Kadant Reports Results For Second Quarter 2011

Kadant Inc. (NYSE:KAI) reported revenues from continuing operations of $82.5 million in the second quarter of 2011, an increase of $13.4 million, or 19 percent, compared to $69.1 million in the second quarter of 2010. Revenues in the second quarter of 2011 included a $4.6 million, or 7 percent, increase from foreign currency translation compared to the second quarter of 2010. Operating income from continuing operations in the second quarter of 2011 was $10.5 million, or 12.7 percent of revenues, compared to $7.3 million, or 10.6 percent of revenues, in the second quarter of 2010. Net income from continuing operations in the second quarter of 2011 was $7.3 million, or $.59 per diluted share, compared to $5.2 million, or $.42 per diluted share, in the second quarter of 2010.

“The second quarter was marked by strong performances in earnings per share, backlog, and adjusted EBITDA,” said Jonathan W. Painter, president and chief executive officer of Kadant. “Diluted EPS from continuing operations was $.59 in the second quarter of 2011, the second highest in our Company’s history. This compares to our guidance of $.54 to $.56. Our reported results included a loss of $.03 per share, representing the acquisition costs and the operating results of M-Clean Papertech acquired in May 2011, which was not included in our guidance. Also, our effective tax rate was slightly higher than we assumed in our guidance, and this had the effect of decreasing diluted EPS by $.02.

“The higher than expected quarterly EPS performance was due mainly to strong revenues and product gross margins. Revenues of $82.5 million exceeded our guidance, which was $78 to $80 million, and gross margins were 45.7 percent in the second quarter of 2011, with particularly noteworthy improvements over last year’s second quarter in our fluid-handling and fiber-based product businesses. Our adjusted EBITDA was $12.5 million in the second quarter of 2011, up 39 percent over last year’s second quarter, and represented 15.1 percent of revenues.

“During the quarter, we completed the acquisition of M-Clean Papertech, a European-based supplier of paper machine fabric cleaning equipment, for approximately $16 million in cash. This acquisition significantly enhances our water-management product line offerings and strengthens our market position in Europe and China, while offering growth opportunities in North America.

“Bookings of $87.3 million in the second quarter of 2011 were up 18 percent from the second quarter of 2010 driven by strong fluid-handling bookings in Europe. We ended the quarter with a record backlog of $120 million, up 66 percent over last year’s second quarter and 10 percent higher than the first quarter of 2011. Our book-to-bill ratio of 1.1 marks the seventh quarter out of the last eight where we have booked more orders than we have billed.

“As we look into the backlog, we believe that product gross margins will decline from the first half levels, due mainly to a higher proportion of revenues from lower-margin stock preparation systems in the second half of the year. We expect significantly lower gross margin and operating income results from our fiber-based products business in the second half of the year, as is normally the case with this seasonal business. Also, we expect the M-Clean results to be dilutive in the second half of the year. That said, we expect to achieve diluted EPS of $.40 to $.42 in the third quarter of 2011 on revenues of $80 to $82 million. Further, we believe that the fourth quarter will be our strongest quarter in the year both for revenues and earnings. As such, for the full year we are maintaining our diluted EPS guidance of $2.15 to $2.25, on revenues of $325 to $335 million, revised from our previous revenue guidance of $315 to $325 million.”

Conference Call

Kadant will hold a webcast with a slide presentation on Thursday, July 28, 2011, at 11 a.m. eastern time to discuss its second 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 August 26, 2011. In addition, shortly after the webcast, Kadant will post its general investor presentation incorporating the second quarter results on its Web site at www.kadant.com under the “Investors” tab. This presentation will be available until the end of the third quarter of 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 in the six-month period ended July 3, 2010 exclude net pre-tax gains of $0.3 million, including restructuring costs of $0.2 million, net of gains of $0.5 million from the sale of assets and a curtailment of a pension liability.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables.
       
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
 
Three Months Ended Six Months Ended
Consolidated Statement of Income   July 2, 2011   July 3, 2010   July 2, 2011   July 3, 2010
 
Revenues $ 82,457   $ 69,136   $ 154,137   $ 130,257  
 
Costs and Operating Expenses:
Cost of revenues 44,751 37,968 82,338 72,214
Selling, general, and administrative expenses 25,821 22,681 50,294 43,805
Research and development expenses 1,403 1,206 2,715 2,578
Restructuring costs and other income, net (a)   -     (21 )   -     (323 )
  71,975     61,834     135,347     118,274  
 
Operating Income 10,482 7,302 18,790 11,983
Interest Income 122 32 221 70
Interest Expense   (299 )   (339 )   (556 )   (697 )
 
Income from Continuing Operations before Provision
for Income Taxes 10,305 6,995 18,455 11,356
Provision for Income Taxes   2,927     1,717     5,200     2,433  
 
Income from Continuing Operations 7,378 5,278 13,255 8,923
 
Loss from Discontinued Operation, Net of Tax   (5 )   (5 )   (9 )   (9 )
 
Net Income 7,373 5,273 13,246 8,914
 
Net Income Attributable to Noncontrolling Interest   (69 )   (53 )   (151 )   (83 )
 
Net Income Attributable to Kadant $ 7,304   $ 5,220   $ 13,095   $ 8,831  
 
Amounts Attributable to Kadant:
Income from Continuing Operations $ 7,309 $ 5,225 $ 13,104 $ 8,840
Loss from Discontinued Operation, Net of Tax   (5 )   (5 )   (9 )   (9 )
Net Income Attributable to Kadant $ 7,304   $ 5,220   $ 13,095   $ 8,831  
 
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ .59   $ .42   $ 1.07   $ .71  
Diluted $ .59   $ .42   $ 1.05   $ .71  
 
Earnings per Share Attributable to Kadant:
Basic $ .59   $ .42   $ 1.07   $ .71  
Diluted $ .59   $ .42   $ 1.05   $ .71  
 
Weighted Average Shares:
Basic   12,321     12,426     12,294     12,418  
 
Diluted   12,477     12,549     12,442     12,521  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line   July 2, 2011   July 3, 2010   (Decrease)   Translation (b,c)
 
Stock-Preparation $ 32,320 $ 25,004 $ 7,316 $ 5,635
Fluid-Handling 24,471 20,070 4,401 2,637
Doctoring 13,694 12,711 983 267
Water-Management 8,515 8,567 (52 ) (435 )
Other   621     601     20     (22 )

Papermaking Systems Segment
79,621 66,953 12,668 8,082
Fiber-based Products   2,836     2,183     653     653  
 
$ 82,457   $ 69,136   $ 13,321   $ 8,735  
 
Increase
(Decrease)
Excluding Effect
Six Months Ended

of Currency
July 2, 2011   July 3, 2010   Increase   Translation (b,c)
 
Stock-Preparation $ 55,643 $ 42,759 $ 12,884 $ 11,015
Fluid-Handling 47,104 40,135 6,969 4,740
Doctoring 27,757 25,206 2,551 1,675
Water-Management 15,330 15,071 259 (232 )
Other   1,321     1,251     70     (10 )

Papermaking Systems Segment
147,155 124,422 22,733 17,188
Fiber-based Products   6,982     5,835     1,147     1,147  
 
$ 154,137   $ 130,257   $ 23,880   $ 18,335  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line   July 2, 2011   April 2, 2011   (Decrease)   Translation (b,c)
 
Stock-Preparation $ 32,320 $ 23,323 $ 8,997 $ 8,379
Fluid-Handling 24,471 22,633 1,838 1,180
Doctoring 13,694 14,063 (369 ) (598 )
Water-Management 8,515 6,815 1,700 1,577
Other   621     700     (79 )   (97 )

Papermaking Systems Segment
79,621 67,534 12,087 10,441
Fiber-based Products   2,836     4,146     (1,310 )   (1,310 )
 
$ 82,457   $ 71,680   $ 10,777   $ 9,131  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended of Currency
Revenues by Geography (d,e)   July 2, 2011   July 3, 2010   Increase   Translation (b,c)
 
North America $ 38,128 $ 38,085 $ 43 $ (348 )
Europe 25,286 20,404 4,882 1,847
China 15,689 8,501 7,188 6,414
South America 2,681 1,626 1,055 785
Australia   673     520     153     37  
 
$ 82,457   $ 69,136   $ 13,321   $ 8,735  
 
Increase
Excluding Effect
Six Months Ended of Currency
July 2, 2011   July 3, 2010   Increase   Translation (b,c)
 
North America $ 77,414 $ 71,455 $ 5,959 $ 5,253
Europe 46,551 41,365 5,186 2,092
China 24,466 13,854 10,612 9,437
South America 4,264 2,717 1,547 1,172
Australia   1,442     866     576     381  
 
$ 154,137   $ 130,257   $ 23,880   $ 18,335  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography (d,e)   July 2, 2011   April 2, 2011   (Decrease)   Translation (b,c)
 
North America $ 38,128 $ 39,286 $ (1,158 ) $ (1,305 )
Europe 25,286 21,265 4,021 2,867
China 15,689 8,777 6,912 6,711
South America 2,681 1,583 1,098 991
Australia   673     769     (96 )   (133 )
 
$ 82,457   $ 71,680   $ 10,777   $ 9,131  
 
Three Months Ended Six Months Ended
Business Segment Information   July 2, 2011   July 3, 2010   July 2, 2011   July 3, 2010
 
Revenues:
Papermaking Systems $ 79,621 $ 66,953 $ 147,155 $ 124,422
Fiber-based Products   2,836     2,183     6,982     5,835  
 
$ 82,457   $ 69,136   $ 154,137   $ 130,257  
 
Gross Profit Margin:
Papermaking Systems 45.3 % 44.9 % 46.3 % 44.3 %
Fiber-based Products   56.6 %   50.8 %   53.2 %   50.8 %
 
  45.7 %   45.1 %   46.6 %   44.6 %
 
Operating Income:
Papermaking Systems $ 13,073 $ 10,895 $ 23,770 $ 17,199
Corporate and Fiber-based Products   (2,591 )   (3,593 )   (4,980 )   (5,216 )
 
$ 10,482   $ 7,302   $ 18,790   $ 11,983  
 
Adjusted Operating Income (c,f):
Papermaking Systems $ 13,073 $ 10,874 $ 23,770 $ 16,876
Corporate and Fiber-based Products   (2,591 )   (3,593 )   (4,980 )   (5,216 )
 
$ 10,482   $ 7,281   $ 18,790   $ 11,660  
 
Bookings from Continuing Operations:
Papermaking Systems $ 85,564 $ 72,811 $ 165,832 $ 139,779
Fiber-based Products   1,777     1,445     5,808     4,664  
 
$ 87,341   $ 74,256   $ 171,640   $ 144,443  
 
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 2,746 $ 534 $ 3,910 $ 1,060
Corporate and Fiber-based Products   54     219     54     232  
 
$ 2,800   $ 753   $ 3,964   $ 1,292  
 
Three Months Ended Six Months Ended
Cash Flow and Other Data from Continuing Operations   July 2, 2011   July 3, 2010   July 2, 2011   July 3, 2010
 
Cash Provided by Operations $ 6,839 $ 8,963 $ 7,206 $ 8,408
Depreciation and Amortization Expense 1,982 1,697 3,847 3,355
 
 
Balance Sheet Data                   July 2, 2011   Jan. 1, 2011
 
Assets
Cash and Cash Equivalents $ 43,912 $ 61,805
Restricted Cash 2,173 -
Accounts Receivable, net 54,469 49,897
Inventories 60,950 41,628
Unbilled Contract Costs and Fees 3,321 875
Other Current Assets 11,416 9,402
Property, Plant and Equipment, net 39,341 36,911
Intangible Assets 32,477 26,793
Goodwill 109,821 97,988
Other Assets   10,821     11,473  
 
$ 368,701   $ 336,772  
Liabilities and Shareholders' Investment
Accounts Payable $ 27,008 $ 23,756
Short- and Long-term Debt 17,500 22,750
Other Liabilities   95,796     82,965  
 
Total Liabilities $ 140,304 $ 129,471
Shareholders' Investment $ 228,397   $ 207,301  
 
$ 368,701   $ 336,772  
 
Adjusted Operating Income and Adjusted EBITDA Three Months Ended Six Months Ended
Reconciliation   July 2, 2011   July 3, 2010   July 2, 2011   July 3, 2010
 
Consolidated
Net Income Attributable to Kadant $ 7,304 $ 5,220 $ 13,095 $ 8,831
Net Income Attributable to Noncontrolling Interest 69 53 151 83
Loss from Discontinued Operation, Net of Tax 5 5 9 9
Provision for Income Taxes 2,927 1,717 5,200 2,433
Interest Expense, net 177 307 335 627
Restructuring costs and other income, net (a)   -     (21 )   -     (323 )
 
Adjusted Operating Income (c) 10,482 7,281 18,790 11,660
Depreciation and Amortization   1,982     1,697     3,847     3,355  
 
Adjusted EBITDA (c) $ 12,464   $ 8,978   $ 22,637   $ 15,015  
 
Papermaking Systems
Operating Income $ 13,073 $ 10,895 $ 23,770 $ 17,199
Restructuring costs and other income, net (a)   -     (21 )   -     (323 )
 
Adjusted Operating Income (c) 13,073 10,874 23,770 16,876
Depreciation and Amortization   1,860     1,578     3,604     3,119  
 
Adjusted EBITDA (c) $ 14,933   $ 12,452   $ 27,374   $ 19,995  
 
Corporate and Fiber-based Products
Operating Loss $ (2,591 ) $ (3,593 ) $ (4,980 ) $ (5,216 )
Depreciation and Amortization   122     119     243     236  
 
EBITDA (c) $ (2,469 ) $ (3,474 ) $ (4,737 ) $ (4,980 )
 
  (a)   Includes pre-tax restructuring costs of $198, net of a pre-tax gain of $219, in the three-month period ended July 3, 2010 and pre-tax restructuring costs of $181, net of a pre-tax gain of $504, in the six-month period ended July 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 prior 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) Prior period amounts have been restated to include the Fiber-based Products revenues within North America.
 
(f) 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. 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 April 2, 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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