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ESCO Announces Third Quarter Fiscal 2019 Results

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- Q3 GAAP EPS $0.77 (Includes $0.04 of Cost Reduction Charges) - Q3 Adjusted EPS $0.81 (Beats Guidance and Consensus / 11 Percent above Q3 2018) -

St. Louis, Aug. 08, 2019 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2019 (Q3 2019), compared to the quarter ended June 30, 2018 (Q3 2018).

The financial results presented include certain non-GAAP financial measures such as EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS, as defined within the “Non-GAAP Financial Measures” described below. Any non-GAAP financial measures presented are reconciled to their respective GAAP equivalents.

Management believes these non-GAAP financial measures are useful in assessing the ongoing operational profitability of the Company’s business segments, and therefore, allow shareholders better visibility into the Company’s underlying operations. See “Non-GAAP Financial Measures” described below.

Earnings Summary

Q3 2019 GAAP EPS of $0.77 per share included $0.04 per share of previously described cost reduction charges in Technical Packaging and at Doble, and costs incurred to move the aircraft / aerospace business from VACCO to PTI. The $0.04 per share was excluded when determining Q3 2019 Adjusted EPS of $0.81 per share. GAAP net earnings were $20 million in Q3 2019.

Q3 2018 GAAP EPS and Adjusted EPS were $0.73 per share with GAAP net earnings of $19 million.

Q3 2019 Adjusted EPS of $0.81 per share exceeded Management’s previous guidance of $0.75 to $0.80 per share, and increased 11 percent over Q3 2018 Adjusted EPS of $0.73 per share.

Adjusted EBITDA was $38 million in Q3 2019, reflecting a 9 percent increase over Q3 2018 Adjusted EBITDA of $35 million.

YTD 2019 GAAP EPS was $2.15 per share (favorably impacted by the gain on the Doble building sale) compared to YTD 2018 GAAP EPS of $2.45 per share (favorably impacted by the one-time benefit recognized as a result of U.S. Tax Reform).

YTD 2019 Adjusted EPS increased 32 percent to $2.04 per share compared to $1.55 per share YTD 2018. Adjusted EPS in both periods excludes the one-time gains net of certain restructuring charges identified earlier.

YTD 2019 Adjusted EBITDA was $100 million, reflecting a 15 percent increase over YTD 2018 Adjusted EBITDA of $87 million.

Operating Highlights

  • Q3 2019 sales increased 4 percent to $200 million compared to $192 million in Q3 2018 and YTD 2019 sales increased 7 percent to $576 million compared to $540 million YTD 2018.

  • On a segment basis, Q3 2019 Filtration sales exceeded expectations and increased 19 percent from Q3 2018 with all operating units contributing to the growth driven by significantly higher aerospace (commercial and defense) and navy sales. Test sales decreased in Q3 2019 as a result of the timing of the completion of large projects within the respective periods. USG sales from Doble increased 8 percent, while NRG’s sales to renewable energy customers decreased, resulting in a net decrease in USG sales. Technical Packaging sales were generally flat due to the timing of new product introductions.

  • SG&A expenses increased in Q3 2019 compared to Q3 2018 primarily as a result of higher sales commissions and normal cost of living adjustments, partially offset by cost reductions.

  • Entered orders were $196 million in Q3 2019 (book-to-bill of 0.98x) and were $626 million YTD 2019 (book-to-bill of 1.09x) which resulted in an ending backlog of $432 million at June 30, 2019, an increase of $50 million, or 13 percent, from September 30, 2018.

  • The Q3 2019 effective income tax rate was generally consistent with the rate in Q3 2018.

  • 2019 net cash provided by operating activities was $37 million resulting in $179 million of net debt outstanding (total borrowings less cash on hand) at June 30, 2019, and a 1.5x leverage ratio. Cash flow in Q3 was negatively impacted by the timing of several large cash receipts at VACCO related to Navy projects in process which will be received in Q4 2019.

Chairman’s Commentary – Q3 2019

Vic Richey, Chairman and Chief Executive Officer, commented, “I’m pleased with our Q3 operating results, which once again came in above expectations and resulted in Adjusted EPS exceeding the top end of our guidance range. Solid operational performance across the Company drove the Q3 results as all four operating segments exceeded their Adjusted EBIT commitments during the Quarter. Our Filtration businesses exceeded our profit expectations by over 12 percent, and Doble, within the USG segment, beat expectations on higher than expected sales in Q3.

“Comparing Q3 2019 to Q3 2018, we increased sales by 4 percent driven by the nearly 20 percent sales growth in Filtration, partially muted by the timing of sales recognized on a few large projects in the Test business, and continued headwinds in our renewable energy business.

“We improved our YTD 2019 Adjusted EBITDA by 15 percent as every operating segment improved their margins over YTD 2018. Our outlook for the balance of the year remains solid.

“We announced the acquisition of Globe Composite Solutions, LLC (Globe) in early July and I’m very happy with the progress we are making in bringing them on board. The initial phases of integration are off to a great start and I’m excited to work with the outstanding leadership team and the dedicated employees that I met earlier this month. Globe’s products, processes and customer relationships are an excellent addition to our portfolio and our complementary skill sets will allow us to create additional avenues for meaningful growth across our shared customer base.

“On the M&A front we continue to evaluate a robust pipeline of opportunities in both Filtration and USG and continue to work these aggressively, and I remain hopeful that we will be able to add to our portfolio in the near future. Consistent with our history, we will remain prudent and committed to our disciplined approach of balancing ROIC and protecting our balance sheet.

“The Doble headquarters relocation from Watertown to Marlborough is going smoothly and we expect to be moved in and fully operational by December 31, 2019. The Doble team is looking forward to having all of its Boston area staff co-located in a single, customer-friendly facility as we all believe this will further enhance our operational efficiency and effectiveness, while lowering our facility operating costs.

“As we look to wrap up 2019, we plan to build on the successes we achieved this year and expect to continue benefitting from our disciplined operating culture and our lower cost structure. Our solid market positions and tangible growth opportunities across the Company provide us with a favorable view of the future with our goal remaining unchanged – to increase long-term shareholder value.”

Dividend Payment

The next quarterly cash dividend of $0.08 per share will be paid on October 17, 2019 to stockholders of record on October 3, 2019.

Previously Disclosed Cost Reduction / Restructuring Actions

Refer to the Company’s November 15, 2018 earnings release for details of the cost reduction and restructuring actions related to the Doble building sale and relocation, Technical Packaging’s cost reduction actions, and VACCO’s aircraft / aerospace business move to PTI.

All of these actions are intended to improve operating efficiency, enhance ROIC, generate additional free cash flow, and enhance the Company’s competitiveness across several end-markets, thereby, accelerating sales and earnings growth in the future.

Updated Business Outlook – 2019

Management’s expects 2019 Adjusted EPS in the range of $3.05 to $3.10 per share, which is consistent with the details outlined in the Business Outlook presented in the May 7, 2019 release. The expected operating results from the previously announced acquisition of Globe are not reflected in the Adjusted EPS range noted above as Globe’s detailed financial plan is currently in the process of being finalized.

The timing of quarterly sales and earnings throughout 2019 compared to 2018 impacts the quarterly comparisons as 2019’s growth is more balanced on a quarterly basis compared to the heavily weighted second half profile reported in 2018.

Conference Call

The Company will host a conference call today, August 8, at 4:00 p.m. Central Time, to discuss the Company’s Q3 2019 results. A live audio webcast will be available on the Company’s website at www.escotechnologies.com. Please access the website at least 15 minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available on the Company’s website noted above or by phone (dial 1-855-859-2056 and enter the pass code 3855869).

Forward-Looking Statements

Statements in this press release regarding the timing and amounts of the Company’s expected quarterly, 2019 full year and beyond results, revenue and sales growth, EPS, Adjusted EPS, EPS growth, cash, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, the realization of operational efficiencies, the Company’s competitiveness and the costs and savings resulting from operational improvements and cost reduction actions, the Company’s ability to increase operating margins, realize financial goals and increase shareholder value, the success of acquisition efforts, the long-term success of the Company, and any other statements which are not strictly historical are “forward-looking” statements within the meaning of the safe harbor provisions of the federal securities laws.

Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment including but not limited to those described in Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, and the following: the success of the Company’s competitors; weakening of economic conditions in served markets; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; delivery delays or defaults by customers; material changes in the costs and availability of certain raw materials; the appropriation, allocation and availability of Government funds; the termination for convenience of Government and other customer contracts; the timing and content of future contract awards or customer orders; performance issues with key customers, suppliers and subcontractors; labor disputes; the impacts of natural disasters on the Company’s operations and those of the Company’s customers and suppliers; changes in laws and regulations, including but not limited to changes in accounting standards, taxation requirements, and new or modified tariffs; changes in interest rates; costs relating to environmental matters arising from current or former facilities; financial exposure in connection with Company guarantees of certain Aclara contracts; the availability of select acquisitions; and the uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration.

Non-GAAP Financial Measures

The financial measures EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are presented in this press release. The Company defines “EBIT” as earnings before interest and taxes, “EBITDA” as earnings before interest, taxes, depreciation and amortization, “Adjusted EBITDA” as EBITDA excluding certain defined charges, and “Adjusted EPS” as GAAP earnings per share (EPS) excluding the net impact of the items described above which were $0.04 per share in Q3 2019.

EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes that EBIT, EBITDA and Adjusted EBITDA are useful in assessing the operational profitability of the Company’s business segments because they exclude interest, taxes, depreciation and amortization, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by Management in determining resource allocations within the Company as well as incentive compensation. The Company believes that the presentation of EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

ESCO, headquartered in St. Louis, Missouri: Manufactures highly-engineered filtration and fluid control products for the aviation, space and process markets worldwide; is the industry leader in RF shielding and EMC test products; provides diagnostic instruments, software and services for the benefit of industrial power users and the electric utility and renewable energy industries; and, produces custom thermoformed packaging, pulp-based packaging, and specialty products for medical and commercial markets. Further information regarding ESCO and its subsidiaries is available on the Company’s website at www.escotechnologies.com.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

Three Months
Ended
June 30,
2019

Three Months
Ended
June 30,
2018

Net Sales

$

199,766

192,223

Cost and Expenses:

Cost of sales

122,172

122,805

Selling, general and administrative expenses

43,400

39,910

Amortization of intangible assets

4,693

4,605

Interest expense

1,973

2,243

Other (income) expenses, net

2,636

(656

)

Total costs and expenses

174,874

168,907

Earnings before income taxes

24,892

23,316

Income taxes

4,825

4,297

Net earnings

$

20,067

19,019

Diluted EPS - GAAP

$

0.77

0.73

Diluted EPS - As Adjusted

$

0.81

(1

)

0.73

Diluted average common shares O/S:

26,109

26,050

(1

)

Q3 2019 Adjusted EPS excluded $0.04 per share net impact of restructuring charges incurred primarily at Plastique, Doble and PTI/VACCO during the third quarter of 2019.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

Nine Months
Ended
June 30,
2019

Nine Months
Ended
June 30,
2018

Net Sales

$

576,312

540,496

Cost and Expenses:

Cost of sales

363,026

346,911

Selling, general and administrative expenses

126,066

122,813

Amortization of intangible assets

13,965

13,615

Interest expense

5,788

6,464

Other (income) expenses, net

(2,037

)

992

Total costs and expenses

506,808

490,795

Earnings before income taxes

69,504

49,701

Income taxes

13,323

(13,983

)

Net earnings

$

56,181

63,684

Diluted EPS - GAAP

$

2.15

2.45

Diluted EPS - As Adjusted

$

2.04

(1

)

1.55

(2

)

Diluted average common shares O/S:

26,090

26,042

(1

)

YTD Q3 2019 Adjusted EPS excluded $0.11 per share net impact mainly from the gain on the sale of the Doble Watertown property partially offset by certain restructuring charges primarily at Plastique, PTI/VACCO & Doble.

(2

)

YTD Q3 2018 Adjusted EPS excluded $0.90 per share net impact of the $25 million tax benefit recorded related to U.S. Tax Reform partially offset by restructuring charges incurred at Doble & PTI during the first nine months of 2018.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Business Segment Information (Unaudited)

(Dollars in thousands)

GAAP

As Adjusted

Q3 2019

Q3 2018

Q3 2019

Q3 2018

Net Sales

Filtration

$

83,067

69,721

83,067

69,721

Test

42,298

45,034

42,298

45,034

USG

52,894

55,489

52,894

55,489

Technical Packaging

21,507

21,979

21,507

21,979

Totals

$

199,766

192,223

199,766

192,223

EBIT

Filtration

$

19,039

14,292

19,344

14,292

Test

5,927

5,902

5,927

5,902

USG

10,148

11,528

10,467

11,528

Technical Packaging

1,625

2,505

2,268

2,505

Corporate

(9,874

)

(8,668

)

(9,679

)

(8,668

)

Consolidated EBIT

26,865

25,559

28,327

25,559

Less: Interest expense

(1,973

)

(2,243

)

(1,973

)

(2,243

)

Less: Income tax expense

(4,825

)

(4,297

)

(5,126

)

(4,297

)

Net earnings

$

20,067

19,019

21,228

19,019

Note 1: Adjusted net earnings were $21.2 million in Q3 '19 which excluded $1.4 million (or $0.04 per share) net impact of the restructuring charges incurred at Doble, Plastique, PTI and VACCO during the third quarter of 2019.

EBITDA Reconciliation to Net earnings:

Adjusted

Q3 2019

Q3 2018

Q3 2019

Consolidated EBITDA

$

36,849

35,111

38,311

Less: Depr & Amort

(9,984

)

(9,552

)

(9,984

)

Consolidated EBIT

26,865

25,559

28,327

Less: Interest expense

(1,973

)

(2,243

)

(1,973

)

Less: Income tax expense

(4,825

)

(4,297

)

(5,126

)

Net earnings

$

20,067

19,019

21,228

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Business Segment Information (Unaudited)

(Dollars in thousands)

GAAP

As Adjusted

YTD Q3

YTD Q3

YTD Q3

YTD Q3

2019

2018

2019

2018

Net Sales

Filtration

$

228,769

195,531

228,769

195,531

Test

126,459

123,368

126,459

123,368

USG

157,639

157,942

157,639

157,942

Technical Packaging

63,445

63,655

63,445

63,655

Totals

$

576,312

540,496

576,312

540,496

EBIT

Filtration

$

47,092

35,056

47,857

35,504

Test

14,791

13,797

14,791

13,797

USG

40,461

27,805

33,567

30,074

Technical Packaging

3,333

5,355

4,664

5,355

Corporate

(30,385

)

(25,848

)

(29,716

)

(25,977

)

Consolidated EBIT

75,292

56,165

71,163

58,753

Less: Interest expense

(5,788

)

(6,464

)

(5,788

)

(6,464

)

Less: Income tax

(13,323

)

13,983

(12,025

)

(11,002

)

Net earnings

$

56,181

63,684

53,350

41,287

Note 1: Adjusted net earnings were $53.4 million in YTD Q3 '19 which excluded $2.8 million (or $0.11 per share) net impact of the gain on the sale of the Doble Watertown property partially offset by charges related to restructuring actions at Doble, Plastique, PTI & VACCO.

Note 2: Adjusted net earnings were $41.3 million in YTD Q3 '18 which excluded $2.7 million (or $0.10 per share) net impact of the restructuring charges incurred at Doble and PTI during the first nine months of 2018, and the $25 million (or $1.00 per share) tax benefit recorded related to U.S. Tax Reform.

EBITDA Reconciliation to Net earnings:

Adjusted

Adjusted

YTD Q3

YTD Q3

YTD Q3

YTD Q3

2019

2018

2019

2018

Consolidated EBITDA

$

104,055

84,515

99,926

87,103

Less: Depr & Amort

(28,763

)

(28,350

)

(28,763

)

(28,350

)

Consolidated EBIT

75,292

56,165

71,163

58,753

Less: Interest expense

(5,788

)

(6,464

)

(5,788

)

(6,464

)

(Less) Plus: Income tax

(13,323

)

13,983

(12,025

)

(11,002

)

Net earnings

$

56,181

63,684

53,350

41,287

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

June 30,
2019

September 30,
2018

Assets

Cash and cash equivalents

$

38,956

30,477

Accounts receivable, net

168,675

163,740

Contract assets

99,499

53,034

Inventories

126,816

135,416

Other current assets

16,260

13,356

Total current assets

450,206

396,023

Property, plant and equipment, net

151,545

134,954

Intangible assets, net

336,625

345,353

Goodwill

381,683

381,652

Other assets

6,036

7,140

$

1,326,095

1,265,122

Liabilities and Shareholders' Equity

Short-term borrowings and current

$

20,921

20,000

maturities of long-term debt

Accounts payable

59,329

63,033

Contract liabilities

53,758

49,035

Other current liabilities

65,728

68,462

Total current liabilities

199,736

200,530

Deferred tax liabilities

66,286

64,794

Other liabilities

51,266

40,388

Long-term debt

197,000

200,000

Shareholders' equity

811,807

759,410

$

1,326,095

1,265,122

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

Nine Months Ended
June 30, 2019

Cash flows from operating activities:

Net earnings

$

56,181

Adjustments to reconcile net earnings

to net cash provided by operating activities:

Depreciation and amortization

28,763

Stock compensation expense

3,878

Changes in assets and liabilities

(41,851

)

Change in PP&E from gain on building sale

(8,922

)

Pension contributions

(2,500

)

Effect of deferred taxes

1,492

Net cash provided by operating activities

37,041

Cash flows from investing activities:

Acquisition of business

(937

)

Capital expenditures

(26,457

)

Additions to capitalized software

(6,207

)

Proceeds from sale of building and land

17,201

Net cash used by investing activities

(16,400

)

Cash flows from financing activities:

Proceeds from long-term debt and short-term borrowings

32,921

Principal payments on long-term debt

(35,000

)

Dividends paid

(6,223

)

Other

(3,234

)

Net cash used by financing activities

(11,536

)

Effect of exchange rate changes on cash and cash equivalents

(626

)

Net increase in cash and cash equivalents

8,479

Cash and cash equivalents, beginning of period

30,477

Cash and cash equivalents, end of period

$

38,956

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Other Selected Financial Data (Unaudited)

(Dollars in thousands)

Backlog And Entered Orders - Q3 FY 2019

Filtration

Test

USG

Technical
Packaging

Total

Beginning Backlog - 4/1/19

$

243,007

141,205

39,019

12,832

436,063

Entered Orders

71,210

44,128

55,404

25,412

196,154

Sales

(83,067

)

(42,298

)

(52,894

)

(21,507

)

(199,766

)

Ending Backlog - 6/30/19

$

231,150

143,035

41,529

16,737

432,451

Backlog And Entered Orders - YTD Q3 FY 2019

Filtration

Test

USG

Technical
Packaging

Total

Beginning Backlog - 10/1/18

$

204,227

122,350

40,727

15,467

382,771

Entered Orders

255,692

147,144

158,441

64,715

625,992

Sales

(228,769

)

(126,459

)

(157,639

)

(63,445

)

(576,312

)

Ending Backlog - 6/30/19

$

231,150

143,035

41,529

16,737

432,451

SOURCE ESCO Technologies Inc.
Kate Lowrey, Director of Investor Relations, (314) 213-7277