Financial Statement Discussion
The impact of foreign currency translation decreased sales by $16.9 million, or 2.8 percent, during the first quarter compared to the same period last year. The impact of foreign currency translation decreased reported net earnings by $1.3 million, or 1.9 percent, compared to the prior year.
Gross margin was 33.7 percent, compared to 35.3 percent in last year’s first quarter. The year-over-year decrease is primarily attributable to lower fixed cost absorption due to the decrease in our production volumes and the mix impact due to large Gas Turbine project shipments. These were partially offset by the benefits from our ongoing Continuous Improvement initiatives.
Operating expenses for the quarter were $124.8 million, approximately even with last year’s $124.6 million. As a percent of sales, operating expenses were 21.2 percent compared to last year’s 20.5 percent. Our cost containment actions helped offset higher pension expense and incremental expenses related to our strategic business systems projects.Our effective tax rate for the quarter was 29.4 percent, compared to a prior year rate of 25.5 percent. The prior year’s quarter included tax benefits primarily due to favorable settlements of tax audits of $4.3 million. As part of our ongoing share repurchase program we repurchased 1,500,000 shares, or 1.0 percent of our diluted outstanding shares, for $50.7 million during the quarter. FY13 Outlook We continue to forecast full-year sales growth as strong Gas Turbine project shipments in the next two quarters and improving demand for replacement filters are anticipated to offset weaker demand from our Engine OEM and Disk Drive Customers.
- We are projecting our full-year sales to be between $2.5 and $2.6 billion, or up 0 to 4 percent over last year’s record. Our forecast is based on the Euro at US$1.27. We expect foreign currency translation to have a negative impact on our sales for most of our fiscal year.
- Our full-year operating margin forecast is 14.2 to 15.0 percent.
- Our FY13 tax rate is anticipated to be between 28 and 31 percent.
- We forecast our FY13 EPS to be between $1.68 and $1.88.
- Cash generated by operating activities is projected to be between $235 and $265 million. Our capital spending is estimated to be approximately $100 million.
- Our on-road OEM Customers are planning to build fewer heavy- and medium-duty trucks. Demand from our off-road OEM Customers is anticipated to be mixed: build rates of agriculture equipment are forecasted to remain good, build rates of construction equipment are expected to slowly improve in North America, but remain weak in Europe and China, and build rates of mining equipment are expected to decrease globally.
- We are anticipating low single-digit sales growth of our Aftermarket Products. Current utilization rates for off-road equipment and on-road heavy trucks have softened. We should offset much of this through our continued expansion into emerging economies, from the increasing number of systems installed in the field with our proprietary filters, and from our increasing sales of liquid filtration products.
- We forecast our Aerospace and Defense Products’ sales to be equal to the prior year as the continued slowdown in military spending is anticipated to be offset by increased commercial aerospace sales.
- Our Industrial Filtration Solutions Products’ sales are projected to increase 0 to 5 percent. We assume manufacturing activity will remain strong in the Americas, slowly improve in Asia, and continue to be weak in Europe.
- We anticipate our Gas Turbine Products’ sales to be up 21 to 27 percent due to continued strength in both the large turbine power generation and the oil and gas markets.
- Special Applications Products’ sales are forecast to increase 1 to 7 percent, with growth expected from membranes products and integrated venting products.
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