successful launch of the SoCalGas AMI project. The remainder resulted from unanticipated spending related to: additional costs incurred to support a significant water customer's AMI deployment; design rework on a new product currently being launched; higher-than-expected freight costs on deliveries to international customers; and unplanned legal costs related to a patent dispute. These specific costs are not expected to be repeated in 2013.
  3. Aclara had anticipated that certain small, municipal water customers would place orders and take delivery of standard AMI products during the fourth quarter of 2012. The actual amount of revenue realized from these was lower than planned, resulting in a $1.2 million earnings shortfall.

Test Segment Restructuring As noted in the August 9, 2012, earnings release, Management indicated it was analyzing the operating cost structure across the Company to see where improvements in operating efficiency could be achieved. The process was initiated in 2012 to help protect and expand future operating margins, as well as to supplement future EPS growth.

Test segment EBIT margins have been below expectations, resulting in Management's decision to thoroughly review alternatives to significantly improve its profit contribution. After careful review, the Company decided to consolidate the Test segment's four domestic manufacturing facilities into three domestic locations, resulting in the closure of the Glendale Heights, Illinois facility. The non-recurring restructuring costs are expected to be approximately $3 million and will be expensed over the next six to nine months. As a result of these actions, the partial year cost savings in 2013 will be approximately $1 million (excluding restructuring costs), and once completed, are expected to yield recurring annual savings of approximately $3 million in 2014 and beyond. The net impact of this restructuring is expected to increase Test segment EBIT margins above 13 percent.

While further restructuring activities of this magnitude are not currently expected, Management continues to review all of its other operations to ensure that the respective businesses are properly sized to deliver the operating results required to meet the earnings commitments previously communicated.

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