ESCO Announces First Quarter Fiscal 2019 Results
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
Q1 2019 GAAP EPS of
Q1 2018 GAAP EPS of
Q1 2019 Adjusted EPS of
Adjusted EBITDA was
The increases in Adjusted EPS and Adjusted EBITDA were driven by higher sales and improved operating performance within Filtration, USG, and Test.
Operating Highlights
- Q1 2019 sales increased 5 percent to
$183 million compared to$173 million in Q1 2018. - On a segment basis, Q1 2019 Filtration sales exceeded expectations and increased 10 percent from Q1 2018 as commercial aerospace and navy sales increased significantly. Test sales also exceeded expectations and increased 10 percent driven by strong project sales domestically and in
China . USG sales from Doble,Morgan Schaffer and Vanguard increased 4 percent, while NRG’s sales to renewable energy customers decreased, resulting in flat USG net sales. Technical Packaging sales decreased five percent (consistent with expectations) due to project timing. - SG&A expenses decreased 3 percent in Q1 2019 compared to Q1 2018 as a result of the cost reduction actions taken throughout 2018.
- Entered orders were
$198 million in Q1 2019 (book-to-bill of 1.08x) which resulted in an ending backlog of$398 million atDecember 31, 2018 , an increase of$15 million , or 4 percent, fromSeptember 30, 2018 . - Q1 2019 GAAP and Adjusted income tax rates were 25.5 percent and 24.8 percent, respectively, which were slightly higher than Management’s previous expectations of 24 percent. The GAAP effective tax rate in Q1 2018 was significantly impacted by the
$25 million net tax benefit recorded as a result of U.S. Tax Reform, and was 33.5 percent on an Adjusted basis when excluding the net tax benefit. - Q1 2019 net cash provided by operating activities was
$8 million resulting in$179 million of net debt outstanding (total borrowings less cash on hand) atDecember 31, 2018 , with a 1.5x leverage ratio.
Chairman’s Commentary – Q1 2019
“On an Adjusted basis, we increased our Q1 2019 earnings 44 percent over prior year driven by the strength of our Filtration, Test and USG businesses which all contributed meaningfully to our earnings growth. Our Packaging business came in generally as expected and I’m certain that the cost reduction actions that are underway will begin to have a favorable impact in the second half of the year.
“Touching on a few highlights of our Q1 performance compared to Q1 2018: Filtration sales increased 10 percent driven by the continued strength of our commercial aerospace and navy business; Test sales also increased 10 percent on the strength of its backlog and new project wins; Doble, Vanguard and
“Our entered orders were another bright spot in Q1 as we booked nearly
“Additionally, we generated a meaningful amount of cash during Q1 which enabled us to continue to pay down debt and positions us well for future M&A spending.
“On the M&A front we continue to evaluate and diligence a robust pipeline of opportunities in both Filtration and USG and continue to work these aggressively. Consistent with our history, we will remain prudent and committed to our disciplined approach of balancing ROIC and protecting our balance sheet.
“Our cost reduction actions are proceeding as planned and are on budget and on schedule. I’m pleased to report that we are in lease negotiations for a new Doble headquarters building in
“As we look forward in 2019, we plan to build on the successes we achieved in Q1 and expect to continue benefitting from 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
New Revenue Recognition Standard
On
Cost Reduction / Restructuring Actions
To enhance Doble’s ROIC and further improve its operating efficiency, in
To reduce Technical Packaging’s cost structure and increase its EBIT margins, the Company initiated a cost reduction action in
Additionally, the Company is moving VACCO’s aircraft / aerospace business (approximately
All of these actions are intended to improve operating efficiency, generate additional free cash flow, and enhance the Company’s competitiveness across several end-markets, thereby, accelerating annual sales and earnings growth in the future.
Business Outlook – 2019 (Summarized)
Management’s expectations for 2019 remain consistent with the details outlined in the “Business Outlook – 2019” section of the
Management continues to see meaningful organic sales, Adjusted EBIT, and Adjusted EBITDA growth across each of the Company’s business segments and anticipates growth rates in 2019 and beyond that will generally exceed the broader industrial market. The organic growth described in the previous earnings release is expected to be enhanced by additional M&A contributions.
Management’s focus on profitable growth, increased cash flow, an enhanced cost structure driving efficiency and creating competitive advantages, coupled with incremental ROIC, will be the key drivers of sustainable share price appreciation.
To recap, Management expects 2019 Adjusted EPS to be in the range of
On a quarterly basis, Management expects 2019 revenues and Adjusted EPS to be more back half weighted with the second half of the year being stronger than the first half.
Management expects Q2 2019 Adjusted EPS to be in the range of
Conference Call
The Company will host a conference call today,
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, interest expense, income tax expense, effective tax rates, cash generation, sustainable share price appreciation, 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
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
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 TECHNOLOGIES INC. AND SUBSIDIARIES | |||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | |||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||
| Three Months Ended December 31, 2018 |
Three Months Ended December 31, 2017 |
||||||||||||
| Net Sales | $ | 182,597 | 173,495 | ||||||||||
| Cost and Expenses: | |||||||||||||
| Cost of sales | 118,908 | 111,736 | |||||||||||
| Selling, general and administrative expenses | 40,993 | 42,154 | |||||||||||
| Amortization of intangible assets | 4,652 | 4,446 | |||||||||||
| Interest expense | 1,890 | 2,185 | |||||||||||
| Other (income) expenses, net | (7,103 | ) | 173 | ||||||||||
| Total costs and expenses | 159,340 | 160,694 | |||||||||||
| Earnings before income taxes | 23,257 | 12,801 | |||||||||||
| Income tax expense (benefit) | 5,940 | (21,870 | ) | ||||||||||
| Net earnings | $ | 17,317 | 34,671 | ||||||||||
| Diluted EPS: | |||||||||||||
| GAAP EPS | $ | 0.66 | 1.33 | ||||||||||
| Adjusted EPS | $ | 0.47 | (1) | 0.33 | (2) | ||||||||
| Diluted average common shares O/S: | 26,120 | 26,080 | |||||||||||
| (1) Q1 2019 Adjusted EPS excludes $0.19 per share of after-tax income mainly resulting from gain on the sale of the Doble Watertown property partially offset by certain restructuring charges primarily at Doble and Plastique. | |||||||||||||
| (2) Q1 2018 Adjusted EPS excludes $1.00 per share of net tax benefit recorded related to the December 2017 "Tax Cuts and Jobs Act" (U.S. Tax Reform). | |||||||||||||
| ESCO TECHNOLOGIES INC. AND SUBSIDIARIES | ||||||||||||||
| Condensed Business Segment Information (Unaudited) | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||
| GAAP | As Adjusted | |||||||||||||
| Q1 2019 | Q1 2018 | Q1 2019 | Q1 2018 | |||||||||||
| Net Sales | ||||||||||||||
| Filtration | $ | 66,224 | 60,035 | 66,224 | 60,035 | |||||||||
| Test | 41,286 | 37,530 | 41,286 | 37,530 | ||||||||||
| USG | 55,855 | 55,754 | 55,855 | 55,754 | ||||||||||
| Technical Packaging | 19,232 | 20,176 | 19,232 | 20,176 | ||||||||||
| Totals | $ | 182,597 | 173,495 | 182,597 | 173,495 | |||||||||
| EBIT | ||||||||||||||
| Filtration | $ | 10,610 | 9,645 | 10,707 | 9,645 | |||||||||
| Test | 3,310 | 2,596 | 3,310 | 2,596 | ||||||||||
| USG | 21,546 | 10,651 | 13,859 | 10,651 | ||||||||||
| Technical Packaging | 106 | 965 | 375 | 965 | ||||||||||
| Corporate | (10,425 | ) | (8,871 | ) | (10,060 | ) | (8,871 | ) | ||||||
| Consolidated EBIT | 25,147 | 14,986 | 18,191 | 14,986 | ||||||||||
| Less: Interest expense | (1,890 | ) | (2,185 | ) | (1,890 | ) | (2,185 | ) | ||||||
| Plus (Less): Income tax | (5,940 | ) | 21,870 | (4,046 | ) | (4,288 | ) | |||||||
| Net earnings | $ | 17,317 | 34,671 | 12,255 | 8,513 | |||||||||
| Note 1: Adjusted net earnings were $12.3 million in Q1 2019 which excluded $0.19 per share of after-tax income primarily related to the Q1 2019 gain on the sale of the Doble Watertown facility partially offset by charges related to other restructuring actions. | ||||||||||||||
| Note 2: Adjusted net earnings were $8.5 million in Q1 2018 which excluded $1.00 per share of net tax benefit recorded related to the December 2017 "Tax Cuts and Jobs Act" (U.S. Tax Reform). | ||||||||||||||
| EBITDA Reconciliation to Net earnings: | ||||||||||||||
| Q1 2019 | Q1 2018 | |||||||||||||
| Q1 2019 | - As Adj | Q1 2018 | - As Adj | |||||||||||
| Consolidated EBITDA | $ | 34,651 | 27,695 | 24,212 | 24,212 | |||||||||
| Less: Depr & Amort | (9,504 | ) | (9,504 | ) | (9,226 | ) | (9,226 | ) | ||||||
| Consolidated EBIT | 25,147 | 18,191 | 14,986 | 14,986 | ||||||||||
| Less: Interest expense | (1,890 | ) | (1,890 | ) | (2,185 | ) | (2,185 | ) | ||||||
| Plus (Less): Income Tax | (5,940 | ) | (4,046 | ) | 21,870 | (4,288 | ) | |||||||
| Net earnings | $ | 17,317 | 12,255 | 34,671 | 8,513 | |||||||||
| ESCO TECHNOLOGIES INC. AND SUBSIDIARIES | ||||||
| Condensed Consolidated Balance Sheets (Unaudited) | ||||||
| (Dollars in thousands) | ||||||
| December 31, 2018 |
September 30, 2018 |
|||||
| Assets | ||||||
| Cash and cash equivalents | $ | 36,630 | 30,477 | |||
| Accounts receivable, net | 146,668 | 163,740 | ||||
| Contract assets | 94,082 | 53,034 | ||||
| Inventories | 119,659 | 135,416 | ||||
| Other current assets | 14,880 | 13,356 | ||||
| Total current assets | 411,919 | 396,023 | ||||
| Property, plant and equipment, net | 129,443 | 134,954 | ||||
| Intangible assets, net | 340,195 | 345,353 | ||||
| Goodwill | 381,198 | 381,652 | ||||
| Other assets | 5,456 | 7,140 | ||||
| $ | 1,268,211 | 1,265,122 | ||||
| Liabilities and Shareholders' Equity | ||||||
| Short-term borrowings and current | $ | 20,273 | 20,000 | |||
| maturities of long-term debt | ||||||
| Accounts payable | 54,395 | 63,033 | ||||
| Contract liabilities | 53,251 | 49,035 | ||||
| Other current liabilities | 66,749 | 68,462 | ||||
| Total current liabilities | 194,668 | 200,530 | ||||
| Deferred tax liabilities | 61,536 | 64,794 | ||||
| Other liabilities | 40,215 | 40,388 | ||||
| Long-term debt | 195,000 | 200,000 | ||||
| Shareholders' equity | 776,792 | 759,410 | ||||
| $ | 1,268,211 | 1,265,122 | ||||
| ESCO TECHNOLOGIES INC. AND SUBSIDIARIES | |||
| Consolidated Statements of Cash Flows (Unaudited) | |||
| (Dollars in thousands) | |||
| Three Months Ended December 31, 2018 |
|||
| Cash flows from operating activities: | |||
| Net earnings | $ | 17,317 | |
| Adjustments to reconcile net earnings | |||
| to net cash provided by operating activities: | |||
| Depreciation and amortization | 9,504 | ||
| Stock compensation expense | 1,373 | ||
| Changes in assets and liabilities | (7,912 | ) | |
| Change in PP&E from gain on building sale | (8,922 | ) | |
| Effect of deferred taxes | (3,258 | ) | |
| Net cash provided by operating activities | 8,102 | ||
| Cash flows from investing activities: | |||
| Capital expenditures | (8,885 | ) | |
| Additions to capitalized software | (2,060 | ) | |
| Proceeds from sale of building and land | 17,201 | ||
| Net cash provided by investing activities | 6,256 | ||
| Cash flows from financing activities: | |||
| Proceeds from long-term debt and short-term borrowings | 8,273 | ||
| Principal payments on long-term debt | (13,000 | ) | |
| Dividends paid | (2,073 | ) | |
| Other | (159 | ) | |
| Net cash used by financing activities | (6,959 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | (1,246 | ) | |
| Net increase in cash and cash equivalents | 6,153 | ||
| Cash and cash equivalents, beginning of period | 30,477 | ||
| Cash and cash equivalents, end of period | $ | 36,630 | |
| ESCO TECHNOLOGIES INC. AND SUBSIDIARIES | |||||||||||||||||
| Other Selected Financial Data (Unaudited) | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Backlog And Entered Orders - Q1 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 | 83,732 | 45,430 | 52,000 | 16,961 | 198,123 | ||||||||||||
| Sales | (66,224 | ) | (41,286 | ) | (55,855 | ) | (19,232 | ) | (182,597 | ) | |||||||
| Ending Backlog - 12/31/18 | $ | 221,735 | 126,494 | 36,872 | 13,196 | 398,297 | |||||||||||
SOURCE
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