MSA Safety Announces Third Quarter Results
PITTSBURGH, Oct. 23, 2019 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2019.
Quarterly Highlights
-- Revenue was $351 million, increasing 6 percent from a year ago on a
reported basis and 8 percent on a constant currency basis.
-- GAAP operating income increased 49 percent to $60 million or 17.0
percent of sales, compared to $40 million or 12.1 percent of sales in
the same period a year ago. Adjusted operating income increased 11
percent to $63 million or 18.0 percent of sales, compared to $57 million
or 17.2 percent of sales in the same period a year ago, driven by gross
margin expansion and operating expense leverage.
-- GAAP earnings increased 25 percent to $42 million or $1.08 per diluted
share, compared to $34 million or $0.86 per diluted share in the same
period a year ago. Adjusted earnings were $45 million or $1.15 per
diluted share, relatively consistent with the same period a year ago.
The company's higher effective tax rate detracted $0.07 from adjusted
earnings in the current period.
-- Operating cash flow was $51 million. MSA paid down $24 million of debt,
funded a $16 million dividend on common stock, and invested $10 million
in capital expenditures in the quarter.
Comments from Management
"MSA delivered a strong quarter of revenue growth, margin expansion and cash flow," commented Nish Vartanian, MSA President and CEO. "The pace of our top-line growth accelerated in the quarter to 8 percent, largely on continued market-share gains in fall protection and gas detection."
MSA's latest innovations in these product areas include the company's V-Series line of fall protection harnesses and the 5000 series of next generation fixed gas monitors. For the quarter, more than 35 percent of MSA's total sales were from products introduced within the past five years. "This focus on innovation, combined with cost discipline and our continued efforts to enhance productivity, all contributed to our incremental margin profile of more than 30 percent," he said.
Mr. Vartanian noted that the benefits of MSA's broad end market exposure and diversified portfolio were evident in the company's quarterly results. "We were able to realize high-single digit revenue growth despite product certification delays that we - and all manufacturers of firefighting breathing equipment - had to deal with in the U.S. Fire Service market during the third quarter," he commented. In particular, he noted that the certification and launch of the company's next generation G1 self-contained breathing apparatus (SCBA) occurred on September 30, 2019, approximately six weeks later than expected. Mr. Vartanian added that the related impact of lower SCBA volumes in the quarter was mostly offset by revenue growth in firefighter helmets and protective apparel.
"Incoming order pace gained momentum in the quarter with a book-to-bill ratio exceeding 100 percent. With this healthy backlog and a strong balance sheet, we remain well positioned to deliver on our growth expectations for 2019 and make investments that strengthen our positions across key markets," Mr. Vartanian concluded.
MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019 2018 2019 2018
---
Net sales $
351,014 $
331,096 $
1,026,726 $
996,320
Cost of products sold 192,313 182,794 556,959 546,844
Gross profit 158,701 148,302 469,767 449,476
Selling, general and administrative 82,900 78,013 245,337 240,226
Research and development 13,520 13,296 41,482 39,752
Restructuring charges 1,850 2,615 11,203 10,223
Currency exchange (gains) losses, net (a) (913) (252) 17,338 2,571
Product liability expense 1,730 14,627 8,155 25,469
Operating income 59,614 40,003 146,252 131,235
Interest expense 4,259 4,492 11,089 14,454
Loss on extinguishment of debt - 1,494 1,494
Other income, net (2,929) (4,252) (8,850) (8,292)
Total other expense, net 1,330 1,734 2,239 7,656
Income before income taxes 58,284 38,269 144,013 123,579
Provision for income taxes 15,673 4,206 37,913 23,606
Net income 42,611 34,063 106,100 99,973
Net income attributable to noncontrolling interests (372) (346) (822) (706)
Net income attributable to MSA Safety Incorporated $
42,239 $
33,717 $
105,278 $
99,267
Earnings per share attributable to MSA Safety
Incorporated common shareholders:
Basic $
1.09 $
0.88 $
2.72 $
2.59
Diluted $
1.08 $
0.86 $
2.69 $
2.55
Basic shares outstanding 38,649 38,417 38,617 38,328
Diluted shares outstanding 39,144 39,036 39,130 38,914
(a)
Year-to-date currency exchange losses includes a $15.4 million non-cash charge related to the recognition of currency translation adjustments associated with the closure of MSA's South Africa affiliates.
MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
September 30, 2019 December 31, 2018
---
Assets
Cash and cash equivalents $
108,481 $
140,095
Trade receivables, net 248,406 245,032
Inventories 192,199 156,602
Notes receivable, insurance companies 3,646 3,555
Other current assets 133,696 111,339
Total current assets 686,428 656,623
Property, net 158,957 157,940
Operating lease assets, net 50,470
Prepaid pension cost 68,387 57,568
Goodwill 428,629 413,640
Notes receivable, insurance companies, noncurrent 51,980 56,012
Insurance receivable, noncurrent 48,029 56,866
Other noncurrent assets 206,263 209,363
Total assets $
1,699,143 $
1,608,012
Liabilities and shareholders' equity
Notes payable and current portion of long-term debt, net $
20,000 $
20,063
Accounts payable 69,773 78,367
Other current liabilities 172,435 183,630
Total current liabilities 262,208 282,060
Long-term debt, net 352,073 341,311
Pensions and other employee benefits 163,342 166,101
Noncurrent operating lease liabilities 40,836
Deferred tax liabilities 11,251 7,164
Product liability and other noncurrent liabilities 161,128 171,857
Total shareholders' equity 708,305 639,519
Total liabilities and shareholders' equity $
1,699,143 $
1,608,012
MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019 2018 2019 2018
---
Net income $
42,611 $
34,063 $
106,100 $
99,973
Depreciation and amortization 9,547 9,378 28,339 28,585
Change in working capital and other operating (1,453) 77,374 (46,189) 57,639
Cash flow from operating activities 50,705 120,815 88,250 186,197
Capital expenditures (9,998) (9,808) (23,523) (18,620)
Acquisition, net of cash acquired - (33,196)
Change in short-term investments 113 (57,090) (17,189) (57,090)
Property disposals 42 942 123 4,001
Cash flow used in investing activities (9,843) (65,956) (73,785) (71,709)
Change in debt (24,127) (38,390) 12,937 (80,675)
Cash dividends paid (16,281) (14,624) (47,215) (42,605)
Other financing 836 (1,313) (6,555) (575)
Cash flow used in financing activities (39,572) (54,327) (40,833) (123,855)
Effect of exchange rate changes on cash, (4,393) (1,822) (5,378) (9,952)
cash equivalents and restricted cash
Decrease in cash, cash equivalents and $
(3,103) $
(1,290) $
(31,746) $
(19,319)
restricted cash
MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands, except percentage amounts)
Americas International Corporate Consolidated
---
Three Months Ended September 30, 2019
Sales to external customers $
234,624 $
116,390
$ $
351,014
Operating income 59,614
Operating margin % 17.0
%
Restructuring charges 1,850
Currency exchange (gains), net (913)
Product liability expense 1,730
Strategic transaction costs 952
Adjusted operating income (loss) 58,971 13,776 (9,514) 63,233
Adjusted operating margin % 25.1
% 11.8
% 18.0
%
Depreciation and amortization 9,547
Adjusted EBITDA 65,342 16,854 (9,416) 72,780
Adjusted EBITDA % 27.8
% 14.5
% 20.7
%
Three Months Ended September 30, 2018
Sales to external customers $
209,343 $
121,753
$ $
331,096
Operating income 40,003
Operating margin % 12.1
%
Restructuring charges 2,615
Currency exchange (gains), net (252)
Product liability expense 14,627
Strategic transaction costs 56
Adjusted operating income (loss) 51,532 13,329 (7,812) 57,049
Adjusted operating margin % 24.6
% 10.9
% 17.2
%
Depreciation and amortization 9,378
Adjusted EBITDA 57,573 16,559 (7,705) 66,427
Adjusted EBITDA % 27.5
% 13.6
% 20.1
%
Americas International Corporate Consolidated
---
Nine Months Ended September 30, 2019
Sales to external customers $
679,699 $
347,027
$ $
1,026,726
Operating income 146,252
Operating margin % 14.2
%
Restructuring charges 11,203
Currency exchange losses, net 17,338
Product liability expense 8,155
Strategic transaction costs 2,937
Adjusted operating income (loss) 171,463 39,888 (25,466) 185,885
Adjusted operating margin % 25.2
% 11.5
% 18.1
%
Depreciation and amortization 28,339
Adjusted EBITDA 190,084 49,313 (25,173) 214,224
Adjusted EBITDA % 28.0
% 14.2
% 20.9
%
Nine Months Ended September 30, 2018
Sales to external customers $
633,812 $
362,508
$ $
996,320
Operating income 131,235
Operating margin % 13.2
%
Restructuring charges 10,223
Currency exchange losses, net 2,571
Product liability expense 25,469
Strategic transaction costs 208
Adjusted operating income (loss) 151,456 41,960 (23,710) 169,706
Adjusted operating margin % 23.9
% 11.6
% 17.0
%
Depreciation and amortization 28,585
Adjusted EBITDA 169,691 52,001 (23,401) 198,291
Adjusted EBITDA % 26.8
% 14.3
% 19.9
%
The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations in all geographies outside of the Americas. 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), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA 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), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring
charges, currency exchange gains /losses, product liability expense and strategic transaction costs and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating
income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA 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), adjusted operating margin, adjusted EBITDA and adjusted
EBITDA 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 September 30, 2019
Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non-Core Net
Apparatus Helmets Head Gas and Flame Protection Sales Sales Sales
and Protection Detection Detection
Protective
Apparel
GAAP reported (11) 19 2 12 17 24 7 (3) 6
% % % % % % %
% %
sales change
Plus: Currency 1 2 2 2 1 3 2 2 2
%
% % % % % %
% %
translation effects
---
Constant currency (10) 21 4 14 18 27 9 (1) 8
% % % % % % %
% %
sales change
---
Nine Months Ended September 30, 2019
Breathing Firefighter Industrial Portable Fixed Gas Fall Core Non-Core Net
Apparatus Helmets Head Gas and Flame Protection Sales Sales Sales
and Protection Detection Detection
Protective
Apparel
GAAP reported (4) 6 1 4 9 21 4 (6) 3
% % % % % % %
% %
sales change
Plus: Currency 2 2 2 2 3 4 3 3 2
%
% % % % % %
% %
translation effects
---
Constant currency (2) 8 3 6 12 25 7 (3) 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
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Americas Segment
Three Months Ended September 30, 2019
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 Net Sales
GAAP reported (8) 15 1 13 27 40 11 22 12
% % % % % % % % %
sales change
Plus: Currency -
% 1 1 1
% 1 % 1 1
% % % % % %
translation effects
---
Constant currency (8) 16 2 14 27 41 11 23 13
% % % % % % % % %
sales change
---
Nine Months Ended September 30, 2019
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 Net Sales
GAAP reported 1 6
% 4 16 31 7 9 7
%
% % % % % % %
sales change
Plus: Currency -
%
% 1 1
% 1 1 1 1
% % % % % %
translation effects
---
Constant currency 1 6 1 5 16 32 8 10 8
%
% % % % % % % %
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 September 30, 2019
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 Net Sales
GAAP reported (17) 43 6 10 6 2 1 (28) (4)
% % % % % % % % %
sales change
Plus: Currency 3 6 3 3 3 5 3 3 3
% %
% % % % % % %
translation effects
---
Constant currency (14) 49 9 13 9 7 4 (25) (1)
% % % % % % % % %
sales change
---
Nine Months Ended September 30, 2019
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 Net Sales
GAAP reported (12) 8 5 3 2 8 % (21) (4)
% % % % % % % %
sales change
Plus: Currency 5 7 6 6 5 6 5 4 5
% %
% % % % % % %
translation effects
---
Constant currency (7) 15 11 9 7 14 5 (17) 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
Supplemental Segment Information (Unaudited)
Summary of constant currency revenue growth by segment and product group
Three Months Ended September 30, 2019
Consolidated Americas International
---
Fall Protection 27 41
% %
% 7
Firefighter Helmets and Protective Apparel 21 16
% %
% 49
Fixed Gas and Flame Detection 18 27
% %
% 9
Portable Gas Detection 14 14
% %
% 13
Industrial Head Protection 4 2
% %
% 9
Breathing Apparatus (10) (8)
% %
% (14)
---
Core Sales 9 11
% %
% 4
---
Non-Core Sales (1) 23
% %
% (25)
Net Sales 8 13
% %
% (1)
===
Nine Months Ended September 30, 2019
Consolidated Americas International
---
Fall Protection 25 32
% %
% 14
Firefighter Helmets and Protective Apparel 8 6
% %
% 15
Fixed Gas and Flame Detection 12 16
% %
% 7
Portable Gas Detection 6 5
% %
% 9
Industrial Head Protection 3 1
% %
% 11
Breathing Apparatus (2) 1
% %
% (7)
---
Core Sales 7 8
% %
% 5
---
Non-Core Sales (3) 10
% %
% (17)
Net Sales 5 8
% %
% 1
===
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
Nine Months Ended
September 30, September 30,
2019 2018
% 2019 2018
%
Change Change
Net income attributable to MSA Safety Incorporated $
42,239 $
33,717 25% 105,278 99,267 6%
Tax (benefit) associated with U.S. Tax Reform - (1,956) (1,956)
Non-deductible non-cash charge related to the recognition of currency translation adjustments
(a) - 15,359
Tax benefit associated with ASU 2016-09: Improvements to employee share-based payment
accounting (187) (430) (2,180) (2,306)
Subtotal 42,052 31,331 34% 118,457 95,005 25%
Product liability expense 1,730 14,627 8,155 25,469
Restructuring charges 1,850 2,615 11,203 10,223
Strategic transaction costs 952 56 2,937 208
Currency exchange (gains) losses, net (913) (252) 1,979 2,571
Loss on extinguishment of debt - 1,494 1,494
Asset related losses (gains), net 38 (733) 271 415
Income tax expense on adjustments (878) (4,024) (5,912) (9,645)
Adjusted earnings $
44,831 $
45,114 (1)% $
137,090 $
125,740 9%
Adjusted earnings per diluted share $
1.15 $
1.16 (1)% $
3.50 $
3.23 8%
(a)
Included in Currency exchange (gains) losses, net on the Statement of Income.
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, 2019. 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, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA 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.
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