Kadant Reports 2019 Second Quarter Results

Reports Record Revenue and Increases EPS Guidance for FY 2019

WESTFORD, Mass., July 30, 2019 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the second quarter ended June 29, 2019.

Second Quarter 2019 Highlights

• Revenue increased 14% to a record $177 million
• GAAP diluted EPS increased 31% to $1.42
• Adjusted diluted EPS increased 33% to $1.42
• Net income increased 32% to $16 million
• Adjusted EBITDA increased 25% to $33 million and represented 18.5% of revenue
• Gross margin was 42.0%
• Bookings decreased 1% to $174 million

Note: Adjusted diluted EPS, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.”

Management Commentary

“The excellent start we had to 2019 continued in the second quarter with record revenue and a solid EPS guidance beat,” said Jeffrey L. Powell, president and chief executive officer. “Despite foreign currency headwinds and weakening demand in Asia, we achieved good internal revenue growth from our legacy businesses and solid performance from our recent material handling acquisition leading to record revenue of $177 million in the second quarter of 2019.

“Strong operating performance across our businesses led to our near record adjusted EBITDA of $33 million and cash flow from operations of $23 million in the second quarter of 2019. Our end-markets continue to show resiliency and discipline as they balance supply with demand, with the exception of China where market demand is weak and project activity has slowed.

“Our parts and consumables revenue and bookings in the first half of 2019 were excellent with the second quarter performance just as strong as the first quarter, and up 18 percent and 14 percent, respectively, compared to the second quarter of 2018. As a key component of our business strategy, I am pleased to see this outstanding performance in our after-market business.”

Second Quarter 2019 Results

Revenue increased 14 percent to $177.2 million compared to the second quarter of 2018, including $20.2 million from an acquisition and a $5.7 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of an acquisition and foreign currency translation, revenue increased five percent compared to the second quarter of 2018. Gross margin was 42.0 percent, including a 70 basis point negative impact from the amortization of acquired profit in inventory. Net income was $16.3 million, or $1.42 per diluted share, in the second quarter of 2019 compared to $12.3 million, or $1.08 per diluted share in the second quarter of 2018. Adjusted diluted EPS increased 33 percent to $1.42 compared to $1.07 in the second quarter of 2018. Adjusted diluted EPS in the second quarter of 2019 excludes $0.10 of amortization expense from acquired profit in inventory and backlog and a $0.10 tax benefit related to changing our permanently reinvested position on a portion of our European earnings. Adjusted diluted EPS in the second quarter of 2018 excludes $0.04 of restructuring costs and a $0.05 tax benefit related to the repatriation of foreign earnings.

Adjusted EBITDA increased 25 percent to $32.7 million compared to $26.1 million in the second quarter of 2018. Adjusted EBITDA excludes $1.5 million of amortization from acquired profit in inventory and backlog from our recent acquisition in the second quarter of 2019 and $0.6 million of restructuring costs in the second quarter of 2018. Cash flows from operations decreased 20 percent to $22.6 million compared to $28.4 million in the second quarter of 2018. Bookings decreased one percent to $174.0 million compared to $176.4 million in the second quarter of 2018, including $21.9 million from an acquisition and a $6.0 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of an acquisition and foreign currency translation, bookings decreased 10 percent compared to our best second quarter ever in 2018.

Summary and Outlook

“We are encouraged by our strong performance in the first half of the year, despite the global trade uncertainty, the unfavorable effect of foreign currency translation, and weaker end-market demand in certain sectors,” Mr. Powell continued. “For 2019, we are reaffirming our revenue guidance and raising both our GAAP and adjusted diluted EPS guidance. We now expect to achieve GAAP diluted EPS of $4.97 to $5.09, raised from our previous guidance of $4.84 to $4.99, on revenue of $700 to $710 million. The 2019 guidance includes pre-tax amortization expense associated with acquired profit in inventory and backlog of $4.9 million, or $0.33 per diluted share, pre-tax acquisition costs of $0.8 million, or $0.06 per diluted share, and a tax benefit of $1.2 million, or $0.10 per diluted share. Excluding these items, we expect adjusted diluted EPS of $5.26 to $5.38 for 2019 raised from our previous guidance of $5.20 to $5.35.

“For the third quarter of 2019, we expect GAAP diluted EPS of $1.19 to $1.25 on revenue of $170 to $174 million. The third quarter of 2019 guidance includes pre-tax amortization expense associated with acquired backlog of $0.1 million, or $0.01 per diluted share. Excluding this expense, we expect adjusted diluted EPS of $1.20 to $1.26 for the third quarter of 2019.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Wednesday, July 31, 2019, at 11:00 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  and click on “Investors.” To listen to the webcast via teleconference, call 888-326-8410 within the U.S., or outside the U.S. and reference participant passcode 7699788. 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 . An archive of the webcast presentation will be available on our website until August 30, 2019.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its website at  under the “Investors” section.

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 revenue excluding the effect of acquisitions and foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted earnings per share (EPS), earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, and adjusted EBITDA margin. 

We believe 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 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.

           

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.

Revenue included $20.2 million and $40.8 million from an acquisition in the second quarter and first six months of 2019, respectively. Revenue also included a $5.7 million and $12.7 million unfavorable foreign currency translation effect in the second quarter and first six months of 2019, respectively. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

                       

Our non-GAAP financial measures exclude restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and discrete tax items. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs or income or none at all.

Second Quarter

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

• Pre-tax expense related to amortization of acquired profit in inventory and backlog of $1.5 million in 2019.
• Pre-tax restructuring costs of $0.6 million in 2018.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax expense related to amortization of acquired profit in inventory and backlog of $1.2 million ($1.5 million net of tax of $0.3 million) in 2019.
• A discrete tax benefit of $1.2 million in 2019.
• After-tax restructuring costs of $0.4 million ($0.6 million net of tax of $0.2 million) in 2018.
• A discrete tax benefit of $0.6 million in 2018.

First Six Months

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

• Pre-tax acquisition costs of $0.8 million in 2019.
• Pre-tax expense related to amortization of acquired profit in inventory and backlog of $4.8 million in 2019.
• Pre-tax restructuring costs of $1.3 million in 2018.
• Pre-tax expense related to acquired backlog of $0.3 million in 2018.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax acquisition costs of $0.7 million ($0.8 million net of tax of $0.1 million) in 2019.
• After-tax expense related to amortization of acquired profit in inventory and backlog of $3.7 million ($4.8 million net of tax of $1.1 million) in 2019.
• A discrete tax benefit of $1.2 million in 2019.
• After-tax restructuring costs of $1.0 million ($1.3 million net of tax of $0.3 million) in 2018.
• After-tax expense related to acquired backlog of $0.2 million ($0.3 million net of tax of $0.1 million) in 2018.
• A discrete tax benefit of $0.1 million in 2018.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.

About Kadant

Kadant Inc. is a global supplier of high-value, critical components and engineered systems used in process industries worldwide. The Company’s products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries. Kadant is based in Westford, Massachusetts, with approximately 2,800 employees in 20 countries worldwide. For more information, visit .

Safe Harbor Statement

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 future financial and operating performance, demand for our products, and economic and industry outlook. These forward-looking statements represent our expectations as of the date of this press release. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to 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 annual report on Form 10-K for the year ended December 29, 2018 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenues from large capital equipment and systems projects; our customers’ ability to obtain financing for capital equipment projects; international sales and operations; the variability and uncertainties in sales of capital equipment in China; the oriented strand board market and levels of residential construction activity; development and use of digital media; currency fluctuations; cyclical economic conditions affecting the global mining industry and the continued demand for coal; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security and cybertheft; changes in government regulations and policies and compliance with laws; our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; our debt obligations; restrictions in our credit agreement and note purchase agreement; loss of key personnel and effective succession planning; protection of intellectual property; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; climate change; environmental, health and safety laws and regulations; adequacy of our insurance coverage; anti-takeover provisions; and reliance on third-party research.

Contacts

Investor Contact Information:

Michael McKenney, 978-776-2000

 

or

Media Contact Information:

Wes Martz, 269-278-1715