Oct 31, 2017   SOURCE: BusinessWire

Columbus McKinnon Reports $0.54 Earnings per Diluted Share for Second Quarter Fiscal Year 2018

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 2018 second quarter, which ended September 30, 2017. Fiscal year 2018 second quarter and year to date results include the January 31, 2017 acquisition of STAHL CraneSystems (“STAHL”).

Second Quarter Highlights (compared with prior-year period)

  • Sales for the quarter were up 40% to $212.8 million, including $45.8 million from STAHL; after adjusting for FX impact, organic sales increased 8.5%
  • Net income increased 84% to $12.5 million, or $0.54 per diluted share; adjusted net income per diluted share grew 28% to $0.51
  • Cash flow from operating activities was $20.3 million; paid down $16.3 million in borrowings in quarter
  • Debt repayment ahead of schedule: $30 million paid down in first half FY2018; Raising debt repayment expectation to $55 million from original goal of $45 million to $50 million

Mark D. Morelli, President and CEO of Columbus McKinnon commented, “We had another solid quarter demonstrated by strong sales and net income. The success of deploying our operating system was evident in the quarter. It provided the necessary roadmaps to achieve our results. In fact, organic sales growth for the quarter of 8.5% outpaced our expectations. The year-over-year growth was the result of robust demand in the U.S. and Latin America driven by healthy end markets, particularly entertainment, construction and government. The rebound in the mining industry is beginning to drive demand for our products, especially our Magnetek digital power and motion control technologies. We also had solid volume expansion in EMEA as the industrial environment has been improving. Notably, STAHL continues to prove its value with strong sales, profit margins and cash generation. We believe the demand for STAHL crane technologies is the result of the value they provide through custom-engineered products for engineering firms.”

Sales

    ($ in millions)       Q2 FY 18   Q2 FY 17   Change   % Change
Net sales $ 212.8 $ 151.9 $ 60.9 40.1 %
 
U.S. sales $ 112.7 $ 98.3 $ 14.4 14.6 %
% of total 53 % 65 %
Non-U.S. sales $ 100.1 $ 53.6 $ 46.5 86.8 %
% of total 47 % 35 %
 

STAHL's U.S. and non-U.S. sales were $5.0 million and $40.8 million, respectively. Volume improvement was realized in the U.S., Canada, EMEA, and Latin America. Sales in Europe, excluding STAHL, were up $3.8 million, including a $1.8 million benefit from foreign currency translation.

    ($ in millions)       Q2 FY 18   Q2 FY 17   Change   % Change
Gross profit $ 71.6 $ 49.7 $ 21.9 44.0 %
Gross margin 33.7 % 32.7 %

100 bps

Income from operations $ 19.6 $ 12.6 $ 7.0 55.2 %
Operating margin 9.2 % 8.3 % 90 bps
Net income $ 12.5 $ 6.8 $ 5.7 83.5 %
Diluted EPS $ 0.54 $ 0.33 $ 0.21 63.6 %
 

STAHL contributed $16.8 million to gross profit, which was 36.7% of STAHL sales. For more information on changes in gross profit, please see the attached tables.

Income from operations was $19.6 million. Adjusted income from operations was $20.2 million, which was up $7.6 million from the prior year. Excluding integration costs, STAHL contributed $5.5 million to income from operations, which was 11.9% of STAHL sales. Please see the attached tables for a reconciliation of GAAP income from operations to adjusted income from operations.

The effective tax rate for the quarter was 14% and was lower than the Company’s previous guidance as a result of a new U.S. GAAP accounting standard impacting the tax accounting treatment of equity compensation. Given this change and subject to the variances of income by taxable jurisdiction, the Company now expects the effective tax rate for fiscal 2018 to be in the 18% to 22% range, excluding any additional changes to current tax regulations.

Net income was $12.5 million. Adjusted net income was $11.9 million, which excludes STAHL integration costs, costs for a legal action against prior product liability insurance carriers, an insurance settlement and litigation costs for a former subsidiary of Magnetek. Please see the attached tables for a reconciliation of GAAP net income and earnings per share to adjusted net income and earnings per share.

Generating Cash and Reducing Debt

Cash generated from operating activities in the second quarter was $20.3 million. Working capital as a percentage of sales was down to 18.5% compared with 21.2% one year earlier. Please see the attached additional data table for further details.

Total debt was $392.3 million at September 30, 2017 compared with $421.3 million at March 31, 2017. Net debt to net total capitalization at September 30, 2017 was 45.5%, compared with 48.5% at June 30, 2017 and 50.2% at March 31, 2017. The Company expects to reduce debt by approximately $55 million in fiscal 2018 and achieve a net debt to EBITDA ratio below 3x by the end of the fiscal year.

Gregory P. Rustowicz, Vice President - Finance and Chief Financial Officer, commented, “We had good operating profits and margin, although mix and higher annual incentive costs dampened our typical operating leverage potential. Importantly, we are generating excellent levels of cash and are reducing our debt more quickly than originally planned. De-levering our balance sheet provides us greater flexibility to move forward our strategy of becoming an industrial technology company.”

Capital expenditures for the quarter ended September 30, 2017 were $4.2 million and were $6.1 million for the first half of fiscal 2018. The Company expects capital expenditures for fiscal 2018 to be in the range of $15 million to 20 million, lower than previous expectations as Columbus McKinnon evaluates the priorities for its use of capital.

Fiscal Year 2018 Outlook

Backlog was $162.7 million as of September 30, 2017, a decrease of $10.6 million compared with June 30, 2017. The decline was primarily related to seasonally slower order intake and the timing of shipments by STAHL.

Mr. Morelli concluded, “While our third quarter tends to be seasonally soft, we still expect organic growth of approximately 3% to 5%. Stahl is expected to have weaker sales sequentially due to seasonality and fewer shipping days. The trajectory for the business remains strong and we continue to expect fiscal 2018 to be a very good year. We are aggressively working on identifying action plans for reallocating spending from general & administrative expenses to growth initiatives such as research & development to further our efforts to evolve into a high-performing industrial technology company.”

Teleconference/webcast

Columbus McKinnon will host a conference call and live webcast today at 10:00 AM Eastern Time, at which Mark D. Morelli, 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 www.cmworks.com/investors. A question and answer session will follow the formal discussion.

The conference call can be accessed by dialing 201-493-6780 and asking for the “Columbus McKinnon conference call.” The webcast can be monitored at www.cmworks.com/investors. An audio recording will be available from 1:00 PM Eastern Time on the day of the call through Tuesday, November 7, 2017 by dialing 412-317-6671 and entering the passcode 13671705. Alternatively, an archived webcast of the call can be found on the Company’s website. 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. 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 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,
2017

 

September 30,
2016

Change
Net sales $ 212,828 $ 151,925 40.1 %
Cost of products sold 141,209   102,196   38.2 %
Gross profit 71,619 49,729 44.0 %
Gross profit margin 33.7 % 32.7 %
Selling expenses 25,042 19,032 31.6 %
% of net sales 11.8 % 12.5 %
General and administrative expenses 19,347 13,831 39.9 %
% of net sales 9.1 % 9.1 %
Research and development expenses 3,723 2,482 50.0 %
% of net sales 1.7 % 1.6 %
Amortization of intangibles 3,920   1,765   122.1 %
Income from operations 19,587   12,619   55.2 %
Operating margin 9.2 % 8.3 %
Interest and debt expense 5,067 2,525 100.7 %
Investment (income) loss (46 ) (88 ) (47.7 )%
Foreign currency exchange loss (gain) 69 (220 )

NM   

Other (income) expense, net (61 ) (48 ) 27.1 %
Income before income tax expense 14,558 10,450 39.3 %
Income tax expense 2,050   3,634   (43.6 )%
Net income $ 12,508   $ 6,816   83.5 %
 
Average basic shares outstanding 22,746 20,202 12.6 %
Basic income per share $ 0.55   $ 0.34   61.8 %
 
Average diluted shares outstanding 23,142 20,368 13.6 %
Diluted income per share $ 0.54   $ 0.33   63.6 %
 
 

COLUMBUS McKINNON CORPORATION

Condensed Consolidated Income Statements - UNAUDITED

(In thousands, except per share and percentage data)

     
Six Months Ended

September 30,
2017

 

September 30,
2016

Change
Net sales $ 416,554 $ 300,938 38.4 %
Cost of products sold 275,627   203,162   35.7 %
Gross profit 140,927 97,776 44.1 %
Gross profit margin 33.8 % 32.5 %
Selling expenses 48,842 37,846 29.1 %
% of net sales 11.7 % 12.6 %
General and administrative expenses 38,199 27,614 38.3 %
% of net sales 9.2 % 9.2 %
Research and development expenses 6,645 4,981 33.4 %
% of net sales 1.6 % 1.7 %
Amortization of intangibles 7,639   3,515   117.3 %
Income from operations 39,602   23,820   66.3 %
Operating margin 9.5 % 7.9 %
Interest and debt expense 10,208 5,099 100.2 %
Investment (income) loss (108 ) (305 ) (64.6 )%
Foreign currency exchange loss (gain) 393 (783 )

NM   

Other (income) expense, net (200 ) (128 ) 56.3 %
Income before income tax expense 29,309 19,937 47.0 %
Income tax expense 5,145   6,720   (23.4 )%
Net income $ 24,164   $ 13,217   82.8 %
 
Average basic shares outstanding 22,663 20,169 12.4 %
Basic income per share $ 1.07   $ 0.66   62.1 %
 
Average diluted shares outstanding 23,013 20,325 13.2 %
Diluted income per share $ 1.05   $ 0.65   61.5 %
 
 

COLUMBUS McKINNON CORPORATION

Condensed Consolidated Balance Sheets

(In thousands)

     

September 30,
2017

March 31,
2017
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 69,455 $ 77,591
Trade accounts receivable 126,408 111,569
Inventories 139,332 130,643
Prepaid expenses and other 16,766   21,147  
Total current assets 351,961   340,950  
 
Property, plant, and equipment, net 113,104 113,028
Goodwill 338,238 319,299
Other intangibles, net 264,748 256,183
Marketable securities 8,064 7,686
Deferred taxes on income 57,120 61,857
Other assets 12,436   14,840  
Total assets $ 1,145,671   $ 1,113,843  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable $ 41,954 $ 40,994
Accrued liabilities 88,117 97,397
Current portion of long-term debt 49,710   52,568  
Total current liabilities 179,781   190,959  
 
Senior debt, less current portion 22 41
Term loan and revolving credit facility 342,518 368,710
Other non-current liabilities 236,551   212,783  
Total liabilities 758,872   772,493  
 
Shareholders’ equity:
Common stock 230 226
Additional paid-in capital 266,119 258,853
Retained earnings 202,989 179,735
Accumulated other comprehensive loss (82,539 ) (97,464 )
Total shareholders’ equity 386,799   341,350  
Total liabilities and shareholders’ equity $ 1,145,671   $ 1,113,843  
 
 

COLUMBUS McKINNON CORPORATION

Condensed Consolidated Statements of Cash Flows - UNAUDITED

(In thousands)

 
Six Months Ended

September 30,
2017

 

September 30,
2016

Operating activities:
Net income $ 24,164 $ 13,217
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 17,755 11,928
Deferred income taxes and related valuation allowance 2,635 2,075
Net gain on sale of real estate, investments, and other (2) (115 )
Stock based compensation 2,951 2,539
Amortization of deferred financing costs and discount on debt 1,327 344
Changes in operating assets and liabilities, net of effects of business acquisitions:
Trade accounts receivable (10,098 ) 3,049
Inventories (2,230 ) 1,152
Prepaid expenses and other 916 5,102
Other assets 2,463 (227 )
Trade accounts payable (307 ) (3,112 )
Accrued liabilities 3,452 (2,801 )
Non-current liabilities (8,243 ) (7,502 )
Net cash provided by operating activities 34,783   25,649  
 
Investing activities:
Proceeds from sales of marketable securities 138 9,192
Purchases of marketable securities (225 ) (207 )
Capital expenditures (6,082 ) (8,450 )
Net payments to former STAHL owner (14,750 ) —
Purchase of business, net of cash acquired —   (587 )
Net cash provided by (used for) investing activities (20,919 ) (52 )
 
Financing activities:
Proceeds from exercises of stock options 5,594 139
Net borrowings (repayments) under lines of credit — (21,000 )
Repayment of debt (30,131 ) (6,550 )
Restricted cash related to purchase of business — (588 )
Payment of dividends (1,814 ) (1,611 )
Other (1,277 ) (541 )
Net cash provided by (used for) financing activities (27,628 ) (30,151 )
 
Effect of exchange rate changes on cash 5,628   (1,344 )
 
Net change in cash and cash equivalents (8,136 ) (5,898 )
Cash and cash equivalents at beginning of year 77,591   51,603  
Cash and cash equivalents at end of period $ 69,455   $ 45,705  
 
 

COLUMBUS McKINNON CORPORATION

Q2 FY 2018 Sales Bridge

     
Second Quarter Year to Date
($ in millions) $ Change   % Change $ Change   % Change
Fiscal 2017 Sales $ 151.9 $ 300.9
STAHL acquisition 45.8 30.2 % 88.5 29.4 %
Volume 12.2 8.0 % 24.5 8.1 %
Pricing 0.7 0.5 % 1.3 0.4 %
Foreign currency translation 2.2   1.4 % 1.4   0.5 %
Total change $ 60.9   40.1 % $ 115.7   38.4 %
Fiscal 2018 Sales $ 212.8   $ 416.6  
 
 

COLUMBUS McKINNON CORPORATION

Q2 FY 2018 Gross Profit Bridge

       
($ in millions) Second Quarter Year to Date
Fiscal 2017 Gross Profit $ 49.7 $ 97.8
STAHL acquisition 16.8 32.5
Sales volume and mix 3.7 7.4
Insurance settlement 1.7 1.7
Foreign currency translation 0.6 0.4
Pricing, net of material cost inflation 0.5 0.9
Product liability 0.4 0.9
STAHL integration costs (0.1 ) (0.2 )
Productivity, net of other cost changes (1.7 ) (0.5 )
Total change $ 21.9   $ 43.1  
Fiscal 2018 Gross Profit $ 71.6   $ 140.9  
 
     

COLUMBUS McKINNON CORPORATION

Additional Data - UNAUDITED

 

September 30,
2017

March 31,
2017

September 30,
2016

($ in millions)      
Backlog $ 162.7 $ 154.5 $ 107.1
Backlog (excluding STAHL) $ 112.6 $ 107.7 $ 107.1
Long-term backlog (expected to ship beyond 3 months) $ 64.8 $ 53.5 $ 46.3
Long-term backlog as % of total backlog 39.8 % 34.6 % 43.2 %
 
Trade accounts receivable (2)
Days sales outstanding 54.0 days 46.2 days 48.1 days
 
Inventory turns per year (2)
(based on cost of products sold) 4.1 turns 4.1 turns 3.5 turns
Days' inventory (2) 89.0 days 89.0 days 103.7 days
 
Trade accounts payable
Days payables outstanding (2) 27.0 days 28.3 days 27.7 days
 
Working capital as a % of sales (1) (2) 18.5 % 18.6 % 21.2 %
 
Debt to total capitalization percentage 50.3 % 55.2 % 44.5 %
 
Debt, net of cash, to net total capitalization 45.5 % 50.2 % 39.4 %
 
(1) September 30, 2017 and March 31, 2017 figures exclude the impact of the acquisition of STAHL.
(2) March 31, 2017 figures exclude the impact of the acquisition of STAHL.
 
    U.S. Shipping Days by Quarter
   

    Q1    

 

    Q2    

 

    Q3    

 

    Q4    

 

   Total   

FY 18 63 62 60 63 248
 
FY 17 64 63 60 64 251
 
 

COLUMBUS McKINNON CORPORATION

Reconciliation of GAAP Gross Profit to Non-GAAP Adjusted Gross Profit and Margin

($ in thousands)

   

Three Months Ended
September 30,

Year to Date
September 30,

2017   2016 2017   2016
Gross profit $ 71,619 $ 49,729 $ 140,927 $ 97,776
Add back (deduct):
Insurance settlement (1,741 ) — (1,741 ) —
STAHL integration costs 52   —   221   —  
Non-GAAP adjusted gross profit $ 69,930   $ 49,729   $ 139,407   $ 97,776  
 
Sales $ 212,828 $ 151,925 $ 416,554 $ 300,938
Adjusted gross margin 32.9 % 32.7 % 33.5 % 32.5 %
 

Adjusted gross profit is defined as gross profit as reported, adjusted for certain items. Adjusted gross profit 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 measure as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information such as adjusted gross profit is important for investors and other readers of the Company’s financial statements, and assists in understanding the comparison of the current quarter’s gross profit to the historical period’s gross profit, as well as facilitates a more meaningful comparison of the Company’s net income and diluted EPS to that of other companies.

 

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,

Year to Date
September 30, 2017

2017   2016 2017   2016
Income from operations $ 19,587 $ 12,619 $ 39,602 $ 23,820
Add back:
STAHL integration costs 669 — 1,840 —
Insurance recovery legal costs 1,323 — 1,552 —
Magnetek litigation 400 — 400 —
Insurance settlement (1,741 ) — (1,741 ) —
Canadian pension lump sum settlements —   —   —   247  
Non-GAAP adjusted income from operations $ 20,238   $ 12,619   $ 41,653   $ 24,067  
 
Sales $ 212,828 $ 151,925 $ 416,554 $ 300,938
Adjusted operating margin 9.5 % 8.3 % 10.0 % 8.0 %
 

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, as well as facilitates a more meaningful comparison of the Company’s net income and diluted EPS to that of other companies.

     

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,

Year to Date
September 30,

2017   2016 2017   2016
Net income $ 12,508 $ 6,816 $ 24,164 $ 13,217
Add back:
STAHL integration costs 669 — 1,840 —
Insurance recovery legal costs 1,323 — 1,552 —
Magnetek litigation 400 — 400 —
Insurance settlement (1,741 ) — (1,741 ) —
Canadian pension lump sum settlements — — — 247
Normalize tax rate to 22% (1) (1,296 ) 1,335   (1,754 ) 2,280
Non-GAAP adjusted net income $ 11,863   $ 8,151   $ 24,461   $ 15,744
 
Average diluted shares outstanding 23,142 20,368 23,013 20,325
       
Diluted income per share - GAAP $ 0.54   $ 0.33   $ 1.05   $ 0.65
       
Diluted income per share - Non-GAAP $ 0.51   $ 0.40   $ 1.06   $ 0.77

(1) Applies a normalized tax rate of 22% 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, as well as facilitates a more meaningful comparison of the Company’s net income and diluted EPS to that of other companies.