Columbus McKinnon Reports Second Quarter Fiscal Year 2017 Financial Results

Getzville, New York, UNITED STATES


AMHERST, N.Y., Oct. 28, 2016 (GLOBE NEWSWIRE) -- Columbus McKinnon Corporation (NASDAQ:CMCO), a leading designer, manufacturer and marketer of material handling products, technologies and services, today announced financial results for its fiscal year 2017 second quarter, which ended September 30, 2016.  Financial results for the quarter include Magnetek, Inc. ("Magnetek"), which was acquired on September 2, 2015.

Second Quarter Summary (compared with prior-year period, unless otherwise noted)

  • Net sales grew 4.0% to $151.9 million
  • Achieved record gross margin of 32.7% - highest in 20 years
  • Net income was $6.8 million or $0.33 per diluted share
  • Cash provided by operating activities was $18.4 million
  • Repaid $10.8 million of debt in quarter and $27.6 million year to date: well ahead of
    FY17 $43 million target
  • Reduced net debt to net total capitalization by 360 basis points from March 31, 2016, to 39.4%

Timothy T. Tevens, President and Chief Executive Officer, commented, "Given the sluggish growth of the global economy, volume in our hoist and rigging business was still weak in the quarter, but was more than offset by the addition of Magnetek.  We believe that our record gross margin in the quarter demonstrated the success of both our lean manufacturing practices and the Magnetek acquisition.” 

Mr. Tevens provided his outlook for the second half of fiscal 2017, “While we remain cautious, quoting and order activity toward the end of the quarter was clearly picking up in several regions, supporting our expectation of a stronger second half for fiscal 2017.  Activity in the U.S. is stronger and Latin America has improved.  Europe remained weak and the near future seems uncertain, however, we have approximately $7 million of Rail & Road projects scheduled to ship from that region in the second half of the year.  Emerging markets appear to be trending upward, at a low- to mid-single digit rate.  And, China, specifically, has experienced improved quotation and order activity.”

Second Quarter Review

Sales

($ in millions) Q2 FY 17 Q2 FY 16 Change % Change
Net sales $151.9  $146.0  $5.9   4.0%
FX impact  1.3             
Net sales excluding FX  $153.2       7.2   4.9%
U.S. sales $98.3  $88.0  $10.3   11.7%
% of total  65%  60%               
Non-U.S. sales $53.6  $58.0  $(4.4) (7.6)%
% of total  35%  40%                
FX impact $1.3                     
Non-U.S. sales excluding FX $54.9       $ (3.1)   (5.3)%  
                   

Excluding a $1.3 million unfavorable impact of foreign currency exchange, net sales (“sales”) increased $7.2 million, or 4.9%.  The Magnetek acquisition contributed $16.4 million to sales in the months of July and August which, combined with very modest price improvement, more than offset lower volume.  For more information on changes in sales, please see the attached tables.

Magnetek contributed $15.7 million to U.S. sales in the two additional months in the quarter, more than offsetting lower volume in the region.  Sales outside of the U.S. were down $3.1 million, or 5.3%, after excluding unfavorable foreign currency exchange, on lower volume.

Operating Results

($ in millions) Q2 FY 17 Q2 FY 16 Change % Change
Gross profit $49.7  $46.9  $2.8  5.9%
Gross margin 32.7% 32.1% 60 bps  
Income from operations $12.6  $6.5  $6.1  93.8%
Operating margin 8.3% 4.5% 380 bps  
Net income $6.8  $(0.4) $7.3  NM 
Diluted EPS $0.33  $(0.02) $0.35  NM 
               

Higher gross profit was mostly related to $5.9 million gained from the Magnetek acquisition (two incremental months of ownership this quarter), which helped drive the record breaking gross margin.  For more information on changes in gross profit, please see the attached tables. 

Income from operations decreased by $2.4 million compared with adjusted income from operations of $15.0 million in the prior-year period.  Lower income from operations was largely the result of lower sales volumes in the global hoist and rigging business, partially offset by the contributions of Magnetek.  The acquisition added an incremental $1.9 million to operating income during the two additional months in the current quarter.  Please see the attached tables for a reconciliation of GAAP income from operations to adjusted income from operations.

The effective tax rate of 34.8% is reflective of the mix in earnings by tax jurisdiction.  For the year, the expected effective tax rate continues to be in the 30% to 32% range.  Adjusted net income declined $1.3 million, to $7.3 million.  The decline in adjusted net income was largely the result of lower sales volume.  Please see the attached tables for a reconciliation of GAAP net income and earnings per share to adjusted net income and earnings per share.

Ahead of Target: Paying Down Debt with Strong Cash Generation

Cash generated from operating activities in the second quarter increased by $17.5 million to $18.4 million.  The Company utilized that incremental cash flow to make $10.8 million of debt repayments, which reduced gross debt to $239.8 million at September 30, 2016.  As a result, net debt to net total capitalization has declined 360 basis points to 39.4% since the beginning of the fiscal year.

Capital expenditures through the first half of fiscal 2017 were $8.5 million and are now expected to be approximately $16 million for the year, down from previous expectations of about $18 million.  

Teleconference/webcast

Columbus McKinnon will host a conference call and live webcast today at 10:00 AM Eastern Time, at which Timothy T. Tevens, President and Chief Executive Officer, and Gregory P. Rustowicz, Vice President - Finance and Chief Financial Officer, will review the Company’s financial results and strategy.  The review will be accompanied by a slide presentation, which will be available on Columbus McKinnon’s website at http://www.cmworks.com/investors.  A question and answer session will follow the formal discussion.

Columbus McKinnon’s conference call can be accessed by calling 201-493-6780 and asking for the “Columbus McKinnon conference call.”  The webcast can be monitored on Columbus McKinnon’s website at www.cmworks.com/investors.  An audio recording of the call will be available two hours after its completion through Friday, November 4, 2016 by dialing 858-384-5517 and entering the passcode 13645492.  Alternatively, an archived webcast of the call will be on Columbus McKinnon’s web site at: www.cmworks.com/investors.  In addition, a transcript of the call will be posted to the website once available.

About Columbus McKinnon

Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of material handling products, technologies, systems and services, which efficiently and ergonomically move, lift, position and secure materials and people.  Key products include hoists, cranes, actuators, rigging tools, light rail work stations and digital power and motion control systems.  The Company is focused on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-how.  Comprehensive information on Columbus McKinnon is available on its website at http://www.cmworks.com.

Safe Harbor Statement

This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future revenue and earnings, involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the effect of operating leverage, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the speed at which shipments improve, the effectiveness of new products and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update the forward-looking information contained in this release.

Financial Tables follow.

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
 
  Three Months Ended  
  September 30,
2016
 September 30,
2015
 Change
Net sales $151,925  $146,041  4.0%
Cost of products sold 102,196  99,096  3.1%
Gross profit 49,729  46,945  5.9%
Gross profit margin 32.7% 32.1%  
Selling expenses 19,032  17,399  9.4%
% of net sales 12.5% 11.9%  
General and administrative expenses 16,313  22,040  (26.0)%
% of net sales 10.7% 15.1%  
Amortization of intangibles 1,765  994  77.6%
Income from operations 12,619  6,512  93.8%
Operating margin 8.3% 4.5%  
Interest and debt expense 2,525  1,632  54.7%
Investment (income) loss (88) (376) (76.6)%
Foreign currency exchange (gain) loss (220) 1,459  NM 
Other (income) expense, net (48) (108) (55.6)%
Income before income tax expense 10,450  3,905  167.6%
Income tax expense 3,634  4,353  (16.5)%
Net income (loss) $6,816  $(448) NM 
       
Average basic shares outstanding 20,202  20,086  0.6%
Basic income (loss) per share $0.34  $(0.02) NM 
       
Average diluted shares outstanding 20,368  20,086  1.4%
Diluted income (loss) per share $0.33  $(0.02) NM 
       
Dividends declared per common share $0.04  $0.04   
           



COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
 
  Six Months Ended  
  September 30,
2016
 September 30,
2015
 Change
Net sales $300,938  $282,277  6.6%
Cost of products sold 203,162  191,748  6.0%
Gross profit 97,776  90,529  8.0%
Gross profit margin 32.5% 32.1%  
Selling expenses 37,846  33,997  11.3%
% of net sales 12.6% 12.0%  
General and administrative expenses 32,595  37,142  (12.2)%
% of net sales 10.8% 13.2%  
Amortization of intangibles 3,515  1,587  121.5%
Income from operations 23,820  17,803  33.8%
Operating margin 7.9% 6.3%  
Interest and debt expense 5,099  2,788  82.9%
Investment (income) loss (305) (504) (39.5)%
Foreign currency exchange (gain) loss (783) 1,274  NM 
Other (income) expense, net (128) (113) 13.3%
Income before income tax expense 19,937  14,358  38.9%
Income tax expense 6,720  7,895  (14.9)%
Net income $13,217  $6,463  104.5%
       
Average basic shares outstanding 20,169  20,054  0.6%
Basic income per share $0.66  $0.32  106.3%
       
Average diluted shares outstanding 20,325  20,277  0.2%
Diluted income per share $0.65  $0.32  103.1%
       
Dividends declared per common share $0.04  $0.04   
           

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
 
  September 30,
2016
 March 31,
 2016
  (unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents $45,705  $51,603 
Trade accounts receivable 80,351  83,812 
Inventories 116,192  118,049 
Prepaid expenses and other 14,239  19,265 
Total current assets 256,487  272,729 
     
Property, plant, and equipment, net 102,209  104,790 
Goodwill 170,404  170,716 
Other intangibles, net 119,294  122,129 
Marketable securities 9,482  18,186 
Deferred taxes on income 70,668  73,158 
Other assets 11,200  11,143 
Total assets $739,744  $772,851 
     
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Trade accounts payable $31,087  $36,061 
Accrued liabilities 48,956  53,210 
Current portion of long-term debt 43,045  43,246 
Total current liabilities 123,088  132,517 
     
Senior debt, less current portion 278  844 
Term loan and revolving credit facility 196,478  223,542 
Other non-current liabilities 121,315  129,639 
Total liabilities 441,159  486,542 
     
Shareholders’ equity:    
Common stock 202  201 
Additional paid-in capital 208,818  206,682 
Retained earnings 186,582  174,173 
Accumulated other comprehensive loss (97,017) (94,747)
Total shareholders’ equity 298,585  286,309 
Total liabilities and shareholders’ equity $739,744  $772,851 
         

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Statements of Cash Flows - UNAUDITED
(In thousands)
 
  Six Months Ended
  September 30,
2016
 September 30,
2015
Operating activities:    
Net income $13,217  $6,463 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 11,928  8,521 
Deferred income taxes and related valuation allowance 2,075  668 
Net gain on sale of real estate, investments, and other (115) (375)
Stock based compensation 2,539  2,042 
Amortization of deferred financing costs and discount on debt 344  256 
Changes in operating assets and liabilities, net of effects of business acquisitions:    
Trade accounts receivable 3,049  3,631 
Inventories 1,152  (6,150)
Prepaid expenses and other 5,102  776 
Other assets (227) 3,873 
Trade accounts payable (3,112) (6,983)
Accrued liabilities (2,801) 1,449 
Non-current liabilities (7,502) (10,054)
Net cash provided by (used for) operating activities 25,649  4,117 
     
Investing activities:    
Proceeds from sale of marketable securities 9,192  5,057 
Purchases of marketable securities (207) (4,212)
Capital expenditures (8,450) (8,707)
Purchase of business, net of cash acquired (587) (182,467)
Net cash provided by (used for) investing activities (52) (190,329)
     
Financing activities:    
Proceeds from exercises of stock options 139  159 
Restricted cash related to purchase of business (588)  
Net borrowings (payments) under line-of-credit agreements (21,000) 179,057 
Repayment of debt (6,550) (6,523)
Dividends paid (1,611) (1,604)
Other (541) (849)
Net cash provided by (used for) financing activities (30,151) 170,240 
     
Effect of exchange rate changes on cash (1,344) 1,642 
     
Net change in cash and cash equivalents (5,898) (14,330)
Cash and cash equivalents at beginning of year 51,603  63,056 
Cash and cash equivalents at end of period $45,705  $48,726 
         

 

COLUMBUS McKINNON CORPORATION
Q2 FY 2016 to Q2 FY 2017 Sales Bridge
 
  Second Quarter Year to Date
($ in millions) $ Change % Change $ Change % Change
Q2 Fiscal 2016 Sales $146.0    $282.3   
Magnetek acquisition  16.4   11.2%  40.3   14.3%
Pricing  0.3   0.2%  0.6   0.2%
Volume  (9.5)  (6.5)%  (19.5)  (6.9)%
Subtotal of change  7.2   4.9%  21.4   7.6%
Foreign currency translation  (1.3)  (0.9)%  (2.8)  (1.0)%
Total change $5.9   4.0% $18.6   6.6%
Q2 Fiscal 2017 Sales $151.9    $300.9   
             

 

COLUMBUS McKINNON CORPORATION
Q2 FY 2016 to Q2 FY 2017 Gross Profit Bridge
 
($ in millions) Second
Quarter
Year to Date
Q2 Fiscal 2016 Gross Profit $46.9  $90.5 
Magnetek Acquisition  5.9   14.2 
Productivity, net of other cost changes  0.7   2.0 
Prior year purchase accounting & restructuring costs  0.7   1.3 
Pricing, net of material cost inflation  (0.1)  (0.1)
Product liability  (0.4)  (1.3)
Sales volume and mix  (3.6)  (7.9)
Subtotal of change  3.2   8.2 
Foreign currency translation  (0.4)  (0.9)
Total change $2.8  $7.3 
Q2 Fiscal 2017 Gross Profit $49.7  $97.8 
         

 

COLUMBUS McKINNON CORPORATION
Additional Data - UNAUDITED
 
  September 30,
2016
 March 31,
2016
 September 30,
 2015
Backlog (in millions) $107.1    $98.6    $110.8   
Project backlog (in millions, expected to ship beyond 3 months) $46.3    $41.2    $46.8   
Project backlog as % of total backlog 43.2   41.8  %   42.2  
             
Trade accounts receivable            
Days sales outstanding (2) 48.1  days 49.2  days 50.5  days
             
Inventory turns per year (2)            
(based on cost of products sold) 3.5  turns 3.6  turns 3.4  turns
Days' inventory 103.7  days 101.0  days 107.9  days
             
Trade accounts payable            
Days payables outstanding (2) 27.7  days 30.8  days 23.7  days
             
Working capital as a % of sales (1)(2) 21.2  % 21.5  % 22.9  %
             
Debt to total capitalization percentage 44.5  % 48.3  % 51.9  %
             
Debt, net of cash, to net total capitalization 39.4  % 43.0  % 47.5  %
                

(1) March 31, 2016 figures exclude the impact of the acquisition of Magnetek; September 30, 2015 figure excludes the impact of the acquisition of STB
(2) September 30, 2015 figures exclude the impact of the acquisition of Magnetek

Shipping Days by Quarter
  Q1 Q2 Q3 Q4 Total
FY 17 64 63 60 64 251
           
FY 16 63 64 60 63 250
           

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Income from Operations to Non-GAAP Adjusted Income from Operations and 
Operating Margin
($ in thousands, except per share data)
 
  Three Months Ended
September 30,
 Six Months Ended
September 30,
   2016   2015   2016   2015 
  $ $ $ $
Income from operations $12,619  $6,512  $23,820  $17,803 
Add back:        
Canadian pension lump sum settlements        247    
Acquisition deal costs     5,332      5,332 
Acquisition related severance costs     2,300      2,300 
Acquisition inventory step-up expense     551      925 
European facility consolidation costs     288      585 
Non-GAAP adjusted income from operations $12,619  $14,983  $24,067  $26,945 
         
Sales  151,925   146,041   300,938   282,277 
Adjusted operating margin  8.3%  10.3%  8.0%  9.5%
                 

Adjusted income from operations is defined as income from operations as reported, adjusted for certain items and to apply a normalized tax rate. Adjusted income from operations is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP and may not be comparable to the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted income from operations, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's income from operations to the historical periods' income from operations.

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Net Income and Diluted Earnings per Share to Non-GAAP Adjusted Net Income 
and Diluted Earnings per Share
($ in thousands, except per share data)
 
 Three Months Ended
September 30,
 Six Months Ended
September 30,
  2016   2015   2016   2015 
 $ $ $ $
Net income$6,816  $(448) $13,217  $6,463 
Add back:       
Canadian pension lump sum settlements       247    
Acquisition deal costs    5,332      5,332 
Acquisition related severance costs    2,300      2,300 
Acquisition inventory step-up expense    551      925 
European facility consolidation costs    288      585 
Normalize tax rate to 30% (1) 499   640   665   845 
Non-GAAP adjusted net income$7,315  $8,663  $14,129  $16,450 
        
Average diluted shares outstanding 20,368   20,086   20,325   20,277 
        
Diluted income per share - GAAP$0.33  $(0.02) $0.65  $0.32 
        
Diluted income per share - Non-GAAP$0.36  $0.43  $0.70  $0.81 
                

(1)  Applies a normalized tax rate of 30% to GAAP pre-tax income and non-GAAP adjustments above, which are each pre-tax.

Adjusted net income and diluted EPS are defined as net income and diluted EPS as reported, adjusted for certain items and to apply a normalized tax rate. Adjusted net income and diluted EPS are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP and may not be comparable to the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted net income and diluted EPS, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's net income and diluted EPS to the historical periods' net income and diluted EPS.


        

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