Kadant Inc. (NYSE:KAI) reported revenues from continuing operations of $71.7 million in the first quarter of 2011, an increase of $10.6 million, or 17 percent, compared to $61.1 million in the first quarter of 2010. Revenues in the first quarter of 2011 included a $1.0 million, or 1 percent, increase from foreign currency translation compared to the first quarter of 2010. Operating income from continuing operations in the first quarter of 2011 was $8.3 million, or 11.6 percent of revenues, compared to $4.7 million, or 7.7 percent of revenues, in the first quarter of 2010. Operating income in the first quarter of 2010 included income of $0.3 million related to a gain on the sale of real estate. Net income from continuing operations in the first quarter of 2011 was $5.8 million, or $.47 per diluted share, compared to $3.6 million, or $.29 per diluted share, in the first quarter of 2010. Net income from continuing operations in the first quarter of 2010 included an after-tax gain on the sale of real estate of $0.2 million, or $.02 per diluted share.

“We’re off to an excellent start in 2011,” said Jonathan W. Painter, president and chief executive officer of Kadant. “Diluted EPS from continuing operations was $.47 in the first quarter of 2011 compared to our guidance of $.35 to $.37. The increase was due to record quarterly gross margins of 47.6 percent, with strong margin performances across all our product lines and territories.

“Revenues of $71.7 million in the first quarter of 2011 were within the range of our guidance and were up 17 percent compared to last year. Operating income from continuing operations was $8.3 million and, at 11.6 percent of revenues, reached the highest quarterly profitability level in almost eight years. Operating cash flows were only slightly positive, as expected, and were significantly impacted by the build up in inventory as we began sourcing material for several large systems orders that are scheduled for delivery later in the year. Nevertheless, we ended the quarter with $57.6 million in cash and $17.6 million in total debt, for a net cash position of $40.0 million, an increase of $19.5 million compared to a year ago.

“We also had a solid quarter in bookings. Consolidated bookings were $84.3 million, up 20 percent over last year’s first quarter and, with a book-to-bill ratio of 1.2, resulted in a backlog at quarter end of over $109.3 million – one of our highest levels ever. We were particularly pleased with the performance in our fluid-handling business where bookings of $27.0 million reached their highest level in almost three years. In addition, bookings in our higher-margin parts and consumables business grew to $48.7 million for the quarter.

“Our strong backlog position, combined bookings of $184.1 million in the past two quarters, and increased gross margins, have all contributed to an improved outlook for the rest of the year. As such, we expect to achieve diluted EPS of $.54 to $.56 in the second quarter of 2011 on revenues of $78 to $80 million. For the full year, we expect diluted EPS of $2.15 to $2.25, revised from our previous guidance of $1.65 to $1.75, on revenues of $315 to $325 million, revised from our previous estimate of $300 to $310 million.”

Conference Call

Kadant will hold a webcast with a slide presentation on Thursday, April 28, 2011, at 11 a.m. eastern time to discuss its first quarter performance, as well as future expectations. To view this webcast, go to www.kadant.com and click on the “Investors” tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 outside the U.S. and reference participant passcode 83375884. An archive of the webcast presentation will be available on our Web site until May 27, 2011.

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 foreign currency translation, adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.

We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends. In addition, we exclude from certain financial measures restructuring costs and gains on the sale of assets to give investors additional insight into our quarterly and annual operating performance, especially when compared to quarters in which such items had greater or lesser effect, or no effect. In addition, these items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.

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 a better 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.

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.

Adjusted EBITDA and adjusted operating income exclude pre-tax gains of $0.3 million in the first quarter of 2010.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables.

Financial Classification

Parts and consumables bookings are now being reported on a consolidated basis with the inclusion of amounts from our “other” category within the papermaking systems segment and fiber-based products.
   
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
   
Three Months Ended
Consolidated Statement of Income   April 2, 2011   April 3, 2010
 
Revenues $ 71,680   $ 61,121  
 
Costs and Operating Expenses:
Cost of revenues 37,587 34,246
Selling, general, and administrative expenses 24,473 21,124
Research and development expenses 1,312 1,372
Restructuring and other income (a)   -     (302 )
  63,372     56,440  
 
Operating Income 8,308 4,681
Interest Income 99 38
Interest Expense   (257 )   (358 )
 
Income from Continuing Operations Before Provision
for Income Taxes 8,150 4,361
Provision for Income Taxes   2,273     716  
 
Income from Continuing Operations 5,877 3,645
 
Loss from Discontinued Operation, Net of Tax   (4 )   (4 )
 
Net Income 5,873 3,641
 
Net Income Attributable to Noncontrolling Interest   (82 )   (30 )
 
Net Income Attributable to Kadant $ 5,791   $ 3,611  
 
Amounts Attributable to Kadant:
Income from Continuing Operations $ 5,795 $ 3,615
Loss from Discontinued Operation, Net of Tax   (4 )   (4 )
Net Income Attributable to Kadant $ 5,791   $ 3,611  
 
 
Basic and Diluted Earnings per Share from Continuing
Operations Attributable to Kadant $ .47   $ .29  
 
Basic and Diluted Earnings per Share Attributable to Kadant $ .47   $ .29  
 
Weighted Average Shares:
Basic   12,267     12,411  
 
Diluted   12,408     12,492  
           

IncreaseExcluding Effectof CurrencyTranslation (b,c)
Three Months Ended
Revenues by Product Line   April 2, 2011   April 3, 2010   Increase  
 
Stock-Preparation $ 23,323 $ 17,755 $ 5,568 $ 5,380
Fluid-Handling 22,633 20,065 2,568 2,103
Doctoring 14,063 12,495 1,568 1,408
Water-Management 6,815 6,504 311 203
Other   700   650   50     12  
 
Papermaking Systems Segment 67,534 57,469 10,065 9,106
Fiber-based Products   4,146   3,652   494     494  
 
$ 71,680 $ 61,121 $ 10,559   $ 9,600  
 

Increase(Decrease)Excluding Effectof CurrencyTranslation (b,c)
Three Months Ended

Increase(Decrease)
Sequential Revenues by Product Line   April 2, 2011   Jan. 1, 2011    
 
Stock-Preparation $ 23,323 $ 28,928 $ (5,605 ) $ (5,599 )
Fluid-Handling 22,633 21,570 1,063 706
Doctoring 14,063 13,812 251 148
Water-Management 6,815 6,584 231 175
Other   700   603   97     79  
 
Papermaking Systems Segment 67,534 71,497 (3,963 ) (4,491 )
Fiber-based Products   4,146   1,759   2,387     2,387  
 
$ 71,680 $ 73,256 $ (1,576 ) $ (2,104 )
 
 

IncreaseExcluding Effectof CurrencyTranslation (b,c)
Three Months Ended
Revenues by Geography (d)   April 2, 2011   April 3, 2010   Increase  
 
North America $ 35,140 $ 29,718 $ 5,422 $ 5,107
Europe 21,265 20,961 304 245
China 8,777 5,353 3,424 3,023
South America 1,583 1,091 492 387
Australia   769   346   423     344  
 
Papermaking Systems Segment $ 67,534 $ 57,469 $ 10,065   $ 9,106  
 

Increase(Decrease)Excluding Effectof CurrencyTranslation (b,c)
Three Months Ended

Increase(Decrease)
Sequential Revenues by Geography (d)   April 2, 2011   Jan. 1, 2011    
 
North America $ 35,140 $ 33,392 $ 1,748 $ 1,594
Europe 21,265 22,998 (1,733 ) (1,736 )
China 8,777 12,339 (3,562 ) (3,814 )
South America 1,583 2,317 (734 ) (839 )
Australia   769   451   318     304  
 
Papermaking Systems Segment $ 67,534 $ 71,497 $ (3,963 ) $ (4,491 )
       
Three Months Ended
Business Segment Information   April 2, 2011   April 3, 2010
 
Revenues:
Papermaking Systems $ 67,534 $ 57,469
Fiber-based Products   4,146     3,652  
 
$ 71,680   $ 61,121  
 
Gross Profit Margin:
Papermaking Systems 47.4 % 43.5 %
Fiber-based Products   50.8 %   50.7 %
 
  47.6 %   44.0 %
 
Operating Income:
Papermaking Systems $ 10,697 $ 6,304
Corporate and Fiber-based Products   (2,389 )   (1,623 )
 
$ 8,308   $ 4,681  
 
Adjusted Operating Income (c,e):
Papermaking Systems $ 10,697 $ 6,002
Corporate and Fiber-based Products   (2,389 )   (1,623 )
 
$ 8,308   $ 4,379  
 
Bookings from Continuing Operations:
Papermaking Systems $ 80,268 $ 66,968
Fiber-based Products   4,031     3,219  
 
$ 84,299   $ 70,187  
 
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 1,164 $ 526
Corporate and Fiber-based Products   -     13  
 
$ 1,164   $ 539  
 
Three Months Ended
Cash Flow and Other Data from Continuing Operations   April 2, 2011   April 3, 2010
 
Cash Provided by (Used In) Operations $ 367 $ (555 )
Depreciation and Amortization Expense 1,865 1,658
 
 
Balance Sheet Data   April 2, 2011   Jan. 1, 2011
 
Assets
Cash and Cash Equivalents $ 54,963 $ 61,805
Restricted Cash 2,687 -
Accounts Receivable, net 52,261 49,897
Inventories 51,517 41,628
Unbilled Contract Costs and Fees 1,538 875
Other Current Assets 11,961 9,402
Property, Plant and Equipment, net 37,469 36,911
Intangible Assets 26,502 26,793
Goodwill 100,608 97,988
Other Assets   10,002     11,473  
 
$ 349,508   $ 336,772  
Liabilities and Shareholders' Investment
Accounts Payable $ 26,054 $ 23,756
Short- and Long-term Debt 17,625 22,750
Other Liabilities   86,655     82,965  
 
Total Liabilities $ 130,334 $ 129,471
Shareholders' Investment $ 219,174   $ 207,301  
 
$ 349,508   $ 336,772  
 
Adjusted Operating Income and Adjusted EBITDA Three Months Ended
Reconciliation   April 2, 2011   April 3, 2010
 
Consolidated
Net Income Attributable to Kadant $ 5,791 $ 3,611
Net Income Attributable to Noncontrolling Interest 82 30
Loss from Discontinued Operation, Net of Tax 4 4
Provision for Income Taxes 2,273 716
Interest Expense, net 158 320
Restructuring and other income (a)   -     (302 )
 
Adjusted Operating Income (c) 8,308 4,379
Depreciation and Amortization   1,865     1,658  
 
Adjusted EBITDA (c) $ 10,173   $ 6,037  
 
Papermaking Systems
Operating Income $ 10,697 $ 6,304
Restructuring and other income (a)   -     (302 )
 
Adjusted Operating Income (c) $ 10,697 $ 6,002
Depreciation and Amortization   1,744     1,541  
 
Adjusted EBITDA (c) $ 12,441   $ 7,543  
 
Corporate and Fiber-based Products
Operating Loss $ (2,389 ) $ (1,623 )
Depreciation and Amortization   121     117  
 
EBITDA (c) $ (2,268 ) $ (1,506 )

(a) Represents restructuring income of $17 and a gain on the sale of real estate of $285 in the three-month period ended April 3, 2010.

(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 current period.

(c) Represents a non-GAAP financial measure.

(d) Geographic revenues data is attributed to regions based on selling locations. For North America and China, this also approximates revenues based on where the equipment is shipped to and installed. Our European geographic data, however, includes revenues shipped to and installed outside of Europe, including South America, Africa, the Middle East, and certain countries in Asia (excluding China).

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

About Kadant

Kadant is a leading supplier to the global pulp and paper industry. Our stock-preparation, fluid-handling, doctoring, and water-management equipment and systems 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 $270 million in 2010 and 1,600 employees in 16 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 and demand for our products. Important factors that could cause actual results to differ materially from those indicated by such statements are set forth under the heading “Risk Factors” in Kadant’s annual report on Form 10-K for the period ended January 1, 2011. 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; our ability to expand capacity in China to meet demand; commodity and component price increases or shortages; international sales and operations; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; litigation and warranty costs related to our discontinued operation; our acquisition strategy; protection of patents and proprietary rights; 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.

Copyright Business Wire 2010

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