Kadant CEO Discusses Q3 2010 Results - Earnings Call Transcript

Kadant CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Kadant Inc. (

KAI

)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Thomas O’Brien - EVP & CFO

Jon Painter - President & CEO

Analysts

Walt Liptak - Barrington Research

Eric Prouty - Canaccord

Rick Hoss - Roth Capital

Presentation

Operator

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Previous Statements by KAI
» Kadant Inc. Q2 2010 Earnings Call Transcript
» Kadant Inc. Q1 2010 Earnings Call Transcript
» Kadant, Inc., Q1 2009 Earnings Call Transcript
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Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the Kadant Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Thomas O’Brien, Chief Financial Officer of Kadant. Please go ahead, sir.

Thomas O

Brien

Well, thank you operator and good morning everyone and welcome to Kadant’s third quarter 2010 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer.

Before we begin, let me read the Safe Harbor statement. Various remarks that we may make today about Kadant’s future expectations, plans and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those discussed in our quarterly reports on Form 10-Q for the fiscal period ended July 3, 2010, which is on file with the SEC, and is also available in the investor section of our website at www.kadant.com under the heading SEC Filings.

In addition, any forward-looking statements we make on this call represent our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on these forward-looking statements as representing our views on any date after today.

During this call, we may refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third quarter earnings press release issued yesterday, which is available in the investor section of our website at www.kadant.com under the heading Investor News.

With that, I will turn the call over to Jon Painter, who will give you an update on Kadant’s business and future prospects. Following Jon’s remarks, I will give an overview of our financial results for the quarter and we will then have the Q&A session. Jon?

Jon Painter

Thanks, Tom. Good morning everyone. It’s my pleasure to give you an update on Kadant’s third quarter performance and comment on our outlook for the rest of the year. I would like to begin my remarks with the financial highlights from our continuing operations and then I’ll provide you an overview of what we’re seeing in our markets around the world.

Overall, we had very good performance in the third quarter. Our revenue of $67 million was up 24% from the third quarter of last year, and on a sequential basis our revenues were down 4% from Q2. All major product lines experienced sequential revenue declines in Q3 except for our fluid handling line, which was up 8% compared to the previous quarter.

Our bookings for the third quarter was $58 million, a decrease of 6% compared to the same period last year, and 21% sequentially. This was largely due to lower bookings of our stock capital products. Although, the slowing of the economy has had some impact on our third quarter bookings, I believe the timing of capital orders had the greatest impact as several large stock prep orders slipped into the fourth quarter. Consequently, we do expect higher sequential bookings in Q4.

Our parts and consumable bookings in the third quarter were up 22% from Q3 of 2009 and were essentially unchanged from the second quarter of 2010, as machine operating rates remained high throughout the quarter. I’ll provide more details on bookings when I discuss our business activities in the various geographic regions we serve.

Our gross margins in Q3 were a very strong 44% particularly when compared to our historical pre-recession gross margins, which were in the 40% range. Looking ahead, we do expect that margins will decline somewhat from current levels and they will vary from quarter-to-quarter due to various factors such as product mix between higher margin parts and consumables and capital. That said, I believe the restructuring actions we took in 2008 and 2009 will in general result in higher average gross margins than we had prior to the recession.

Our adjusted diluted earnings per share for the third quarter was $0.30 compared to our guidance of $0.21 to $0.23. The higher-than-expected earnings per share was [partly] the result of strong margin performance, which I just talked about, and the increased sales of our fluid handling and stock prep products.

We also had another solid quarter of cash flows from operation and generated $6 million in the third quarter. This performance resulted in strengthening our net cash position at the end of Q3 to $27 million. And finally, during the quarter we repurchased 255,500 shares of stock on an average price of $17.25 for total cost of approximately $4.4 million.

Next, let me take a few minutes to review what we’re seeing in the marketplace. Overall, the market seems to be softening from the relatively strong pace of earlier this year. This has primarily impacted our capital business while our spares and consumables business has been relatively stable. Encouragingly, we do see a lot of capital projects activity in most regions of the world with several projects in the pipeline that should be booked before the year-end.

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