LYDALL, INC. (NYSE:LDL) today announced financial results for the
first quarter ended March 31, 2017.
HIGHLIGHTS - Q1 2017 vs. Q1
2016
GAAP Financials
- Net sales of $165.5 million, up 27.6% from $129.7 million
– Technical Nonwovens' acquisitions contributed $26.3
million, or 20.3%
- Gross margin of 24.4%, down 60 basis points
- Operating margin of 9.0%, down 150 basis points –
Includes 60 basis points of incremental intangibles
amortization from acquisitions – Includes 50 basis
points of a non-cash asset impairment charge
- Earnings per share ("EPS") of $0.68, up 25.9%, from $0.54
– Effective tax rate of 17.6% includes a 11.4%, or $0.09 per
share, benefit from stock vesting
Non-GAAP Financial
Measures*
- Organic sales growth of 11.1%
- Adjusted gross margin of 25.0%, flat with Q1 2016
- Adjusted operating margin of 10.0%, down 100 basis points
- Adjusted earnings per share of $0.74, up 32.1%, from $0.56 per
share
- Adjusted EBITDA margin of 13.8%, down 60 basis points
*Reconciliations of the Non-GAAP financial
measures to Lydall’s GAAP financial results are included at the end
of this release. See also “Use of Non-GAAP Financial
Measures” below.
Dale G. Barnhart, President and Chief Executive
Officer, stated, “I am pleased to report that Lydall delivered
11.1% organic sales growth and 32.1% adjusted EPS growth in the
quarter. Organic growth was broad based with expansion across
all segments. Thermal/Acoustical Fibers, Thermal/Acoustical
Metals and Performance Materials segments delivered 14.8%, 13.6%
and 10.4% growth, respectively, on strong market demand and
favorable positioning. Reversing trends in prior quarters,
the Technical Nonwovens segment delivered 8.5% organic growth on
increased sales of advanced materials and improved demand from
domestic power generation customers. Net sales from our
recent acquisitions of Texel and Gutsche exceeded expectations, and
our synergy programs remain on track. Adjusted gross margin
was flat as the Thermal/Acoustical Fibers and Performance Materials
segments delivered improved gross margins on strength in volume and
mix, offset by unfavorable mix in Technical Nonwovens and
continued, but improving, operational performance issues coupled
with commodity cost increases in Thermal/Acoustical Metals.
As expected, while we have made progress in our operational
execution, we continued to see inefficiencies in Thermal/Acoustical
Metals as this segment works to adjust to increased demand and
changing product mix. Corrective actions continue to be
implemented, notably including a reduction in force in Europe which
resulted in severance expenses of $0.7 million in the quarter.”
Q1 2017 Results
Net sales increased 27.6% to $165.5 million,
compared to $129.7 million in the first quarter of 2016. The
Technical Nonwovens ("TNW") segment reported increased net sales of
$27.7 million, including $26.3 million from acquisitions.
TNW’s 8.5% organic growth was driven by strong advanced materials
sales and improving filtration demand in domestic power generation
markets. Organic growth of 10.4% in the Performance Materials
("PM") segment was driven by both improved market demand for
filtration products and some recovery in the insulation and
cryogenics markets. The Thermal/Acoustical Fibers ("T/A
Fibers") and Thermal/Acoustical Metals ("T/A Metals") segments were
positively impacted by increased parts sales of 14.9% and 13.4%,
respectively, due to increased demand and new platform
launches.
Gross margin was 24.4%, down 60 basis points
compared to 25.0% in the first quarter of 2016. The TNW
segment negatively impacted consolidated gross margin by
approximately 70 basis points, primarily related to mix and
inventory step-up from acquisitions. The T/A Metals segment
negatively impacted consolidated gross margin by approximately 60
basis points, primarily related to operating inefficiencies, higher
raw material commodity costs and reduction in force severance
expenses. The T/A Fibers and Performance Materials segments
favorably impacted consolidated gross margin primarily as a result
of favorable product mix. Adjusted gross margin of 25.0%,
excluding the inventory step up and severance expenses, was flat
with the prior year.
Operating margin was 9.0% compared to 10.5% in
the first quarter of 2016. Lower gross margin together with
increased selling, product development and administrative expenses
of $6.8 million, or 100 basis points as a percentage of sales,
contributed to lower operating margin. The Texel and Gutsche
acquisitions contributed $4.4 million of the increase in selling,
product development and administrative expenses, including
incremental intangibles amortization of $1.0 million, which
negatively impacted operating margin by 60 basis points.
Severance expenses of $1.0 million for reductions in force in the
T/A Metals and TNW segments negatively impacted operating margin by
60 basis points in the first quarter of 2017. An asset
impairment charge of $0.8 million in the Performance Materials
segment negatively impacted operating margin by 50 basis
points. Adjusted operating margin was 10.0%, excluding
inventory step up, severance and strategic initiatives expenses,
compared to 11.0% in the first quarter of 2016.
The Company's effective tax rate was 17.6%
compared to 33.1% in the first quarter of 2016. The effective
tax rate in the first quarter of 2017 was positively impacted by
11.4% due to stock vesting with the remainder driven by a favorable
mix of income in lower taxed jurisdictions.
Net income was $11.7 million, or $0.68 per
diluted share, compared to $9.2 million, or $0.54 per diluted share
in the first quarter of 2016. Adjusted earnings per share
increased 32.1% to $0.74, compared to $0.56 per share in the first
quarter of 2016.
Liquidity
The Company’s cash on hand of $62.5 million and
availability of $54.6 million from its domestic credit facility
provide additional capacity to support organic growth programs and
operational improvements, fund capital investments and continue
pursuits of attractive acquisitions. Cash flows from
operations in the first three months of 2017 was $12.4 million
compared with $12.8 million in the first three months of
2016. An increase in cash generated from improved net
income was offset primarily by increases in raw material inventory
and tooling inventory in preparation of new automotive platform
launches. At March 31, 2017, the Company’s net leverage ratio
(debt less cash divided by trailing twelve months EBITDA) was
approximately 0.7 times. During the first quarter of 2017,
the Company paid down $10.0 million of debt outstanding on its
domestic credit facility.
Outlook
Mr. Barnhart concluded, “We are pleased with
demand in our end markets and order activity remains solid. We are
encouraged by improving order activity and backlog in industrial
filtration focused applications in the Technical Nonwovens segment
and are entering the warm weather construction months that
traditionally drive increased demand for advanced materials
products. In the Performance Materials segment, we expect
steady demand in our filtration markets, and in the insulation
space we continue to see increased quoting and order activity in
liquid natural gas and energy related applications. We also
expect to continue to benefit from the relative strength of the
platforms we serve in our automotive segments. Operationally,
in the Thermal/Acoustical Metals segment, we continue to
aggressively implement productivity initiatives and the corrective
actions needed to realize operating improvement. Last, I'm
pleased to report continued progress integrating the Texel and
Gutsche businesses, including commencing the previously announced
restructuring plan that is expected to reduce operating costs,
increase efficiency and enhance the Company’s flexibility and
competitive position."
Conference Call
Lydall will host a conference call on May 3,
2017, at 3:30 p.m. Eastern Time to discuss results for its first
quarter ended March 31, 2017 as well as general matters related to
its businesses and markets. The call may be accessed at (888)
338-7142, from within the U.S., or (412) 902-4181,
internationally. In addition, the audio of the call will be
webcast live and will be available for replay on the Company's
website at www.lydall.com in the Investor Relations'
Section. A recording of the call will be available from 5:30
p.m. Eastern Time on May 3, 2017 through 11:59 p.m. Eastern Time,
May 10, 2017 at (877) 344-7529, from within the U.S., or (412)
317-0088, internationally, pass code 10105060. Additional
information, including a presentation outlining key financial data
supporting the conference call, can be found on the Company’s
website www.lydall.com under the Investors Relations’
Section.
Use of Non-GAAP Financial
Measures
In addition to the financial measures prepared
in accordance with generally accepted accounting principles
(“GAAP”), the Company uses certain non-GAAP financial measures,
including organic sales, adjusted gross profit, adjusted gross
margin, adjusted operating income, adjusted operating margin,
adjusted earnings per share, EBITDA and adjusted EBITDA. The
attached financial tables address the non-GAAP measures used in
this press release and reconcile non-GAAP measures to the most
directly comparable GAAP measures. The Company believes that
the use of non-GAAP measures helps investors gain a better
understanding of our core operating results and future prospects,
consistent with how management measures and forecasts the Company's
performance, especially when comparing such results to previous
periods or forecasts. Non-GAAP measures should be considered
in addition to, and not as a replacement for or superior to, the
corresponding GAAP measures, and may not be comparable to similarly
titled measures reported by other companies.
Cautionary Note Concerning
Forward-Looking Statements
This press release contains “forward-looking
statements” within the Private Securities Litigation Reform Act of
1995. Any statements contained in this press release that are
not statements of historical fact may be deemed to be
forward-looking statements. All such forward-looking
statements are intended to provide management’s current
expectations for the future operating and financial performance of
the Company based on current expectations and assumptions relating
to the Company’s business, the economy and other future
conditions. Forward-looking statements generally can be
identified through the use of words such as “believes,”
“anticipates,” “may,” “should,” “will,” “plans,” “projects,”
“expects,” “expectations,” “estimates,” “forecasts,” “predicts,”
“targets,” “prospects,” “strategy,” “signs,” and other words of
similar meaning in connection with the discussion of future
operating or financial performance. Because forward-looking
statements relate to the future, they are subject to inherent
risks, uncertainties and changes in circumstances that are
difficult to predict. Such risks and uncertainties which
include, among others, worldwide economic or political changes that
affect the markets that the Company’s businesses serve which could
have an effect on demand for the Company’s products and impact the
Company’s profitability, challenges encountered by the Company in
the integration of the Texel and Gutsche acquisitions, disruptions
in the global credit and financial markets, including diminished
liquidity and credit availability, changes in international trade
agreements, including tariffs and trade restrictions, foreign
currency volatility, swings in consumer confidence and spending,
unstable economic growth, raw material pricing and supply issues,
fluctuations in unemployment rates, retention of key employees,
increases in fuel prices, and outcomes of legal proceedings, claims
and investigations. Accordingly, the Company’s actual results
may differ materially from those contemplated by these
forward-looking statements. Investors, therefore, are
cautioned against relying on any of these forward-looking
statements. They are neither statements of historical fact
nor guarantees or assurances of future performance.
Additional information regarding the factors that may cause actual
results to differ materially from these forward-looking statements
is available in Lydall’s filings with the Securities and Exchange
Commission, including the risks and uncertainties identified in
Part I, Item 1A - Risk Factors of Lydall’s Annual Report on Form
10-K for the year ended December 31, 2016.
These forward-looking statements speak only as
of the date of this press release, and Lydall does not assume any
obligation to update or revise any forward-looking statement made
in this press release or that may from time to time be made by or
on behalf of the Company.
Lydall, Inc. is a New York Stock Exchange listed
company, headquartered in Manchester, Connecticut with global
manufacturing operations producing specialty engineered products
for the thermal/acoustical and filtration/separation markets. For
more information, visit http://www.lydall.com. Lydall® is a
registered trademark of Lydall, Inc. in the U.S. and other
countries.
|
|
|
|
Summary of
Operations |
|
|
|
In thousands except per
share data |
|
|
|
(Unaudited) |
|
|
|
|
Quarter Ended |
|
March 31, |
|
2017 |
|
2016 |
|
|
|
|
Net
sales |
$ |
165,487 |
|
|
$ |
129,700 |
|
Cost of sales |
125,063 |
|
|
97,323 |
|
Gross profit |
40,424 |
|
|
32,377 |
|
|
|
|
|
Selling, product
development and administrative expenses |
25,469 |
|
|
18,698 |
|
Operating income |
14,955 |
|
|
13,679 |
|
|
|
|
|
Interest expense |
606 |
|
|
144 |
|
Other expense (income),
net |
140 |
|
|
(167 |
) |
Income before income
taxes |
14,209 |
|
|
13,702 |
|
|
|
|
|
Income tax expense |
2,494 |
|
|
4,533 |
|
Loss from equity method
investment |
46 |
|
|
— |
|
Net
income |
$ |
11,669 |
|
|
$ |
9,169 |
|
|
|
|
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.69 |
|
|
$ |
0.54 |
|
Diluted |
$ |
0.68 |
|
|
$ |
0.54 |
|
|
|
|
|
Weighted average number
of common shares outstanding |
16,983 |
|
|
16,825 |
|
Weighted average number
of common shares and equivalents outstanding |
17,284 |
|
|
17,036 |
|
|
|
|
|
|
Summary of
Segment Information |
|
|
|
|
and Corporate
Office Expenses |
|
|
|
|
In thousands |
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
|
2017 |
|
2016 |
Net
Sales |
|
|
|
|
|
|
|
|
|
Performance Materials
Segment |
|
$ |
28,751 |
|
|
$ |
26,383 |
|
Technical Nonwovens
Segment |
|
58,918 |
|
|
31,207 |
|
Thermal/Acoustical
Metals Segment |
|
44,280 |
|
|
41,997 |
|
Thermal/Acoustical
Fibers Segment |
|
41,372 |
|
|
35,861 |
|
Eliminations and
Others |
|
(7,834 |
) |
|
(5,748 |
) |
Consolidated Net
Sales |
|
$ |
165,487 |
|
|
$ |
129,700 |
|
|
|
|
|
|
Operating
Income |
|
|
|
|
|
|
|
|
|
Performance Materials
Segment |
|
$ |
1,589 |
|
|
$ |
2,138 |
|
Technical Nonwovens
Segment |
|
4,668 |
|
|
3,926 |
|
Thermal/Acoustical
Metals Segment |
|
2,443 |
|
|
3,557 |
|
Thermal/Acoustical
Fibers Segment |
|
12,289 |
|
|
10,324 |
|
Corporate Office
Expenses |
|
(6,034 |
) |
|
(6,266 |
) |
Consolidated Operating
Income |
|
$ |
14,955 |
|
|
$ |
13,679 |
|
|
|
|
|
|
Financial
Position |
|
|
|
|
In thousands except
ratio data |
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
62,539 |
|
|
$ |
71,934 |
|
Working capital |
|
$ |
168,403 |
|
|
$ |
165,162 |
|
Total debt |
|
$ |
118,334 |
|
|
$ |
128,775 |
|
Stockholders'
equity |
|
$ |
286,809 |
|
|
$ |
273,456 |
|
Total
capitalization |
|
$ |
405,143 |
|
|
$ |
402,231 |
|
Total debt to total
capitalization |
|
29.2 |
% |
|
32.0 |
% |
|
|
|
|
|
Cash
Flows |
|
|
|
|
In thousands |
|
Quarter Ended |
(Unaudited) |
|
March 31, |
|
|
2017 |
|
2016 |
|
|
|
|
|
Net cash provided by
operating activities |
|
$ |
12,358 |
|
|
$ |
12,783 |
|
Net cash used for
investing activities |
|
$ |
(9,560 |
) |
|
$ |
(9,616 |
) |
Net cash used for
financing activities |
|
$ |
(12,809 |
) |
|
$ |
(10,537 |
) |
Depreciation and
amortization |
|
$ |
6,517 |
|
|
$ |
4,332 |
|
Capital
expenditures |
|
$ |
(9,560 |
) |
|
$ |
(9,616 |
) |
|
|
|
|
|
Common Stock
Data |
|
|
|
|
|
|
Quarter Ended March 31, |
|
|
2017 |
|
2016 |
|
|
|
|
|
High |
|
$ |
63.80 |
|
|
$ |
35.10 |
|
Low |
|
$ |
49.21 |
|
|
$ |
25.41 |
|
Close |
|
$ |
53.60 |
|
|
$ |
32.52 |
|
During the first quarter of 2017, 5,452,023 shares of Lydall
common stock (LDL) were traded on the New York Stock Exchange.
Non-GAAP MeasuresIn thousands except ratio and
per share data(Unaudited)
The following tables address the non-GAAP measures used in this
press release and reconcile the non-GAAP measures to the most
directly comparable GAAP measures:
|
|
Quarter Ended March 31, |
|
|
2017 |
|
2016 |
|
|
|
|
|
Net
sales |
|
$ |
165,487 |
|
|
$ |
129,700 |
|
|
|
|
|
|
Gross Profit,
as reported |
|
$ |
40,424 |
|
|
$ |
32,377 |
|
Inventory
step-up purchase accounting adjustments |
|
481 |
|
|
— |
|
Severance
expenses |
|
441 |
|
|
— |
|
Gross Profit,
adjusted |
|
$ |
41,346 |
|
|
$ |
32,377 |
|
|
|
|
|
|
Gross Margin,
as reported |
|
24.4 |
% |
|
25.0 |
% |
Gross Margin,
adjusted |
|
25.0 |
% |
|
25.0 |
% |
|
|
|
|
|
Operating
income, as reported |
|
$ |
14,955 |
|
|
$ |
13,679 |
|
Strategic
initiatives expenses |
|
160 |
|
|
561 |
|
Inventory
step-up purchase accounting adjustments |
|
481 |
|
|
— |
|
Severance
expenses |
|
988 |
|
|
— |
|
Operating
income, adjusted |
|
$ |
16,584 |
|
|
$ |
14,240 |
|
|
|
|
|
|
Operating
margin, as reported |
|
9.0 |
% |
|
10.5 |
% |
Operating
margin, adjusted |
|
10.0 |
% |
|
11.0 |
% |
|
|
|
|
|
Diluted
earnings per share, reported |
|
$ |
0.68 |
|
|
$ |
0.54 |
|
Strategic
initiatives expenses |
|
$ |
0.01 |
|
|
$ |
0.03 |
|
Inventory
step-up purchase accounting adjustments |
|
$ |
0.03 |
|
|
$ |
— |
|
Severance
expenses |
|
$ |
0.06 |
|
|
$ |
— |
|
Tax effect of
above adjustments |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
Diluted
earnings per share, adjusted |
|
$ |
0.74 |
|
|
$ |
0.56 |
|
This press release reports adjusted results for
the quarters ended March 31, 2017 and 2016, which excludes
strategic initiatives expenses, purchase accounting adjustments
related to inventory step-up in the Technical Nonwovens segment and
severance expenses for reductions in force in the
Thermal/Acoustical Metals and Technical Nonwovens segments.
EBITDAIn thousands except ratio
data(Unaudited)
|
|
For the Quarters Ended March 31, |
|
|
2017 |
|
% of sales |
|
2016 |
|
% of sales |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,669 |
|
|
|
|
$ |
9,169 |
|
|
|
Interest expense |
|
606 |
|
|
|
|
144 |
|
|
|
Income tax expense |
|
2,494 |
|
|
|
|
4,533 |
|
|
|
Depreciation and
amortization |
|
6,517 |
|
|
|
|
4,332 |
|
|
|
EBITDA |
|
$ |
21,286 |
|
|
12.9 |
% |
|
$ |
18,178 |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
Strategic
initiatives expenses |
|
$ |
160 |
|
|
|
|
$ |
561 |
|
|
|
Inventory
step-up purchase accounting adjustments |
|
481 |
|
|
|
|
— |
|
|
|
Severance
expenses |
|
988 |
|
|
|
|
— |
|
|
|
EBITDA, adjusted |
|
$ |
22,915 |
|
|
13.8 |
% |
|
$ |
18,739 |
|
|
14.4 |
% |
This press release reports earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the
quarters ended March 31, 2017 and 2016 and adjusted EBITDA which
excludes strategic initiatives expenses, purchase accounting
adjustments related to inventory step-up in the Technical-Nonwovens
segment and severance expenses for reductions in force in the
Thermal/Acoustical Metals and Technical Nonwovens segments.
Organic Sales(Unaudited)
|
|
Quarter Ended March 31, 2017 |
|
|
Performance Materials |
|
Technical Nonwovens |
|
Thermal/Acoustical Metals |
|
Thermal/Acoustical Fibers |
|
|
|
Consolidated |
Sales growth,
as reported |
|
9.0 |
% |
|
88.8 |
|
% |
|
5.4 |
% |
|
15.4 |
|
% |
|
27.6 |
|
% |
Acquisitions |
|
— |
% |
|
(84.3 |
) |
% |
|
— |
% |
|
— |
|
% |
|
(20.3 |
) |
% |
Change in
tooling sales |
|
— |
% |
|
— |
|
% |
|
6.1 |
% |
|
(0.6 |
) |
% |
|
1.8 |
|
% |
Foreign
currency translation |
|
1.4 |
% |
|
4.0 |
|
% |
|
2.1 |
% |
|
— |
|
% |
|
2.0 |
|
% |
Organic sales
growth |
|
10.4 |
% |
|
8.5 |
|
% |
|
13.6 |
% |
|
14.8 |
|
% |
|
11.1 |
|
% |
This press release provides information
regarding organic sales change, defined as net sales change
excluding (1) sales from acquired businesses (2) the impact of
foreign currency translation and (3) tooling sales.
Management believes that the presentation of organic sales change
is useful to investors because it enables them to assess, on a
consistent basis, sales trends related to the Company selling
products to customers, without the impact of foreign currency rate
changes that are not under management's control and do not reflect
the performance of the Company and management. Tooling sales
are excluded because tooling revenue is not generated from selling
the Company's products to customers, but rather is reimbursement
from our customers for the design and production of tools used by
the Company in our manufacturing processes. Tooling sales can
be sporadic and may mask underlying business conditions and obscure
business trends.
For further information:
David D. Glenn
Vice President, Corporate Development
and Investor Relations
Telephone 860-646-1233
Facsimile 860-646-4917
info@lydall.com
www.lydall.com
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