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MSA Announces Second Quarter Results

Broad-based growth and continued focus on productivity drives quarterly earnings increase of 20 percent

PITTSBURGH, July 24, 2019 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (MSA) today reported results for the second quarter of 2019.

MSA Safety Incorporated

Quarterly Highlights

  • Revenue was $350 million, increasing 3 percent from a year ago on a reported basis and 5 percent on a constant currency basis.

  • GAAP operating income increased 16 percent to $54 million or 15.6 percent of sales, compared to $47 million or 13.8 percent of sales in the same period a year ago. Adjusted operating income increased 11 percent to $64 million or 18.4 percent of sales, compared to $58 million or 17.1 percent of sales in the same period a year ago, driven by gross margin expansion and operating expense leverage.

  • GAAP earnings increased 20 percent to $40 million or $1.01 per diluted share, compared to $33 million or $0.85 per diluted share in the same period a year ago. Adjusted earnings increased 15 percent to $48 million or $1.22 per diluted share, compared to $41 million or $1.07 per diluted share in the same period a year ago.

  • MSA deployed $33 million of capital for the acquisition of California-based Sierra Monitor Corporation and funded a $16 million dividend on common stock. The dividend reflects an 11 percent increase per share from the previous quarterly dividend, continuing the company's long history of raising its dividend annually for more than 50 consecutive years.

Comments from Management

"The growth across substantially all of our core product areas and incremental margins that continue to exceed 40 percent were clear highlights in the quarter.  This performance reflects both the favorable returns being generated by our new product development investments as well as our ongoing focus on improving productivity," said Nish Vartanian, MSA President and CEO.  "Revenue increased five percent in the quarter, and our team was able to convert that increase into 15 percent adjusted earnings growth," he added.  Mr. Vartanian noted that MSA's profitability improvements continue to be driven by an ongoing focus on delivering customer-driven innovation and efficiency improvement programs across MSA's global footprint.

MSA's sales vitality index - which measures the percentage of revenue from products introduced within the past five years - is approximately 35 percent.  "Our fastest growing core products in the quarter were gas detection and fall protection.  These are also the areas where we've seen the most meaningful improvements in sales vitality," Mr. Vartanian commented.  In particular, he cited the company's new X5000 and S5000 Gas Monitors and the recently launched V-Series line of fall protection harnesses, all of which were key contributors to the company's second quarter performance.

"With a strong balance sheet and healthy backlog headed into the second half of 2019, we remain well positioned and committed to investing in the products, technology and talent we know are key to long-term value creation for all of the many stakeholders of MSA," Mr. Vartanian concluded.

 

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)






Three Months Ended


Six Months Ended


June 30,


June 30,


2019


2018


2019


2018









Net sales

$

349,675



$

339,331



$

675,713



$

665,225


Cost of products sold

188,591



185,495



364,647



364,050


Gross profit

161,084



153,836



311,066



301,175










Selling, general and administrative

84,009



81,962



162,437



162,213


Research and development

14,256



13,909



27,962



26,456


Restructuring charges

3,522



2,335



9,353



7,609


Currency exchange losses, net (a)

1,290



815



18,251



2,823


Product liability expense

3,529



8,018



6,425



10,842


Operating income

54,478



46,797



86,638



91,232










Interest expense

4,470



5,181



6,830



9,962


Other income, net

(3,342)



(1,701)



(5,921)



(4,041)


Total other expense, net

1,128



3,480



909



5,921










Income before income taxes

53,350



43,317



85,729



85,311


Provision for income taxes

13,238



9,896



22,241



19,401


Net income

40,112



33,421



63,488



65,910


Net income attributable to noncontrolling
interests

(306)



(242)



(450)



(360)


Net income attributable to MSA Safety
Incorporated

$

39,806



$

33,179



$

63,038



$

65,550










Earnings per share attributable to MSA Safety
Incorporated common shareholders:








Basic

$

1.03



$

0.86



$

1.63



$

1.71


Diluted

$

1.01



$

0.85



$

1.61



$

1.69










Basic shares outstanding

38,663



38,327



38,602



38,272


Diluted shares outstanding

39,160



38,903



39,124



38,841




(a) 

Year-to-date currency exchange losses includes a $15.4 million non-cash charge related to the recognition of
currency translation adjustments associated with the closure of MSA's South Africa affiliates.

 

 

MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)



June 30, 2019


December 31, 2018

Assets




Cash and cash equivalents

$

111,511



$

140,095


Trade receivables, net

256,666



245,032


Inventories

187,779



156,602


Notes receivable, insurance companies

3,616



3,555


Other current assets

128,062



111,339


    Total current assets

687,634



656,623






Property, net

158,047



157,940


Operating lease assets, net

50,935




Prepaid pension cost

64,987



57,568


Goodwill

433,156



413,640


Notes receivable, insurance companies, noncurrent

56,724



56,012


Insurance receivable, noncurrent

49,933



56,866


Other noncurrent assets

212,440



209,363


   Total assets

$

1,713,856



$

1,608,012






Liabilities and shareholders' equity




Notes payable and current portion of long-term debt, net

$

20,127



$

20,063


Accounts payable

73,264



78,367


Other current liabilities

164,126



183,630


   Total current liabilities

257,517



282,060






Long-term debt, net

378,380



341,311


Pensions and other employee benefits

168,340



166,101


Noncurrent operating lease liabilities

40,710




Deferred tax liabilities

10,986



7,164


Product liability and other noncurrent liabilities

166,776



171,857


Total shareholders' equity

691,147



639,519


   Total liabilities and shareholders' equity

$

1,713,856



$

1,608,012


 

 

MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)



Three Months Ended


Six Months Ended


June 30,


June 30,


2019


2018


2019


2018









Net income

$

40,112



$

33,421



$

63,488



$

65,910


Depreciation and amortization

9,466



9,536



18,792



19,207


Change in working capital and other operating

(13,250)



5,072



(44,735)



(19,735)


  Cash flow from operating activities

36,328



48,029



37,545



65,382










Capital expenditures

(8,628)



(5,571)



(13,525)



(8,812)


Acquisition, net of cash acquired

(33,196)





(33,196)




Change in short-term investments

1,639





(17,302)




Property disposals

69



3,001



81



3,059


  Cash flow used in investing activities

(40,116)



(2,570)



(63,942)



(5,753)










Change in debt

22,973



(32,884)



37,064



(42,285)


Cash dividends paid

(16,282)



(14,591)



(30,934)



(27,981)


Other financing

(1,410)



2,563



(7,391)



738


  Cash flow from (used in) financing activities

5,281



(44,912)



(1,261)



(69,528)










Effect of exchange rate changes on cash,

cash equivalents and restricted cash

2,236



(9,493)



(985)



(8,130)










Increase (decrease) in cash, cash equivalents
and restricted cash

$

3,729



$

(8,946)



$

(28,643)



$

(18,029)


 

 

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands, except percentage amounts)



Americas


International


Corporate


Consolidated

Three Months Ended June 30, 2019








Sales to external customers

$

231,389



$

118,286



$



$

349,675


Operating income







54,478


Operating margin %







15.6

%

Restructuring charges







3,522


Currency exchange losses, net







1,290


Product liability expense







3,529


Strategic transaction costs







1,529


Adjusted operating income (loss)

57,689



15,072



(8,413)



64,348


Adjusted operating margin %

24.9

%


12.7

%




18.4

%

Depreciation and amortization







9,466


Adjusted EBITDA

63,842



18,288



(8,316)



73,814


Adjusted EBITDA %

27.6

%


15.5

%




21.1

%









Three Months Ended June 30, 2018








Sales to external customers

$

215,339



$

123,992



$



$

339,331


Operating income







46,797


Operating margin %







13.8

%

Restructuring charges







2,335


Currency exchange losses, net







815


Product liability expense







8,018


Strategic transaction costs







58


Adjusted operating income (loss)

49,838



15,853



(7,668)



58,023


Adjusted operating margin %

23.1

%


12.8

%




17.1

%

Depreciation and amortization







9,536


Adjusted EBITDA

55,894



19,233



(7,568)



67,559


Adjusted EBITDA %

26.0

%


15.5

%




19.9

%
























Americas


International


Corporate


Consolidated

Six Months Ended June 30, 2019








Sales to external customers

$

445,076



$

230,637



$



$

675,713


Operating income







86,638


Operating margin %







12.8

%

Restructuring charges







9,353


Currency exchange losses, net







18,251


Product liability expense







6,425


Strategic transaction costs







1,985


Adjusted operating income (loss)

112,492



26,112



(15,952)



122,652


Adjusted operating margin %

25.3

%


11.3

%




18.2

%

Depreciation and amortization







18,792


Adjusted EBITDA

124,742



32,459



(15,757)



141,444


Adjusted EBITDA %

28.0

%


14.1

%




20.9

%









Six Months Ended June 30, 2018








Sales to external customers

$

424,468



$

240,757



$



$

665,225


Operating income







91,232


Operating margin %







13.7

%

Restructuring charges







7,609


Currency exchange losses, net







2,823


Product liability expense







10,842


Strategic transaction costs







152


Adjusted operating income (loss)

99,924



28,631



(15,897)



112,658


Adjusted operating margin %

23.5

%


11.9

%




16.9

%

Depreciation and amortization







19,207


Adjusted EBITDA

112,119



35,441



(15,695)



131,865


Adjusted EBITDA %

26.4

%


14.7

%




19.8

%

 

The Americas segment is comprised of our operations in the U.S., Canada and Latin America.  The International segment is comprised of our operations in all other parts of the world including Europe, Africa, the Middle East, India, China, South East Asia and Australia.  Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.

Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources.  As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense and strategic transaction costs and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers.  Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers.   Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance.  The Company's definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.  As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.

 

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)


Consolidated



Three Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

%

5

%

(2)

%

3

%

11

%

21

%

5

%


(9)

%


3

%


Plus: Currency
translation effects

2

%

1

%

2

%

2

%

2

%

4

%

2

%


3

%


2

%


Constant currency
sales change

2

%

6

%

%

5

%

13

%

25

%

7

%


(6)

%


5

%








Six Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

%

1

%

%

(1)

%

5

%

19

%

3

%


(8)

%


2

%






















Plus: Currency
translation effects

3

%

2

%

3

%

3

%

3

%

5

%

3

%


4

%


2

%


Constant currency
sales change

3

%

3

%

3

%

2

%

8

%

24

%

6

%


(4)

%


4

%

 

Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)


Americas Segment





Three Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

8

%

3

%

(2)

%

5

%

18

%

24

%

8

%


3

%


7

%






















Plus: Currency
translation effects

1

%

1

%

1

%

1

%

%

1

%

1

%


1

%


1

%



Constant currency
sales change

9

%

4

%

(1)

%

6

%

18

%

25

%

9

%


4

%


8

%








Six Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

6

%

2

%

(1)

%

(1)

%

10

%

26

%

5

%


2

%


5

%






















Plus: Currency
translation effects

%

%

2

%

1

%

%

1

%

1

%


2

%


1

%



Constant currency
sales change

6

%

2

%

1

%

%

10

%

27

%

6

%


4

%


6

%

 

Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)



International Segment



Three Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(15)

%

9

%

%

(2)

%

2

%

18

%

(1)

%


(21)

%


(5)

%






















Plus: Currency
translation effects

5

%

6

%

6

%

6

%

6

%

7

%

5

%


4

%


6

%



Constant currency
sales change

(10)

%

15

%

6

%

4

%

8

%

25

%

4

%


(17)

%


1

%








Six Months Ended June 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(9)

%

(2)

%

5

%

%

%

11

%

(1)

%


(18)

%


(4)

%






















Plus: Currency
translation effects

6

%

6

%

7

%

7

%

6

%

7

%

6

%


5

%


6

%



Constant currency
sales change

(3)

%

4

%

12

%

7

%

6

%

18

%

5

%


(13)

%


2

%

 

Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Summary of constant currency revenue growth by segment and product group





Three Months Ended June 30, 2019


Consolidated


Americas


International

Fall Protection

25

%


25

%


25

%

Fixed Gas and Flame Detection

13

%


18

%


8

%

Firefighter Helmets and Protective Apparel

6

%


4

%


15

%

Portable Gas Detection

5

%


6

%


4

%

Breathing Apparatus

2

%


9

%


(10)

%

Industrial Head Protection

%


(1)

%


6

%

Core Sales

7

%


9

%


4

%







Non-Core Sales

(6)

%


4

%


(17)

%







Net Sales

5

%


8

%


1

%






Six Months Ended June 30, 2019


Consolidated


Americas


International

Fall Protection

24

%


27

%


18

%

Fixed Gas and Flame Detection

8

%


10

%


6

%

Firefighter Helmets and Protective Apparel

3

%


2

%


4

%

Portable Gas Detection

2

%


%


7

%

Breathing Apparatus

3

%


6

%


(3)

%

Industrial Head Protection

3

%


1

%


12

%

Core Sales

6

%


6

%


5

%







Non-Core Sales

(4)

%


4

%


(13)

%







Net Sales

4

%


6

%


2

%

 

 

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted earnings (Unaudited)
Adjusted earnings per diluted share (Unaudited)
(In thousands, except per share amounts)



Three Months Ended

June 30,




Six Months Ended

June 30,




2019


2018


%
Change


2019


2018


%
Change













Net income attributable to MSA Safety
Incorporated

$

39,806



$

33,179



20%


63,038



65,550



(4)%

Non-deductible non-cash charge related
to the recognition of currency translation
adjustments (a)







15,359






Tax expense (benefit) associated with
ASU 2016-09: Improvements to
employee share-based payment
accounting

429



(962)





(1,993)



(1,875)




Subtotal

40,235



32,217



25%


76,404



63,675



20%













Product liability expense

3,529



8,018





6,425



10,842




Restructuring charges

3,522



2,335





9,353



7,609




Strategic transaction costs

1,529



58





1,985



152




Currency exchange losses, net

1,290



815





2,892



2,823




Asset related losses, net

208



1,131





233



1,148




Income tax expense on adjustments

(2,439)



(3,102)





(5,034)



(5,621)




Adjusted earnings

$

47,874



$

41,472



15%


$

92,258



$

80,628



14%













Adjusted earnings per diluted share

$

1.22



$

1.07



14%


$

2.36



$

2.08



13%



(a)

Included in Currency exchange losses, net on the Statement of Income.

 

Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company's performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.

About MSA:  
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures.  Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations.  The company's comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military.  MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices.  With 2018 revenues of $1.4 billion, MSA employs approximately 4,800 people worldwide.  The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America.  With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America.  For more information visit MSA's web site at www.MSAsafety.com.

Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance. Forward looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"), including our most recent Form 10-K filed on February 22, 2019. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties.  MSA's SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.

Non-GAAP Financial Measures: 
This press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.

Cision

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