MSA Announces Second Quarter Results
PITTSBURGH, Aug. 3, 2017 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the second quarter of 2017.
Quarterly Highlights
-- Reported revenue was $289 million, decreasing 2 percent from a year ago
on both a reported and constant currency basis.
-- GAAP earnings from continuing operations were $13 million or $0.32 per
diluted share, compared to $29 million or $0.77 per diluted share in the
same period a year ago. The decline in GAAP earnings is fully
attributable to a $30 million pre-tax charge related to product
liability settlements and an increased reserve reflecting all asserted
cumulative trauma product liability claims. This charge did not have a
cash impact in the second quarter.
-- Adjusted earnings were $33 million or $0.85 per diluted share, compared
to $30 million or $0.79 per diluted share a year ago.
-- The company recently completed its acquisition of Globe Manufacturing
Company in an all-cash transaction valued at $215 million. The
transaction is expected to be accretive to GAAP earnings by $0.10 -
$0.15 per share and accretive to adjusted earnings by $0.20 - $0.25 per
share in the first 12 months of ownership.
-- Cash flow from operating activities was $50 million, compared to $24
million in the same period a year ago. The company continues to make
progress collecting its insurance receivable, and received $22 million
during the quarter from its insurance carriers, bringing total
year-to-date collections to $110 million.
Cumulative Trauma Product Liability Charge
The company increased its cumulative trauma product liability reserve by $84 million in the second quarter related to recent product liability settlements and estimated indemnity for all asserted cumulative trauma claims, bringing the total reserve to $93 million. The company's quarterly GAAP results include a $30 million, or $21 million after tax ($0.53 per diluted share) charge, which reflects the increase to the reserve, net of expected insurance collections.
-- Approximately $75 million of the increase to the reserve relates to
product liability settlements reached in August 2017. The company will
pay $25 million towards these settlements in the second half of 2017,
with the balance expected to be paid ratably over seven quarters
beginning in the first quarter of 2018 and ending in the third quarter
of 2019. The settlements enable the company to gain more certainty
around its cash flow position in the coming years while reducing future
exposure related to cumulative trauma claims. As a result of these
settlements, the company is now largely self-insured for cumulative
trauma claims.
-- The remaining increase to the reserve reflects estimated indemnity for
all other asserted cumulative trauma product liability claims.
-- The liability is related to legacy products designed, manufactured and
sold many years ago. These products are not currently sold by the
company.
-- The cash impact associated with payments for cumulative trauma product
liability claims has been reflected in the company's operating cash flow
since 2005, without the benefit of inflows from insurance proceeds in
most of those years. Due to the recent success in collecting disputed
available insurance, the company expects to have cash flow streams from
past and future settlements to fund this liability without a material
impact on its current capital allocation priorities.
Comments from Management
"The charge to our GAAP earnings, which did not have a cash impact in the quarter, relates to product liability settlements and estimated indemnity on all asserted cumulative trauma product liability claims. For more than a decade, we have funded product liability settlements from operating cash flow, without the benefit of inflows from insurance proceeds. In the past year, we have made great progress collecting insurance proceeds and establishing cash flow streams for the future, which will allow us to fund this liability without a material impact on our current capital allocation priorities," said William M. Lambert, MSA Chairman and CEO.
"Our second quarter operating results reflect our ongoing focus on streamlining MSA's cost structure, expanding product margins, and generating higher levels of cash flow," Mr. Lambert continued. "Most notably, we were able to improve gross profit by 40 basis points and drive 10 percent adjusted earnings growth in the quarter."
Mr. Lambert noted that revenue driven by short-cycle industrial products, including hard hats and fall protection equipment, continued to gain momentum in the quarter. "In particular, our previous investments in R&D and acquisitions have enabled us to capitalize on stronger market conditions to drive double-digit revenue growth in each of these areas." Mr. Lambert added that sales of hard hats, which increased 15 percent in the quarter, were supported by the company's market leading Fas-Trac® III Suspension and its ability to offer customers best-in-class customization options. He also commented that the company's 16 percent quarterly growth in fall protection was driven largely by Latchways, the UK-based fall protection manufacturer MSA acquired in 2015.
"We have a strong history of using our balance sheet to complete acquisitions, like Latchways and General Monitors, that drive shareholder value," Mr. Lambert said. "Similarly, our recently completed acquisition of Globe is an excellent strategic and financial fit, helping us continue to enhance our market leadership position in the U.S. fire service. Going forward, we remain focused on managing our cost structure while strategically deploying capital for investments that will continue to drive profitable growth and market share gains," Mr. Lambert concluded.
MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
---- ---- ---- ----
Net sales $288,775 $295,998 $554,540 $575,266
Cost of products sold 155,170 160,143 301,213 318,706
------- ------- ------- -------
Gross profit 133,605 135,855 253,327 256,560
Selling, general and administrative 73,943 75,716 149,926 154,911
Research and development 11,933 11,144 22,931 21,507
Restructuring charges 967 1,338 13,706 1,808
Currency exchange losses (gains), net 2,851 (242) 3,431 1,708
Other operating expense(a) 29,610 - 29,610 -
Operating income 14,301 47,899 33,723 76,626
Interest expense 3,014 4,201 6,605 8,103
Other income, net (425) (775) (1,080) (1,663)
---- ---- ------ ------
Total other expense, net 2,589 3,426 5,525 6,440
Income from continuing operations before income taxes 11,712 44,473 28,198 70,186
(Benefit) provision for income taxes (902) 15,026 894 27,537
---- ------ --- ------
Income from continuing operations 12,614 29,447 27,304 42,649
Income from discontinued operations - 2,484 - 1,355
--- ----- --- -----
Net income 12,614 31,931 27,304 44,004
Net income attributable to noncontrolling interests (82) (848) (359) (1,170)
--- ---- ---- ------
Net income attributable to MSA Safety Incorporated 12,532 31,083 26,945 42,834
====== ====== ====== ======
Amounts attributable to MSA Safety Incorporated common shareholders:
41,989
Income from continuing operations 12,532 29,306 26,945
845
Income from discontinued operations - 1,777 -
--- ----- ---
42,834
Net income 12,532 31,083 26,945
====== ====== ======
Earnings per share attributable to MSA Safety Incorporated common shareholders:
Basic
Income from continuing operations $0.33 $0.78 $0.71 $1.12
Income from discontinued operations $ - $0.05 $ - $0.02
--- --- ----- --- --- -----
Net income $0.33 $0.83 $0.71 $1.14
===== ===== ===== =====
Diluted
Income from continuing operations $0.32 $0.77 $0.70 $1.11
Income from discontinued operations $ - $0.05 $ - $0.02
--- --- ----- --- --- -----
Net income $0.32 $0.82 $0.70 $1.13
===== ===== ===== =====
Basic shares outstanding 38,065 37,411 37,914 37,368
Diluted shares outstanding 38,780 37,860 38,685 37,807
a) Represents a charge related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims. See further description under Cumulative Trauma Product Liability Charge section of Press Release narrative.
MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
June 30, 2017 December 31, 2016
------------- -----------------
Assets
Cash and
cash
equivalents $115,361 $113,759
Trade
receivables,
net 219,491 209,514
Inventories 130,613 103,066
Notes
receivable,
insurance
companies 14,161 4,180
Other
current
assets 72,531 42,287
------ ------
Total
current
assets 552,157 472,806
Property,
net 143,884 148,678
Prepaid
pension
cost 56,519 62,916
Goodwill 341,925 333,276
Notes
receivable,
insurance
companies,
noncurrent 63,833 63,147
Insurance
receivable,
noncurrent 81,111 157,929
Other
noncurrent
assets 122,607 115,168
------- -------
Total
assets $1,362,036 $1,353,920
========== ==========
Liabilities and
shareholders' equity
Notes
payable
and
current
portion of
long-term
debt, net $26,827 $26,666
Accounts
payable 65,392 62,734
Other
current
liabilities 163,123 132,010
------- -------
Total
current
liabilities 255,342 221,410
Long-term
debt, net 242,679 363,836
Pensions
and other
employee
benefits 166,672 157,927
Deferred
tax
liabilities 36,176 34,044
Other
noncurrent
liabilities 59,571 15,491
Total
shareholders'
equity 601,596 561,212
------- -------
Total
liabilities
and
shareholders'
equity $1,362,036 $1,353,920
========== ==========
MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
---- ---- ---- ----
Net income $12,614 $31,931 $27,304 $44,004
Depreciation and amortization 8,984 8,576 17,736 17,732
Change in working capital and other operating 28,294 (16,979) 101,242 (49,214)
------ ------- ------- -------
Cash flow from operating activities 49,892 23,528 146,282 12,522
Capital expenditures (4,685) (4,776) (6,127) (10,595)
Property disposals and other investing 512 1,257 677 16,965
--- ----- --- ------
Cash flow (used in) from investing activities (4,173) (3,519) (5,450) 6,370
------ ------ ------ -----
Change in debt (28,203) (17,009) (124,640) (3,376)
Cash dividends paid (13,369) (12,348) (25,824) (24,284)
Other financing 5,098 1,605 7,944 3,161
----- ----- ----- -----
Cash flow (used in) financing activities (36,474) (27,752) (142,520) (24,499)
------- ------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 1,689 (1,009) 3,290 2,831
----- ------ ----- -----
Increase (decrease) in cash and cash equivalents 10,934 (8,752) 1,602 (2,776)
====== ====== ===== ======
MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
Americas International Corporate Consolidated
-------- ------------- --------- ------------
Three months ended June 30, 2017
Sales to external customers $174,960 $113,815 - $288,775
Operating income 14,301
Operating margin % 5.0%
Restructuring charges 967
Currency exchange losses, net 2,851
Other operating expense 29,610
Adjusted operating income (loss) 45,528 10,970 (8,769) $47,729
Adjusted operating margin % 26.0% 9.6% 16.5%
Six Months Ended June 30, 2017
Sales to external customers $341,528 $213,012 - $554,540
Operating income 33,723
Operating margin % 6.1%
Restructuring charges 13,706
Currency exchange losses, net 3,431
Other operating expense 29,610
Adjusted operating income (loss) 83,634 17,614 (20,778) $80,470
Adjusted operating margin % 24.5% 8.3% 14.5%
Americas International Corporate Consolidated
-------- ------------- --------- ------------
Three months ended June 30, 2016
Sales to external customers $177,623 $118,375 - $295,998
Operating income 47,899
Operating margin % 16.2%
Restructuring charges 1,338
Currency exchange (gains), net (242)
Other operating expense -
Adjusted operating income (loss) 44,671 12,741 (8,417) $48,995
Adjusted operating margin % 25.1% 10.8% 16.6%
Six Months Ended June 30, 2016
Sales to external customers $344,965 $230,301 - $575,266
Operating income 76,626
Operating margin % 13.3%
Restructuring charges 1,808
Currency exchange losses, net 1,708
Other operating expense -
Adjusted operating income (loss) 76,016 21,148 (17,022) $80,142
Adjusted operating margin % 22.0% 9.2% 13.9%
The Americas and International segments were established on January 1, 2016. The Americas segment is comprised of our operations in the U.S., Canada and Latin America. The International segment is comprised of our operations in all other parts of the world including Europe, Africa, the Middle East, India, China, South East Asia and Australia. 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) and adjusted operating 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) and adjusted operating margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring, currency exchange gains (losses) and other operating expense. Adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted operating income (loss) and adjusted operating 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) and adjusted operating 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
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Consolidated
Three Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core
Apparatus Rescue Head Gas and Flame Protection Sales
Helmets Protection Detection Detection Non- Net Sales
Core
Sales
GAAP reported (12)% (4)% 15% (8)% 10% 11% - % (12)% (2)%
sales change
Plus: Currency - % 1% - % - % 1% 5% - % - % - %
translation effects
Constant currency (12)% (3)% 15% (8)% 11% 16% - % (12)% (2)%
sales change
===
Six Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core Non-Core
Apparatus Rescue Head Gas and Flame Protection Sales Sales
Helmets Protection Detection Detection Net Sales
GAAP reported (12)% (1)% 17% 1% - % (1)% (2)% (11)% (4)%
sales change
Plus: Currency - % 2% (1)% - % 1% 5% 1% (1)% 1%
translation effects
Constant currency (12)% 1% 16% 1% 1% 4% (1)% (12)% (3)%
sales change
===
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control.
There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Americas Segment
Three Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core
Apparatus Rescue Head Gas and Flame Protection Sales
Helmets Protection Detection Detection Non- Net Sales
Core
Sales
GAAP reported (16)% (5)% 15% 4% 2% 31% - % (9)% (1)%
sales change
Plus: Currency - % - % (1)% (1)% - % 1% - % - % (1)%
translation effects
Constant currency (16)% (5)% 14% 3% 2% 32% - % (9)% (2)%
sales change
===
Six Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core
Apparatus Rescue Head Gas and Flame Protection Sales
Helmets Protection Detection Detection Non- Net Sales
Core
Sales
GAAP reported (12)% (5)% 16% 11% (5)% 22% - % (6)% (1)%
sales change
Plus: Currency - % - % (2)% (1)% 1% 1% - % (1)% - %
translation effects
Constant currency (12)% (5)% 14% 10% (4)% 23% - % (7)% (1)%
sales change
===
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control.
There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
International Segment
Three Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core
Apparatus Rescue Head Gas and Flame Protection Sales
Helmets Protection Detection Detection Non- Net Sales
Core Sales
GAAP reported (5)% (4)% 16% (25)% 20% (8)% (1)% (16)% (4)%
sales change
Plus: Currency 1% 2% 1% 1% 1% 9% 2% - % 2%
translation effects
Constant currency (4)% (2)% 17% (24)% 21% 1% 1% (16)% (2)%
sales change
===
Six Months Ended June 30, 2017
Breathing Fire and Industrial Portable Fixed Gas Fall Core
Apparatus Rescue Head Gas and Flame Protection Sales
Helmets Protection Detection Detection Non- Net Sales
Core Sales
GAAP reported (12)% 3% 20% (14)% 6% (19)% (5)% (17)% (8)%
sales change
Plus: Currency 1% 2% 1% 1% 2% 8% 3% 1% 3%
translation effects
Constant currency (11)% 5% 21% (13)% 8% (11)% (2)% (16)% (5)%
sales change
===
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control.
There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Summary of constant currency revenue growth by segment and product group
Three Months Ended June 30, 2017
Consolidated Americas International
------------ --------
Fall
Protection 16% 32% 1%
Industrial
Head
Protection 15% 14% 17%
Fixed
Gas
and
Flame
Detection 11% 2% 21%
Fire
and
Rescue
Helmets (3)% (5)% (2)%
Portable
Gas
Detection (8)% 3% (24)%
Breathing
Apparatus (12)% (16)% (4)%
Core
Sales - % - % 1%
Non-
Core
Sales (12)% (9)% (16)%
Net
Sales (2)% (2)% (2)%
=== === ===
Six Months Ended June 30, 2017
Consolidated Americas International
------------ --------
Fall
Protection 4% 23% (11)%
Industrial
Head
Protection 16% 14% 21%
Fixed
Gas
and
Flame
Detection 1% (4)% 8%
Fire
and
Rescue
Helmets 1% (5)% 5%
Portable
Gas
Detection 1% 10% (13)%
Breathing
Apparatus (12)% (12)% (11)%
Core
Sales (1)% - % (2)%
Non-
Core
Sales (12)% (7)% (16)%
Net
Sales (3)% (1)% (5)%
=== === ===
MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted earnings (Unaudited)
Adjusted earnings per diluted share (Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 % 2017 2016 %
Change Change
Income from continuing operations attributable to MSA Safety Inc. $12,532 $29,306 (57)% $26,945 $41,989 (36)%
Tax (benefit) associated with ASU 2016-09: Improvements to employee
share-based payment accounting (4,030) - (6,812) -
Tax charges associated with European reorganization - - - 3,600
Subtotal 8,502 29,306 (71)% 20,133 45,589 (56)%
----- ------ ------ ------
Self-insured legal settlements and defense costs(a) 29,653 275 29,685 295
Currency exchange losses (gains), net 2,851 (242) 3,431 1,708
Strategic transaction costs 1,642 - 2,979 511
Restructuring charges 967 1,338 13,706 1,808
Asset related losses (gains), net 137 (216) 169 (559)
Income tax expense on adjustments (10,681) (390) (14,769) (1,295)
Adjusted earnings 33,071 30,071 10% 55,334 48,057 15%
------ ------ ------ ------
Adjusted earnings per diluted share $0.85 $0.79 8% $1.43 $1.27 13%
(a) Represents a charge related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims. See further description under Cumulative Trauma Product Liability Charge section of Press Release narrative.
Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company's performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.
About MSA:
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations. The company's comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military. MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, fire and rescue helmets, and fall protection devices. With 2016 revenues of $1.15 billion, MSA employs approximately 4,300 people worldwide. The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America. With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America. For more information visit MSA's web site at www.MSAsafety.com.
Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance. Forward looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"), including our most recent Form 10-K filed on February 28, 2017. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. MSA's SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.
Non-GAAP Financial Measures:
This earnings release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted earnings and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.
View original content with multimedia:http://www.prnewswire.com/news-releases/msa-announces-second-quarter-results-300499592.html
SOURCE MSA
