Kadant Reports 2013 Third Quarter Results

Lowers Revenue Guidance for 2013

Business Wire

WESTFORD, Mass.--(BUSINESS WIRE)--

Kadant Inc. (KAI) reported its financial results for the third quarter ended September 28, 2013.

Third Quarter 2013 Highlights

  • GAAP diluted earnings per share (EPS) from continuing operations was $0.57 in the third quarter of 2013 compared to $0.66 in the third quarter of 2012. Guidance was $0.47 to $0.49, which included $0.01 of restructuring costs. A higher effective tax rate reduced diluted EPS by $0.10 in the third quarter of 2013 compared to the third quarter of 2012.
  • Revenues were $91 million in the third quarter of 2013, including $7 million from acquisitions, compared to $87 million in the third quarter of 2012. Guidance was $88 to $90 million, including revenues from acquisitions.
  • Operating income was $10 million in both the third quarters of 2013 and 2012.
  • Bookings were $82 million in the third quarter of 2013, including $5 million from acquisitions, compared to $69 million in the third quarter of 2012. Bookings in the first nine months of 2013 were $259 million, increasing 15% compared to the first nine months of 2012, including 6% from acquisitions.
  • Cash flows from continuing operations were $13 million in both the third quarters of 2013 and 2012, and were $31 million in the first nine months of 2013 compared to $18 million in the first nine months of 2012.
  • Net cash was $59 million at the end of the third quarter and increased $10 million compared to the second quarter of 2013.

Management Commentary

“We had another solid quarter with strong cash flows and better than expected EPS performance,” said Jonathan W. Painter, president and chief executive officer of Kadant. “GAAP diluted EPS from continuing operations was $0.57 and well above our guidance of $0.47 to $0.49 partly due to higher revenues. Our diluted EPS for the third quarter of 2013 included $0.05 from acquisition expenses.

“Revenues of $91 million in the third quarter of 2013 increased five percent compared to the third quarter of 2012, including increases of eight percent from acquisitions and two percent from foreign currency translation. Operating cash flows from continuing operations were $13 million in the third quarter of 2013 and we ended the quarter with net cash (cash less debt) of $59 million.

“Bookings increased to $82 million in the third quarter of 2013 compared to $69 million in the third quarter of 2012, including $5 million from acquisitions. Parts and consumables bookings increased 21 percent to $54 million in the third quarter of 2013 compared to the third quarter of 2012, including a seven percent increase from acquisitions.”

Third Quarter 2013

Kadant reported revenues of $91.3 million in the third quarter of 2013, an increase of $4.7 million, or five percent, compared with $86.6 million in the third quarter of 2012. Revenues in the third quarter of 2013 included $7.0 million from acquisitions and a $1.5 million increase from foreign currency translation compared to the third quarter of 2012. Operating income from continuing operations was $9.9 million in both the third quarters of 2013 and 2012. Net income from continuing operations was $6.5 million in the third quarter of 2013, or $0.57 per diluted share, compared to $7.6 million, or $0.66 per diluted share, in the third quarter of 2012.

Guidance

“Our solid diluted EPS performance during the first three quarters of 2013 has positioned us to finish 2013 as expected,” Mr. Painter continued. “Looking forward, we expect to achieve GAAP diluted EPS from continuing operations of $0.47 to $0.49 in the fourth quarter of 2013 on revenues of $86 to $88 million. Our fourth quarter guidance includes estimated restructuring costs of $0.01. For the full year, we expect revenues of $336 to $338 million, revised from our previous estimate of $340 to $345 million. We expect to achieve GAAP diluted EPS from continuing operations of $2.02 to $2.04, which includes a gain of $0.12 on the sale of assets and restructuring costs of $0.13. This guidance does not include any results from the pending acquisition of Carmanah Design and Manufacturing Inc.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, November 5, 2013, at 11 a.m. eastern time to discuss its third 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 877-703-6107 within the U.S., or +1-857-244-7306 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 December 6, 2013.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third 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 acquisitions and foreign currency translation, adjusted operating income, 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 an 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.

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

Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $2.0 million and a pre-tax gain on the sale of assets of $1.7 million in the nine-month period ended September 28, 2013. 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.

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.

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 Nine Months Ended
Consolidated Statement of Income       Sept. 28, 2013     Sept. 29, 2012       Sept. 28, 2013     Sept. 29, 2012
 
Revenues $ 91,315   $ 86,601   $ 249,684   $ 253,696  
 
Costs and Operating Expenses:
Cost of revenues 51,194 49,005 133,597 141,430
Selling, general, and administrative expenses 28,606 26,171 85,001 77,804
Research and development expenses 1,558 1,511 5,114 4,436
Restructuring costs and other (income) expense, net (a)   45     -     263     307  
  81,403     76,687     223,975     223,977  
 
Operating Income 9,912 9,914 25,709 29,719
Interest Income 155 63 406 231
Interest Expense   (239 )   (219 )   (635 )   (624 )
 
Income from Continuing Operations before Provision
for Income Taxes 9,828 9,758 25,480 29,326
Provision for Income Taxes   3,327     2,055     7,786     7,898  
 
Income from Continuing Operations 6,501 7,703 17,694 21,428
 
(Loss) Income from Discontinued Operation, Net of Tax (b)   (14 )   844     (55 )   780  
 
Net Income 6,487 8,547 17,639 22,208
 
Net Income Attributable to Noncontrolling Interest   (40 )   (86 )   (148 )   (151 )
 
Net Income Attributable to Kadant $ 6,447   $ 8,461   $ 17,491   $ 22,057  
 
Amounts Attributable to Kadant:
Income from Continuing Operations $ 6,461 $ 7,617 $ 17,546 $ 21,277
(Loss) Income from Discontinued Operation, Net of Tax   (14 )   844     (55 )   780  
Net Income Attributable to Kadant $ 6,447   $ 8,461   $ 17,491   $ 22,057  
 
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ 0.58   $ 0.67   $ 1.57   $ 1.85  
 
Diluted $ 0.57   $ 0.66   $ 1.55   $ 1.83  
 
Earnings per Share Attributable to Kadant:
Basic $ 0.58   $ 0.75   $ 1.57   $ 1.91  
 
Diluted $ 0.57   $ 0.74   $ 1.55   $ 1.90  
 
Weighted Average Shares:
Basic   11,153     11,341     11,165     11,523  
 
Diluted   11,365     11,491     11,321     11,633  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line       Sept. 28, 2013    

Sept. 29, 2012

      (Decrease)     Translation (c,d)
 
Stock-Preparation $ 38,827 $ 34,492 $ 4,335 $ 3,255
Doctoring, Cleaning, & Filtration 28,801 27,095 1,706 1,463
Fluid-Handling   21,837     23,624     (1,787 )   (1,992 )
 
Papermaking Systems Segment 89,465 85,211 4,254 2,726
Fiber-based Products   1,850     1,390     460     460  
 
$ 91,315   $ 86,601   $ 4,714   $ 3,186  
 
Increase
(Decrease)
Excluding Effect
Nine Months Ended Increase of Currency
Sept. 28, 2013     Sept. 29, 2012       (Decrease)     Translation (c,d)
 
Stock-Preparation $ 90,322 $ 95,883 $ (5,561 ) $ (7,012 )
Doctoring, Cleaning, & Filtration 82,329 79,706 2,623 1,847
Fluid-Handling   68,464     69,733     (1,269 )   (1,461 )
 
Papermaking Systems Segment 241,115 245,322 (4,207 ) (6,626 )
Fiber-based Products   8,569     8,374     195     195  
 
$ 249,684   $ 253,696   $ (4,012 ) $ (6,431 )
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line       Sept. 28, 2013     June 29, 2013       (Decrease)     Translation (c,d)
 
Stock-Preparation $ 38,827 $ 28,493 $ 10,334 $ 10,097
Doctoring, Cleaning, & Filtration 28,801 27,666 1,135 1,355
Fluid-Handling   21,837     23,094     (1,257 )   (1,082 )
 
Papermaking Systems Segment 89,465 79,253 10,212 10,370
Fiber-based Products   1,850     2,912     (1,062 )   (1,062 )
 
$ 91,315   $ 82,165   $ 9,150   $ 9,308  
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Geography (e)       Sept. 28, 2013     Sept. 29, 2012       (Decrease)     Translation (c,d)
 
North America $ 36,987 $ 35,248 $ 1,739 $ 1,701
Europe 25,941 18,113 7,828 6,666
China 14,726 17,677 (2,951 ) (3,347 )
South America 8,032 5,873 2,159 2,231
Other   5,629     9,690     (4,061 )   (4,065 )
 
$ 91,315   $ 86,601   $ 4,714   $ 3,186  
 
Increase
(Decrease)
Excluding Effect
Nine Months Ended Increase of Currency
Sept. 28, 2013     Sept. 29, 2012       (Decrease)     Translation (c,d)
 
North America $ 116,215 $ 115,677 $ 538 $ 251
Europe 60,108 56,014 4,094 2,521
China 38,307 40,721 (2,414 ) (3,229 )
South America 20,024 17,381 2,643 2,904
Other   15,030     23,903     (8,873 )   (8,878 )
 
$ 249,684   $ 253,696   $ (4,012 ) $ (6,431 )
 
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography       Sept. 28, 2013     June 29, 2013       (Decrease)     Translation (c,d)
 
North America $ 36,987 $ 40,350 $ (3,363 ) $ (3,243 )
Europe 25,941 16,594 9,347 9,029
China 14,726 12,353 2,373 2,275
South America 8,032 7,801 231 663
Other   5,629     5,067     562     584  
 
$ 91,315   $ 82,165   $ 9,150   $ 9,308  
 
Three Months Ended Nine Months Ended
Business Segment Information       Sept. 28, 2013     Sept. 29, 2012       Sept. 28, 2013    

Sept. 29, 2012

 
Gross Profit Margin:
Papermaking Systems 44.3 % 43.6 % 46.5 % 44.0 %
Fiber-based Products   26.7 %   30.4 %   46.1 %   50.7 %
 
  43.9 %   43.4 %   46.5 %   44.3 %
 
Operating Income:
Papermaking Systems $ 14,210 $ 14,385 $ 35,975 $ 38,261
Corporate and Fiber-based Products   (4,298 )   (4,471 )   (10,266 )   (8,542 )
 
$ 9,912   $ 9,914   $ 25,709   $ 29,719  
 
Adjusted Operating Income (d,f):
Papermaking Systems $ 14,255 $ 14,385 $ 36,238 $ 38,261
Corporate and Fiber-based Products   (4,298 )   (4,471 )   (10,266 )   (8,542 )
 
$ 9,957   $ 9,914   $ 25,972   $ 29,719  
 
Bookings from Continuing Operations:
Papermaking Systems $ 79,792 $ 68,230 $ 250,277 $ 217,242
Fiber-based Products   1,844     1,113     8,769     7,106  
 
$ 81,636   $ 69,343   $ 259,046   $ 224,348  
 
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 1,427 $ 578 $ 3,825 $ 1,339
Corporate and Fiber-based Products   150     95     324     175  
 
$ 1,577   $ 673   $ 4,149   $ 1,514  
 
 
Three Months Ended Nine Months Ended
Cash Flow and Other Data from Continuing Operations       Sept. 28, 2013     Sept. 29, 2012       Sept. 28, 2013     Sept. 29, 2012
 
Cash Provided by Operations $ 12,625 $ 13,205 $ 30,697 $ 17,737
Depreciation and Amortization Expense 2,302 2,147 6,730 6,419
 
 
Balance Sheet Data                     Sept. 28, 2013     Dec. 29, 2012
 
Assets
Cash, Cash Equivalents, and Restricted Cash $ 73,167 $ 54,553
Accounts Receivable, net 61,312 59,359
Inventories 50,925 42,077
Unbilled Contract Costs and Fees 3,608 2,800
Other Current Assets 21,460 16,804
Property, Plant and Equipment, net 42,105 39,168
Intangible Assets 25,005 26,095
Goodwill 110,337 107,947
Other Assets   10,815     10,145  
 
$ 398,734   $ 358,948  
Liabilities and Stockholders' Equity
Accounts Payable $ 26,169 $ 23,124
Short- and Long-term Debt 14,500 6,875
Other Liabilities   93,465     78,982  
 
Total Liabilities 134,134 108,981
Stockholders' Equity   264,600     249,967  
 
$ 398,734   $ 358,948  
 
 
Adjusted Operating Income and Adjusted EBITDA Three Months Ended Nine Months Ended
Reconciliation       Sept. 28, 2013     Sept. 29, 2012       Sept. 28, 2013     Sept. 29, 2012
 
Consolidated
Net Income Attributable to Kadant $ 6,447 $ 8,461 $ 17,491 $ 22,057
Net Income Attributable to Noncontrolling Interest 40 86 148 151
Loss (Income) from Discontinued Operation, Net of Tax 14 (844 ) 55 (780 )
Provision for Income Taxes 3,327 2,055 7,786 7,898
Interest Expense, net   84     156     229     393  
 
Operating Income 9,912 9,914 25,709 29,719
Restructuring costs and other income, net (a)   45     -     263     -  
 
Adjusted Operating Income (d) 9,957 9,914 25,972 29,719
Depreciation and Amortization   2,302     2,147     6,730     6,419  
 
Adjusted EBITDA (d) $ 12,259   $ 12,061   $ 32,702   $ 36,138  
 
Papermaking Systems
Operating Income $ 14,210 $ 14,385 $ 35,975 $ 38,261
Restructuring costs and other income, net (a)   45     -     263     -  
 
Adjusted Operating Income (d) 14,255 14,385 36,238 38,261
Depreciation and Amortization   2,180     2,030     6,371     6,063  
 
Adjusted EBITDA (d) $ 16,435   $ 16,415   $ 42,609   $ 44,324  
 
Corporate and Fiber-based Products
Operating Loss $ (4,298 ) $ (4,471 ) $ (10,266 ) $ (8,542 )
Depreciation and Amortization   122     117     359     356  
 
EBITDA (d) $ (4,176 ) $ (4,354 ) $ (9,907 ) $ (8,186 )

 

(a) Includes restructuring costs of $45 in the three-month period ended September 28, 2013 and restructuring costs of $2,003, net of a gain of $1,740 on the sale of assets, in the nine-month period ended September 28, 2013.

(b) Income from discontinued operation in the three- and nine-month periods ended September 29, 2012 was due to the reduction in the reserve for the payment of claims related to the Composites LLC class action settlement.

(c) 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.

(d) Represents a non-GAAP financial measure.

(e) Geographic revenues are attributed to regions based on customer location.

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

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry. Our stock-preparation; fluid-handling; and doctoring, cleaning, and filtration products 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 $332 million in 2012 and 1,600 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, economic and industry outlook, and pending acquisition of Carmanah Design and Manufacturing Inc. 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 June 29, 2013. 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; commodity and component price increases or shortages; international sales and operations; our acquisition strategy; our ability to consummate the pending acquisition, to successfully integrate the acquired business, and realize anticipated benefits of the acquisition; the future performance of the oriented strand board industry and housing markets; general economic conditions; our internal growth strategy; fluctuations in currency exchange rates; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; 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.

Contact:
Kadant Inc.
Investor contact:
Thomas M. O’Brien, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715

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