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MSA Safety Announces Second Quarter Results

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Strong growth driven by execution of strategy and robust demand environment

PITTSBURGH, July 27, 2022 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported financial results for the second quarter of 2022.

MSA Safety Incorporated
MSA Safety Incorporated

Quarterly Highlights

  • Total sales were $372 million, increasing 9% from a year ago on a reported basis and 12% on a constant currency basis. The combination of volume growth and price realization drove constant currency organic growth of 8% while acquisitions contributed 4%.

  • GAAP operating income was $62 million or 16.5% of sales, compared to $35 million or 10.3% of sales in the same period a year ago. Adjusted operating income was $66 million or 17.6% of sales, compared to $59 million or 17.2% of sales in the same period a year ago.

  • GAAP earnings were $48 million or $1.21 per diluted share, compared to $25 million or $0.64 per diluted share in the same period a year ago. Adjusted earnings were $51 million or $1.29 per diluted share, compared to $42 million or $1.06 per diluted share in the same period a year ago.

  • Operating cash flow was $15 million, compared to $38 million in the same period a year ago. The decline was primarily associated with an increase in working capital, notably inventory, in response to strong demand and ongoing supply chain constraints.

  • MSA funded an $18 million dividend on its common stock and repurchased $28 million in shares in the quarter.

Comments from Management

"Our strong second quarter results were driven by robust demand across our diversified end markets and excellent operational execution by our team," said Nish Vartanian, MSA Chairman, President and Chief Executive Officer. "Our order activity was strong throughout the quarter and drove 12 percent constant currency sales growth," he said.  Mr. Vartanian added that orders increased 15 percent year-over-year on a constant currency basis and the company's book-to-bill continued to trend well above 1x.

"Our key end markets remain healthy as demonstrated by broad-based demand across most all of our product categories.  In addition to strong underlying demand, we were awarded several significant fire service breathing apparatus orders based on the strength of our technology and our long-standing focus on being attentive and responsive to customer needs and preferences," Mr. Vartanian said.

"Overall, we are successfully managing through a very dynamic macroeconomic environment that includes ongoing supply chain issues.  Although we saw strong year-over-year sales growth in the quarter, supply chain challenges did impact our growth, working capital and cash flow.  Still, despite the growing economic uncertainties, I remain confident in our ability to continue executing our strategy and driving long-term value to our shareholders.  We enter the second half with record backlog and a very healthy balance sheet," Mr. Vartanian concluded.

MSA Safety Incorporated

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share amounts)



Three Months Ended
June 30,


Six Months Ended
June 30,


2022


2021


2022


2021









Net sales

$   372,313


$   341,289


$  703,005


$  649,717

Cost of products sold

207,913


188,289


395,821


361,934

Gross profit

164,400


153,000


307,184


287,783









Selling, general and administrative

86,076


83,426


164,625


158,889

Research and development

15,268


13,970


28,601


27,204

Restructuring charges

57


7,078


2,247


8,385

Currency exchange (gains) losses, net

(1,463)


1,640


1,809


(459)

Product liability expense

2,926


11,751


5,698


14,547

Operating income

61,536


35,135


104,204


79,217









Interest expense

4,578


2,172


8,196


4,082

Other income, net

(6,419)


(2,293)


(12,762)


(6,506)

Total other income, net

(1,841)


(121)


(4,566)


(2,424)









Income before income taxes

63,377


35,256


108,770


81,641

Provision for income taxes

15,684


9,808


25,535


19,557

Net income

47,693


25,448


83,235


62,084

Net income attributable to noncontrolling interests


(262)



(448)

Net income attributable to MSA Safety Incorporated

$     47,693


$     25,186


$    83,235


$    61,636









Earnings per share attributable to MSA Safety
Incorporated common shareholders:








Basic

$         1.21


$         0.64


$        2.12


$        1.57

Diluted

$         1.21


$         0.64


$        2.11


$        1.56









Basic shares outstanding

39,266


39,167


39,279


39,131

Diluted shares outstanding

39,421


39,420


39,472


39,421

*Prior periods have been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

MSA Safety Incorporated

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)



June 30,
2022


December 31,
2021

Assets




Cash and cash equivalents

$                134,047


$                  140,895

Trade receivables, net

265,290


254,187

Inventories

341,544


280,617

Notes receivable, insurance companies

3,972


3,914

Other current assets

99,626


113,191

    Total current assets

844,479


792,804





Property, plant and equipment net

203,036


207,793

Prepaid pension cost

176,373


163,283

Goodwill

619,449


636,858

Intangible assets, net

290,221


306,948

Notes receivable, insurance companies, noncurrent

45,161


44,626

Insurance receivable, noncurrent

117,825


121,609

Other noncurrent assets

111,903


122,475

   Total assets

$             2,408,447


$               2,396,396





Liabilities and shareholders' equity




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

$                    7,433


$                           —

Accounts payable

111,861


106,780

Other current liabilities

216,964


223,826

   Total current liabilities

336,258


330,606





Long-term debt, net

615,778


597,651

Pensions and other employee benefits

181,958


189,973

Noncurrent operating lease liabilities

37,626


40,706

Deferred tax liabilities

31,342


33,337

Product liability and other noncurrent liabilities

367,415


369,735

Total shareholders' equity

838,070


834,388

   Total liabilities and shareholders' equity

$             2,408,447


$               2,396,396

 

MSA Safety Incorporated

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



Three Months Ended
June 30,


Six Months Ended
June 30,


2022


2021


2022


2021









Net income

$   47,693


$   25,448


$   83,235


$   62,084

Depreciation and amortization

13,922


11,584


28,087


22,088

Change in working capital and other operating

(46,162)


1,266


(71,346)


(258)

  Cash flow from operating activities

15,453


38,298


39,976


83,914









Capital expenditures

(11,829)


(10,706)


(19,805)


(20,288)

Acquisition, net of cash acquired




(62,992)

Change in short-term investments

5,180


5,015


14,207


25,045

Property disposals and other investing


25



60

  Cash flow used in investing activities

(6,649)


(5,666)


(5,598)


(58,175)









Change in debt

32,000


(25,013)


37,000


27,004

Cash dividends paid

(18,109)


(17,247)


(35,401)


(34,067)

Other financing

(27,764)


(834)


(31,372)


(4,392)

  Cash flow used in financing activities

(13,873)


(43,094)


(29,773)


(11,455)









Effect of exchange rate changes on cash,

cash equivalents and restricted cash

(7,113)


(187)


(10,474)


(907)









(Decrease) increase in cash, cash equivalents and
restricted cash

$  (12,182)


$  (10,649)


$    (5,869)


$   13,377

*Prior periods have been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

MSA Safety Incorporated

Segment Information (Unaudited)

(In thousands, except percentage amounts)



Americas


International


Corporate


Consolidated

Three Months Ended June 30, 2022








Sales to external customers

$   252,386


$   119,927


$               —


$   372,313

Operating income







61,536

Operating margin %







16.5 %

Restructuring charges







57

Currency exchange gains, net







(1,463)

Product liability expense







2,926

Acquisition related costs (a)







2,557

Adjusted operating income (loss)

57,141


17,207


(8,735)


65,613

Adjusted operating margin %

22.6 %


14.3 %




17.6 %

Depreciation and amortization (b)







11,604

Adjusted EBITDA

65,461


20,370


(8,614)


77,217

Adjusted EBITDA margin %

25.9 %


17.0 %




20.7 %









Three Months Ended June 30, 2021








Sales to external customers

$   217,707


$   123,582


$               —


$   341,289

Operating income







35,135

Operating margin %







10.3 %

Restructuring charges







7,078

Currency exchange losses, net







1,640

Product liability expense







11,751

Acquisition related costs (a)







3,168

Adjusted operating income (loss)

49,319


20,444


(10,991)


58,772

Adjusted operating margin %

22.7 %


16.5 %




17.2 %

Depreciation and amortization







11,584

Adjusted EBITDA

57,218


24,024


(10,886)


70,356

Adjusted EBITDA margin %

26.3 %


19.4 %




20.6 %

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.  Adjustments were made to Americas and International.

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration. These costs are included in selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Income. Acquisition related costs also include the acquisition related amortization, which is included in cost of products sold in the unaudited Condensed Consolidated Statements of Income.

(b) Excludes acquisition related amortization, which is included in acquisition related costs above.

The Americas segment is comprised of our operations in Northern North American and Latin American geographies. The International segment is comprised of our operations in all geographies outside of the Americas. 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, acquisition related costs, including acquisition related amortization. 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

Segment Information (Unaudited)

(In thousands, except percentage amounts)



Americas


International


Corporate


Consolidated

Six Months Ended June 30, 2022








Sales to external customers

$   478,034


$   224,971


$               —


$   703,005

Operating income







104,204

Operating margin %







14.8 %

Restructuring charges







2,247

Currency exchange losses, net







1,809

Product liability expense







5,698

Acquisition related costs (a)







5,499

Adjusted operating income (loss)

109,577


26,196


(16,316)


119,457

Adjusted operating margin %

22.9 %


11.6 %




17.0 %

Depreciation and amortization (b)







23,420

Adjusted EBITDA

126,256


32,698


(16,077)


142,877

Adjusted EBITDA margin %

26.4 %


14.5 %




20.3 %









Six Months Ended June 30, 2021








Sales to external customers

$   426,046


$   223,671


$               —


$   649,717

Operating income







79,217

Operating margin %







12.2 %

Restructuring charges







8,385

Currency exchange gains, net







...