Kadant Reports 2012 Second Quarter Results

Kadant Inc. (NYSE:KAI) reported its financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Financial Highlights
  • GAAP diluted earnings per share (EPS) from continuing operations was $0.56 in the second quarter of 2012 compared to $0.59 in the second quarter of 2011. Guidance was $0.50 to $0.52.
  • Revenues were $83.0 million in the quarter compared to $82.5 million in the second quarter of 2011. Guidance was $83 to $85 million.
  • Net income was $6.5 million in the quarter compared to $7.3 million in the second quarter of 2011.
  • EBITDA was $11.4 million in the quarter, down 8% from the second quarter of 2011, and was 13.8% of revenues compared to 15.1% in last year’s second quarter.
  • Cash flows from continuing operations were $8.6 million in the quarter, up 25% from the second quarter of 2011.
  • Repurchases of common stock were $7.3 million in the second quarter of 2012.

Note: EBITDA is a non-GAAP measure that excludes certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures” and in the reconciliation tables below.

Management Commentary

“We were very pleased with our results in the second quarter of 2012,” said Jonathan W. Painter, president and chief executive officer of Kadant. “Diluted EPS from continuing operations was $0.56, one of the best performances in our twenty-year history as a public company, and exceeded our guidance, which was $0.50 to $0.52.

“Revenues of $83.0 million were at the low end of our guidance, which was $83 to $85 million, and included an unfavorable foreign exchange translation effect of $3.5 million. Revenues also included a $2.4 million increase from Kadant M-Clean, which was acquired late in the second quarter of 2011 and included only one month’s results in that period. We were encouraged that our product gross margins were a solid 43.7 percent, although down from the near record level of 45.7 percent in the second quarter of 2011. Our EBITDA was $11.4 million in the second quarter of 2012, down from $12.5 million in the second quarter of 2011, and represented 13.8 percent of revenues. Operating cash flows from continuing operations were $8.6 million, up from $6.8 million in last year’s second quarter, and we repurchased $7.3 million of our common stock in the quarter. Cash less debt was $30.1 million at the end of the quarter.

“The global economic uncertainty, particularly in Europe and China, continued to impact our booking results in the second quarter of 2012. Consolidated bookings were $77.4 million in the second quarter of 2012, down 11 percent from last year’s second quarter, and included decreases of 30 percent and 19 percent in Europe and China, respectively. Consolidated bookings were flat on a sequential basis.”

Second Quarter 2012

Kadant reported revenues from continuing operations of $83.0 million in the second quarter of 2012, an increase of $0.5 million compared with $82.5 million in the second quarter of 2011. Revenues for the second quarter of 2012 included a $3.5 million decrease from foreign currency translation and a $2.4 million increase from Kadant M-Clean compared to the second quarter of 2011. Operating income from continuing operations was $9.4 million in the second quarter of 2012 compared to $10.5 million in the second quarter of 2011. Net income was $6.5 million in the second quarter of 2012, or $0.56 per diluted share, compared to $7.3 million, or $0.59 per diluted share, in the second quarter of 2011.

Guidance

“Looking forward, the continuing weak economic conditions in Europe and China, coupled with our recent bookings results and the adverse translation effect associated with the strengthening U.S. dollar, have led us to reduce guidance for the second half of the year,” Jonathan W. Painter continued. “We expect to achieve diluted EPS of $0.49 to $0.51 in the third quarter of 2012 on revenues of $80 to $82 million. For the full year, we expect to achieve diluted EPS of $2.05 to $2.10 on revenues of $325 to $330 million, revised from our previous guidance of $2.10 to $2.20 on revenues of $335 to $345 million. I should note that if we achieve the revised EPS guidance for the full year, it will be the second highest result we have ever attained.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 31, 2012, at 11 a.m. eastern time to discuss its second quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, 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. Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. An archive of the webcast presentation will be available on our Web site until August 30, 2012.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its Web site at www.kadant.com under the “Investors” tab.

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, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.

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.

We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted EBITDA excludes pre-tax gains of $2.3 million, net of restructuring costs of $0.4 million in the twelve-month period ended June 30, 2012. These items are excluded as they are not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs or other income, or none at all.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.
Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)
           
Three Months Ended Six Months Ended
Consolidated Statement of Income   June 30, 2012   July 2, 2011   June 30, 2012   July 2, 2011
 
Revenues $ 82,982   $ 82,457   $ 167,095   $ 154,137  
 
Costs and Operating Expenses:
Cost of revenues 46,684 44,751 92,425 82,338
Selling, general, and administrative expenses 25,490 25,821 51,633 50,294
Research and development expenses 1,393 1,403 2,925 2,715
Other expense (a)   -     -     307     -  
  73,567     71,975     147,290     135,347  
 
Operating Income 9,415 10,482 19,805 18,790
Interest Income 74 122 168 221
Interest Expense   (196 )   (299 )   (405 )   (556 )
 
Income from Continuing Operations before Provision
for Income Taxes 9,293 10,305 19,568 18,455
Provision for Income Taxes   2,705     2,927     5,843     5,200  
 
Income from Continuing Operations 6,588 7,378 13,725 13,255
 
Loss from Discontinued Operation, Net of Tax   (3 )   (5 )   (64 )   (9 )
 
Net Income 6,585 7,373 13,661 13,246
 
Net Income Attributable to Noncontrolling Interest   (42 )   (69 )   (65 )   (151 )
 
Net Income Attributable to Kadant $ 6,543   $ 7,304   $ 13,596   $ 13,095  
 
Amounts Attributable to Kadant:
Income from Continuing Operations $ 6,546 $ 7,309 $ 13,660 $ 13,104
Loss from Discontinued Operation, Net of Tax   (3 )   (5 )   (64 )   (9 )
Net Income Attributable to Kadant $ 6,543   $ 7,304   $ 13,596   $ 13,095  
 
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ 0.57   $ 0.59   $ 1.18   $ 1.07  
Diluted $ 0.56   $ 0.59   $ 1.17   $ 1.05  
 
Earnings per Share Attributable to Kadant:
Basic $ 0.57   $ 0.59   $ 1.17   $ 1.07  
Diluted $ 0.56   $ 0.59   $ 1.16   $ 1.05  
 
Weighted Average Shares:
Basic   11,575     12,321     11,614     12,294  
 
Diluted   11,679     12,477     11,704     12,442  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line   June 30, 2012   July 2, 2011   (Decrease)   Translation (b,c)
 
Stock-Preparation $ 28,674 $ 32,320 $ (3,646 ) $ (2,821 )
Fluid-Handling 23,741 24,471 (730 ) 583
Doctoring 13,985 13,694 291 910
Water-Management 13,046 8,515 4,531 5,179
Other   515     621     (106 )   (27 )
 

Papermaking Systems Segment
79,961 79,621 340 3,824
Fiber-based Products   3,021     2,836     185     185  
 
$ 82,982   $ 82,457   $ 525   $ 4,009  
 
Increase
(Decrease)
Excluding Effect
Six Months Ended Increase of Currency
June 30, 2012   July 2, 2011   (Decrease)   Translation (b,c)
 
Stock-Preparation $ 61,391 $ 55,643 $ 5,748 $ 6,622
Fluid-Handling 46,109 47,104 (995 ) 688
Doctoring 27,622 27,757 (135 ) 732
Water-Management 23,853 15,330 8,523 9,331
Other   1,136     1,321     (185 )   (59 )
 

Papermaking Systems Segment
160,111 147,155 12,956 17,314
Fiber-based Products   6,984     6,982     2     2  
 
$ 167,095   $ 154,137   $ 12,958   $ 17,316  
          Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line     June 30, 2012   March 31, 2012   (Decrease)   Translation (b,c)
 
Stock-Preparation $ 28,674 $ 32,717 $ (4,043 ) $ (3,860 )
Fluid-Handling 23,741 22,368 1,373 1,759
Doctoring 13,985 13,637 348 429
Water-Management 13,046 10,807 2,239 2,356
Other   515     621     (106 )   (85 )
 

Papermaking Systems Segment
79,961 80,150 (189 ) 599
Fiber-based Products   3,021     3,963     (942 )   (942 )
 
$ 82,982   $ 84,113   $ (1,131 ) $ (343 )
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Geography (d)     June 30, 2012   July 2, 2011   (Decrease)   Translation (b,c)
 
North America $ 40,730 $ 36,634 $ 4,096 $ 4,590
Europe 18,861 19,560 (699 ) 1,007
China 11,151 15,754 (4,603 ) (4,642 )
South America 5,714 4,877 837 1,681
Other   6,526     5,632     894     1,373  
 
$ 82,982   $ 82,457   $ 525   $ 4,009  
 
Increase
(Decrease)
Excluding Effect
Six Months Ended Increase of Currency
June 30, 2012   July 2, 2011   (Decrease)   Translation (b,c)
 
North America $ 80,429 $ 74,802 $ 5,627 $ 6,310
Europe 37,901 33,598 4,303 6,588
China 23,044 24,610 (1,566 ) (2,005 )
South America 11,508 9,579 1,929 3,051
Other   14,213     11,548     2,665     3,372  
 
$ 167,095   $ 154,137   $ 12,958   $ 17,316  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography     June 30, 2012   March 31, 2012   (Decrease)   Translation (b,c)
 
North America $ 40,730 $ 39,699 $ 1,031 $ 1,146
Europe 18,861 19,040 (179 ) 74
China 11,151 11,893 (742 ) (668 )
South America 5,714 5,794 (80 ) 196
Other   6,526     7,687     (1,161 )   (1,091 )
 
$ 82,982   $ 84,113   $ (1,131 ) $ (343 )
 
Three Months Ended Six Months Ended
Business Segment Information     June 30, 2012   July 2, 2011   June 30, 2012   July 2, 2011
 
Gross Profit Margin:
Papermaking Systems 43.4 % 45.3 % 44.2 % 46.3 %
Fiber-based Products   52.8 %   56.6 %   54.8 %   53.2 %
 
  43.7 %   45.7 %   44.7 %   46.6 %
 
Operating Income:
Papermaking Systems $ 11,772 $ 13,073 $ 23,876 $ 23,770
Corporate and Fiber-based Products   (2,357 )   (2,591 )   (4,071 )   (4,980 )
 
$ 9,415   $ 10,482   $ 19,805   $ 18,790  
 
Bookings from Continuing Operations:
Papermaking Systems $ 74,794 $ 85,564 $ 149,012 $ 165,832
Fiber-based Products   2,617     1,777     5,993     5,808  
 
$ 77,411   $ 87,341   $ 155,005   $ 171,640  
 
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 503 $ 2,746 $ 761 $ 3,910
Corporate and Fiber-based Products   80     54     80     54  
 
$ 583   $ 2,800   $ 841   $ 3,964  
    Three Months Ended   Six Months Ended
Cash Flow and Other Data from Continuing Operations   June 30, 2012   July 2, 2011   June 30, 2012   July 2, 2011
   
Cash Provided by Operations $ 8,558 $ 6,839 $ 4,532 $ 7,206
Depreciation and Amortization Expense 2,029 1,982 4,272 3,847
 
 
Balance Sheet Data           June 30, 2012   Dec. 31, 2011
 
Assets
Cash, Cash Equivalents, and Restricted Cash $ 42,099 $ 47,650
Accounts Receivable, net 57,134 59,492
Inventories 49,167 50,527
Unbilled Contract Costs and Fees 10,662 3,244
Other Current Assets 12,788 13,378
Property, Plant and Equipment, net 38,055 40,095
Intangible Assets 27,288 29,053
Goodwill 104,912 105,959
Other Assets   9,041   9,000
 
$ 351,146 $ 358,398
Liabilities and Shareholders' Investment
Accounts Payable $ 25,645 $ 28,624
Short- and Long-term Debt 12,000 12,250
Other Liabilities   84,543   93,894
 
Total Liabilities $ 122,188 $ 134,768
Shareholders' Investment $ 228,958 $ 223,630
 
$ 351,146 $ 358,398
              Twelve Months
Three Months Ended Six Months Ended Ended
Adjusted EBITDA Reconciliation   June 30, 2012   July 2, 2011   June 30, 2012   July 2, 2011   June 30, 2012
 
Consolidated
Net Income Attributable to Kadant $ 6,543 $ 7,304 $ 13,596 $ 13,095 $ 34,076
Net Income Attributable to Noncontrolling Interest 42 69 65 151 188
Loss from Discontinued Operation, Net of Tax 3 5 64 9 64
Provision for Income Taxes 2,705 2,927 5,843 5,200 4,928
Interest Expense, net   122     177     237     335     469  
 
Operating Income 9,415 10,482 19,805 18,790 39,725
Depreciation and Amortization   2,029     1,982     4,272     3,847     8,361  
 
EBITDA (c) $ 11,444   $ 12,464   $ 24,077   $ 22,637   $ 48,086
Restructuring costs and other income, net   (1,874 )
 
Adjusted EBITDA (c) $ 46,212  
 
Papermaking Systems
Operating Income $ 11,772 $ 13,073 $ 23,876 $ 23,770
Depreciation and Amortization   1,909     1,860     4,033     3,604  
 
EBITDA (c) $ 13,681   $ 14,933   $ 27,909   $ 27,374  
 
Corporate and Fiber-based Products
Operating Loss $ (2,357 ) $ (2,591 ) $ (4,071 ) $ (4,980 )
Depreciation and Amortization   120     122     239     243  
 
EBITDA (c) $ (2,237 ) $ (2,469 ) $ (3,832 ) $ (4,737 )
 
(a)  

Represents accelerated depreciation in the six-month period ended June 30, 2012 associated with the anticipated disposal of equipment in China related to a facility consolidation.
 
(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)

Starting in the first quarter of 2012, geographic revenues are attributed to regions based on customer location. Prior period amounts have been recasted to conform to the current presentation.

About Kadant

Kadant Inc. 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 $335 million in 2011 and 1,700 employees in 17 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, demand for our products, and economic and industry outlook. 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 quarter ended March 31, 2012. 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 adjust operating costs and manufacturing sufficiently 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 costs related to our discontinued operation; our acquisition strategy; protection of patents and proprietary rights; failure of our information systems or breaches of data security; 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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