MSA Announces Fourth Quarter and Full Year 2018 Results
PITTSBURGH, Feb. 20, 2019 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the fourth quarter and full year of 2018.
Quarterly Highlights
-- Revenue was $362 million, increasing 5 percent from a year ago on a reported basis and 7 percent on an organic constant currency basis.
-- GAAP earnings were $25 million or $0.64 per diluted share, compared to a GAAP loss of $33 million or $0.87 per diluted share in the same period a year ago. Adjusted earnings were $50 million or $1.27 per diluted share, compared to $51 million or $1.31 per diluted share in the same period a year ago.
-- Operating cash flow was $81 million compared to $41 million a year ago. Free cash flow increased 114 percent from a year ago to $62 million. Free cash flow conversion exceeded 100 percent of net income, driven by strong management of working capital.
Annual Highlights
-- Revenue was $1.36 billion, increasing 13 percent from a year ago on a reported basis and 8 percent on an organic constant currency basis.
-- GAAP earnings were $124 million or $3.18 per diluted share, compared to $26 million or $0.67 per diluted share in the same period a year ago. Adjusted earnings increased 24 percent to $175 million or $4.50 per diluted share, compared to $141 million or $3.65 per diluted share in the same period a year ago. Strong organic revenue growth, the acquisition of Globe, a streamlined cost structure, and a lower effective tax rate were the key drivers of earnings growth in 2018.
-- Operating cash flow was $267 million compared to $230 million a year ago. Free cash flow increased 11 percent from a year ago to $230 million. Free cash flow conversion exceeded 100 percent of net income, driven by a 220 basis point improvement from a year ago in working capital as a percent of sales.
-- In 2018, the company invested more than $50 million in research and development, reduced its debt balance by $108 million, and returned $57 million to shareholders through dividend payments.
Comments from Management
"In the fourth quarter MSA delivered record revenue and drove meaningful improvements in working capital, which resulted in free cash flow that more than doubled from a year ago," said Nish Vartanian, MSA President and CEO. He added that MSA's backlog remained elevated at the end of 2018, despite the notable uptick in quarterly invoicing.
The company realized strong growth across its core product portfolio, supported by investments in new product development. "It was certainly exciting to see continued growth in our fire service business, led by deliveries of our market-leading G1 SCBA to large fire departments in the U.S., Latin America, and Asia-Pacific," Mr. Vartanian continued. "On the industrial side of our business, we realized double-digit growth in our personal protective equipment product lines, where we've invested heavily to develop what we believe are the most comfortable and customizable hard hat and fall protection solutions available today."
"Our global teams remain committed to executing the profitable growth strategy that has helped us drive outstanding financial performance over the past several years," he said. Demonstrating these improvements, MSA posted full year revenue growth of 13 percent, adjusted earnings growth of 24 percent, and free cash flow conversion well in excess of 100 percent of net income in 2018. "As we enter 2019 - our 105th year in business - our strong balance sheet and healthy incremental margin profile position us well to build on this success and continue creating value for shareholders," Mr. Vartanian concluded.
MSA Safety Incorporated Condensed Consolidated Statement of Income (Unaudited) (In thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2018 2017 2018 2017 --- Net sales $ 361,784 $ 346,140 $ 1,358,104 $ 1,196,809 Cost of products sold 199,397 192,138 746,241 657,918 Gross profit 162,387 154,002 611,863 538,891 Selling, general and administrative 84,558 76,321 324,784 300,062 Research and development 12,944 14,779 52,696 50,061 Restructuring charges 3,024 712 13,247 17,632 Currency exchange (gains) losses, net (241) 1,133 2,330 5,127 Other operating expense 19,858 93,476 45,327 126,432 Operating income (loss) 42,244 (32,419) 173,479 39,577 Interest expense 4,427 4,794 18,881 15,360 Loss on extinguishment of debt - 1,494 Other income, net (939) (1,152) (9,231) (5,558) Total other expense, net 3,488 3,642 11,144 9,802 Income (loss) before income taxes 38,756 (36,061) 162,335 29,775 Provision (benefit) for income taxes 13,614 (3,487) 37,220 2,819 Net income (loss) 25,142 (32,574) 125,115 26,956 Net income attributable to noncontrolling interests (259) (410) (965) (929) Net income (loss) attributable to MSA Safety 24,883 (32,984) 124,150 26,027 Incorporated Earnings per share attributable to MSA Safety Incorporated common shareholders: Basic $ 0.65 $ (0.87) $ 3.23 $ 0.68 Diluted $ 0.64 $ (0.87) $ 3.18 $ 0.67 Basic shares outstanding 38,465 38,079 38,362 37,997 Diluted shares outstanding 39,104 38,079 38,961 38,697
MSA Safety Incorporated Condensed Consolidated Balance Sheet (Unaudited) (In thousands) December 31, 2018 December 31, 2017 --- Assets Cash and cash equivalents $ 140,095 $ 134,244 Trade receivables, net 245,032 244,198 Inventories 156,602 153,739 Investments, short-term 55,106 Notes receivable, insurance companies 3,555 17,333 Other current assets 56,233 72,783 Total current assets 656,623 622,297 Property, net 157,940 157,014 Prepaid pension cost 57,568 83,060 Goodwill 413,640 422,185 Notes receivable, insurance companies, noncurrent 56,012 59,567 Insurance receivable, noncurrent 56,866 123,089 Other noncurrent assets 209,363 217,614 Total assets $ 1,608,012 $ 1,684,826 Liabilities and shareholders' equity Notes payable and current portion of long-term debt, net $ 20,063 $ 26,680 Accounts payable 78,367 87,061 Other current liabilities 183,630 175,538 Total current liabilities 282,060 289,279 Long-term debt, net 341,311 447,832 Pensions and other employee benefits 166,101 170,773 Deferred tax liabilities 7,164 9,341 Other noncurrent liabilities 171,857 165,023 Total shareholders' equity 639,519 602,578 Total liabilities and shareholders' equity $ 1,608,012 $ 1,684,826
MSA Safety Incorporated Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands) Three Months Ended Twelve Months Ended December 31, December 31, 2018 2017 2018 2017 --- Net income (loss) $ 25,142 $ (32,574) $ 125,115 $ 26,956 Depreciation and amortization 9,267 10,212 37,852 37,877 Change in working capital and other operating 46,208 63,452 103,847 165,503 Cash flow from operating activities 80,617 41,090 266,814 230,336 Capital expenditures (18,267) (11,995) (36,887) (23,725) Acquisition, net of cash acquired - (2,318) (216,308) Change in short-term investments 2,068 (55,022) Property disposals and other investing 586 103 4,587 832 Cash flow used in investing activities (15,613) (14,210) (87,322) (239,201) Change in debt (26,941) 1,346 (107,616) 77,246 Cash dividends paid (14,643) (13,337) (57,248) (52,537) Company stock purchases under repurchase program - (11,781) Other financing 2,170 5,466 1,595 12,675 Cash flow (used in) from financing activities (39,414) (6,525) (163,269) 25,603 Effect of exchange rate changes on cash, cash (3,556) 4,567 (13,508) 6,189 equivalents and restricted cash Increase in cash, cash equivalents and restricted cash 22,034 24,922 2,715 22,927
MSA Safety Incorporated Segment Information (Unaudited) (In thousands) Americas International Corporate Consolidated --- Three Months Ended December 31, 2018 Sales to external customers $ 220,475 $ 141,309 $ 361,784 Operating income 42,244 Operating margin % 11.7% Restructuring and other charges 3,024 Currency exchange (gains), net (241) Other operating expense 19,858 Strategic transaction costs 213 Adjusted operating income (loss) 55,383 17,906 (8,191) $ 65,098 Adjusted operating margin % 25.1% 12.7% 18.0% Twelve Months Ended December 31, 2018 Sales to external customers $ 854,287 $ 503,817 $ 1,358,104 Operating income 173,479 Operating margin % 12.8% Restructuring and other charges 13,247 Currency exchange losses, net 2,330 Other operating expense 45,327 Strategic transaction costs 421 Adjusted operating income (loss) 206,839 59,866 (31,901) $ 234,804 Adjusted operating margin % 24.2% 11.9% 17.3% Americas International Corporate Consolidated --- Three Months Ended December 31, 2017 Sales to external customers $ 208,421 $ 137,719 $ 346,140 Operating loss (32,419) Operating margin % (9.4)% Restructuring charges 712 Currency exchange losses, net 1,133 Other operating expense 93,476 Strategic transaction costs 860 Adjusted operating income (loss) 50,502 20,245 (6,985) $ 63,762 Adjusted operating margin % 24.2% 14.7% 18.4% Twelve Months Ended December 31, 2017 Sales to external customers $ 736,847 $ 459,962 $ 1,196,809 Operating income 39,577 Operating margin % 3.3% Restructuring charges 17,632 Currency exchange losses, net 5,127 Other operating expense 126,432 Strategic transaction costs 4,225 Adjusted operating income (loss) 175,589 50,391 (32,987) $ 192,993 Adjusted operating margin % 23.8% 11.0% 16.1%
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 charges, currency exchange gains / losses, other operating expense and strategic transaction costs. 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) Organic constant currency revenue growth (Unaudited) Consolidated Three Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non- Net Sales Apparatus Helmets Head Gas and Flame Protection Sales Core and Protection Detection Detection Sales Protective Apparel(b) GAAP reported sales change 9 (1)% 10 2 (4)% 11 4 10 5 % % % % % % % Plus: Currency translation effects 2 1 3 2 3 4 2 4 2 % % % % % % % % % Constant currency sales change 11 % 13 4 (1)% 15 6 14 7 % % % % % % % --- Less: Acquisitions - % % % % % % % % % --- Organic constant currency change 11 % 13 4 (1)% 15 6 14 7 % % % % % % % === Twelve Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non-Core Apparatus Helmets Head Gas and Flame Protection Sales Sales and Protection Detection Detection Protective Apparel(b) Net Sales GAAP reported sales change 11 64 10 10 6 11 15 5 13 % % % % % % % % % Plus: Currency translation effects - % % 2 % % (1)% (1)% % % % Constant currency sales change 11 64 12 10 5 10 15 5 13 % % % % % % % % % --- Less: Acquisitions - % 69 % % % % 7 % 5 % % % --- Organic constant currency change 11 (5)% 12 10 5 10 8 5 8 % % % % % % % % === (b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.
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. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic 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 these non-GAAP financial measures.
MSA Safety Incorporated Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Constant currency revenue growth (Unaudited) Organic constant currency revenue growth (Unaudited) Americas Segment Three Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non- Net Sales Apparatus Helmets Head Gas and Flame Protection Sales Core and Protection Detection Detection Sales Protective Apparel(b) GAAP reported sales change 5 4 6 7 13 2 6 % 6 % % % % % % % % Plus: Currency translation effects 1 % 3 1 (1)% 3 1 3 1 % % % % % % % Constant currency sales change 6 4 9 8 12 5 7 3 7 % % % % % % % % % --- Less: Acquisitions - % % % % % % % % % --- Organic constant currency change 6 4 9 8 12 5 7 3 7 % % % % % % % % % === Twelve Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non- Net Sales Apparatus Helmets Head Gas and Flame Protection Sales Core and Protection Detection Detection Sales Protective Apparel(b) GAAP reported sales change 8 96 8 11 10 13 19 (3)% 16 % % % % % % % % Plus: Currency translation effects - % 1 3 1 % % 1 2 1 % % % % % % Constant currency sales change 8 97 11 12 10 13 20 (1)% 17 % % % % % % % % --- Less: Acquisitions - % 99 % % % % 10 % 9 % % % --- Organic constant currency change 8 (2)% 11 12 10 13 10 % 8 % % % % % % % === (b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.
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. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic 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 these non-GAAP financial measures.
MSA Safety Incorporated Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Constant currency revenue growth (Unaudited) Organic constant currency revenue growth (Unaudited) International Segment Three Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non- Net Sales Apparatus Helmets Head Gas and Flame Protection Sales Core and Protection Detection Detection Sales Protective Apparel(b) GAAP reported sales change 15 (15)% 24 % % % % % (6)% (16)% 23 % 21 3 Plus: Currency translation effects 4 3 5 % % % % % % % % % 4 4 6 4 5 4 Constant currency sales change 19 (12)% 29 % % % % % % (2)% (12)% 29 4 26 7 --- Less: Acquisitions - % % % % % % % % % --- Organic constant currency change 19 (12)% 29 % % % % % % (2)% (12)% 29 4 26 7 === Twelve Months Ended December 31, 2018 Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non- Net Sales Apparatus Helmets Head Gas and Flame Protection Sales Core and Protection Detection Detection Sales Protective Apparel(b) GAAP reported sales change 18 (2)% 15 % % % % % % % % 8 2 8 8 16 10 Plus: Currency translation effects (2)% (4)% % (2)% (2)% (1)% (2)% (2)% (2)% Constant currency sales change 16 (6)% 15 % % % % % % % 6 % 7 6 14 8 --- Less: Acquisitions - % 1 % % % % % % 1 % % --- Organic constant currency change 16 (7)% 15 % % % % % % % 6 % 7 6 14 7 === (b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.
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. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic 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 these non-GAAP financial measures.
MSA Safety Incorporated Supplemental Segment Information (Unaudited) Summary of constant currency revenue growth by segment and product group Three Months Ended December 31, 2018 Consolidated Americas International --- Fall Protection 15 5 % % % 29 Industrial Head Protection 13 9 % % % 29 Breathing Apparatus 11 6 % % % 19 Portable Gas Detection 4 8 % % % (2) Firefighter Helmets and Protective Apparel(b) - % 4 % % (12) Fixed Gas and Flame Detection (1) 12 % % % (12) --- Core Sales 6 7 % % % 4 --- 6 7 % % Core excluding Acquisitions % 4 Non-Core Sales 14 3 % % % 26 Net Sales 7 7 % % % 7 === 7 7 % % Net Sales excluding Acquisitions % 7 Twelve Months Ended December 31, 2018 Consolidated Americas International --- Fall Protection 10 13 % % % 7 Industrial Head Protection 12 11 % % % 15 Breathing Apparatus 11 8 % % % 16 Portable Gas Detection 10 12 % % % 6 Firefighter Helmets and Protective Apparel(b) 64 97 % % % (6) Fixed Gas and Flame Detection 5 10 % % % --- Core Sales 15 20 % % % 6 --- 8 10 % % Core excluding Acquisitions % 6 Non-Core Sales 5 (1) % % % 14 Net Sales 13 17 % % % 8 === 8 8 % % Net Sales excluding Acquisitions % 7 (b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.
MSA Safety Incorporated Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Free Cash Flow (Unaudited) (In thousands, except percentages) Three Months Ended Twelve Months Ended December 31, December 31, 2018 2017 % Change 2018 2017 % Change --- Cash flow from operating $ 80,617 $ 41,090 96% $ 266,814 $ 230,336 16% activities Capital expenditures (18,267) (11,995) (36,887) (23,725) Free cash flow $ 62,350 $ 29,095 114% $ 229,927 $ 206,611 11% Net income (loss) attributable 24,883 (32,984) 124,150 26,027 to MSA Safety Incorporated Free cash flow conversion 251% (88)% 185% 794%
Management believes that free cash flow is a meaningful measure for investors. Management reviews cash from operations after deducting capital expenditures because these expenditures are necessary to promote growth of MSA's business and are likely to produce cash from operations in future periods. It is important to note that free cash flow does not reflect the residual cash balance of the company for discretionary spending since other items, including debt and dividend payments, are deducted from free cash flow before arriving at the company's ending cash balance. Management defines free cash flow conversion as free cash flow divided by net income attributable to MSA. There can be no assurances that MSA's definition of free cash flow is consistent with that of other companies. As such, management believes that it is appropriate to consider cash from operating activities determined on a GAAP basis as well as free cash flow.
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 December 31, Twelve Months Ended December 31, 2018 2017 % 2018 2017 % Change Change Net income (loss) attributable 24,883 (32,984) (175)% 124,150 26,027 377% to MSA Safety Incorporated Tax charges associated with 4,475 19,817 2,518 19,817 U.S. Tax Reform Tax (benefit) associated with (225) (1,413) (2,531) (8,323) ASU 2016-09: Improvements to employee share-based payment accounting Tax charges (benefits) 1,794 (30) 1,794 (2,504) associated with restructuring activities Subtotal 30,927 (14,610) (312)% 125,931 35,017 260% Other operating expense 19,858 93,476 45,327 126,432 Restructuring charges 3,024 712 13,247 17,632 Strategic Transaction Costs 213 860 421 4,225 Asset related losses and 68 492 1,978 678 other, net Currency exchange (gains) (241) 1,133 2,330 5,127 losses, net Income tax expense on (4,155) (31,443) (13,800) (47,810) adjustments Adjusted earnings $ 49,694 $ 50,620 (2)% $ 175,434 $ 141,301 24% Adjusted earnings per diluted $ 1.27 $ 1.31 (3)% $ 4.50 $ 3.65 23% share
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, firefighter helmets and protective apparel, and fall protection devices. With 2018 revenues of $1.4 billion, MSA employs approximately 4,800 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 22, 2018. 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 press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, organic constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted earnings, adjusted earnings per diluted share and free cash flow. 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.
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