Columbus McKinnon Reports Continued Gross Margin Expansion in Fiscal 2014 Third Quarter

  • Gross margin improved 100 basis points in the quarter over the prior-year period
  • Year-to-date gross margin improved 220 basis points to 30.9%
  • Generated $16.2 million of cash from operations in the quarter
  • This quarter's order level was strongest in last three quarters

AMHERST, N.Y., Jan. 23, 2014 (GLOBE NEWSWIRE) -- Columbus McKinnon Corporation (Nasdaq:CMCO), a leading designer, manufacturer and marketer of material handling products, today announced financial results for its fiscal 2014 third quarter which ended December 31, 2013.

Timothy T. Tevens, President and Chief Executive Officer, commented, "We had solid results in the third quarter with sales increasing sequentially 4.5% as our market leadership position enabled us to strengthen our positions in the oil & gas, entertainment and industrial markets, as well as the currently weaker construction and mining markets. Although volume was down year over year, almost half of that was related to project timing. Encouragingly, average sales per day are trending upward. Additionally, our improving margins continue to demonstrate that our productivity enhancements are producing good results."

Net sales for the third quarter of fiscal 2014 were $145.1 million, down $8.2 million, or 5.3%, from the prior-year period. Price improvements, incremental revenue related to a recent acquisition and one additional shipping day helped to partially offset the reduction in volume. Last year's third quarter had two large rail & road projects totaling $6.5 million which did not repeat in this year's quarter. Foreign exchange translation had a positive impact of $0.3 million in the quarter compared with the prior-year period.

U.S. sales, which comprised 54% of total sales, were down by $4.9 million, or 5.8%, to $79.0 million compared with the third quarter of fiscal 2013. Lower volume was attributed to a reduction in volume at certain heavy OEM customers, more than offsetting pricing improvements and the impact of one additional shipping day.

Sales outside of the U.S. were down $3.3 million, or 4.7%, to $66.1 million. Price increases, the impact of one additional shipping day and incremental revenue related to the recent Austrian acquisition were more than offset by lower volume. The volume decline was primarily due to the impact of the rail & road projects shipped in the prior-year period as previously mentioned. While economic indicators are beginning to show that activity is picking up in the Eurozone, our sales tend to lag these indicators by three to six months. The Austrian acquisition, which closed in June 2013, contributed $1.8 million of sales during the third quarter of fiscal 2014.

The fluctuation in sales for the third quarter of fiscal 2014 compared with the third quarter of fiscal 2013 is summarized as follows:

($ in millions)
$ Change % Change
Volume (15.0) (9.8)%
Foreign currency translation 0.3 0.2%
Acquisitions and divestitures 1.8 1.2%
Pricing 2.1 1.4%
Additional shipping day 2.6 1.7%
Total ($8.2) (5.3)%

Improved Gross Margin

Gross profit in the third quarter of fiscal 2014 was $43.0 million, down $0.8 million from the prior-year period. Productivity gains of $0.8 million and improved pricing net of material cost inflation of $1.4 million were more than offset by the $3.1 million impact of lower volume. As a percentage of sales, gross margin improved 100 basis points to 29.6% compared with 28.6% for the prior-year period.

Selling expense was $16.2 million, down 1.2%, or $0.2 million, from the same period of the prior year. As a percent of revenue, selling expense was 11.2% compared with 10.7% in the same period last year.

General and administrative (G&A) expense was $15.2 million, up from $12.7 million in the prior-year period. G&A included an atypical level of merger and acquisition (M&A) activity expenses, which were approximately $1.4 million. In addition, approximately $0.3 million of expenses were associated with the implementation of a new enterprise resource management system in Europe. As a percent of sales, G&A was 10.5%, compared with 8.3% in the prior-year period.

Operating income in the fiscal 2014 third quarter was down $3.1 million, or 21.8%, to $11.1 million when compared with the third quarter of fiscal 2013. Operating margin was 7.7% in the third quarter of fiscal 2014 compared with 9.3% in the prior-year period. Excluding the $1.4 million in M&A expenses, operating margin would have been 8.6%.

The effective tax rate in the quarter was unusually low at 11.6%. This compares with a rate of 11.1% in the prior-year period. Fiscal 2014's third quarter tax rate was impacted by the reversal of a reserve on an uncertain tax position related to a potential foreign tax liability, while the prior-year period's effective tax rate was impacted by a valuation allowance on deferred tax assets, primarily in the U.S.

Third quarter fiscal 2014 net income was $6.7 million, or $0.33 per diluted share, down from $9.6 million, or $0.49 per diluted share, in fiscal 2013's third quarter. Adjusted for M&A expenses, at a pro forma tax rate of 30%, earnings per diluted share were $0.31 in the third quarter compared with $0.38 per diluted share in the prior-year period. Further details of the reconciliation of GAAP EPS to adjusted EPS are shown on page 11 of this release.

Operations Continue to Provide Strong Cash Generation

Cash provided by operations was $16.2 million in the fiscal 2014 third quarter. Working capital as a percentage of sales was 19.9% at the end of the third quarter of 2014, down from 21.5% at the end of the trailing second quarter of fiscal 2014.

Capital expenditures for the first nine months of fiscal 2014 were $13.5 million compared with $7.1 million in the prior-year period. Approximately $2.6 million of fiscal 2014's capital expenditures was for the expansion of the Company's production facilities in China and $1.6 million was associated with the implementation of a new enterprise management system. The Company continues to expect fiscal 2014 capital spending to be in the range of $20 million to $25 million.

Cash and cash equivalents were $123.9 million at December 31, 2013. Gross debt at December 31, 2013 was $151.8 million. Debt, net of cash, was $27.9 million, or 9.4% of net total capitalization.

First Nine Months Fiscal 2014 Review

Net sales for the first nine months of fiscal 2014 were $422.8 million, down 6.6%, or $29.9 million, from the prior-year period due to $42.0 million of lower sales volume. Approximately $2.2 million of the decline was associated with the net effect of acquisitions and divestitures. Partially offsetting these declines were favorable pricing of $9.0 million and two additional shipping days. Foreign currency translation had a $0.3 million positive impact on sales in the first nine months of fiscal 2014. Sales to the U.S., which represented 57% of total sales, were down 7.3% to $239.9 million. Non-U.S. sales decreased by $11.0 million, or 5.7%, in the first nine months of fiscal 2014. Emerging markets represented 10.5% of total sales.

Gross profit in the first nine months of fiscal 2014 increased 0.6%, despite lower sales, while gross margin expanded 220 basis points to 30.9%. Gross margin expansion reflects productivity gains, the net effect of acquisitions and divestitures and pricing.

Selling expenses increased $1.0 million, or 2.1%, to $50.2 million when compared with the first nine months of fiscal 2013. As a percent of sales, selling expenses were 11.9% in the first nine months of fiscal 2014 compared with 10.9% in the prior-year period. G&A expenses were $42.2 million, up 7.1% from $39.4 million in the prior-year period. Most of the increase can be attributed to abnormally high expenses of $1.6 million related to merger and acquisition activity. G&A expenses as a percent of sales were 10.0% in the first nine months of fiscal 2014 compared with 8.7% in the prior-year period.

Operating income for the first nine months of fiscal 2014 decreased to $36.8 million from $39.9 million in the prior-year period. Operating margin was 8.7%, essentially flat with the operating margin of 8.8% in the prior year.

Net income for the first nine months of fiscal 2014 decreased by $5.5 million, or 20.8%, to $20.8 million. Earnings per diluted share for the first nine months of fiscal 2014 were down by 22.4% to $1.04 compared with $1.34 for the prior-year period. Adjusted for M&A expenses, at a pro forma tax rate of 30%, earnings per diluted share were $1.03 for the nine month period ended December 31, 2013, compared with $1.10 per diluted share in the prior-year period. Further details of the reconciliation of GAAP EPS to adjusted EPS are shown on page 11 of this release.

Slow, But Solid, Growth Outlook

Backlog was $98.4 million at December 31, 2013, an increase of $6.5 million, or 7.1%, from backlog of $91.9 million at September 30, 2013. Although the time to convert the majority of backlog to sales typically ranges from one day to a few weeks, backlog can include project-type orders from customers that have defined deliveries that may extend out 12 to 24 months. As of December 31, 2013, project-type backlog of $31.1 million, or 31.6% of total backlog, was scheduled for shipment beyond March 31, 2014. Backlog at December 31, 2013 available for shipment in the quarter ended March 31, 2014 totaled $67.3 million.

Both U.S. and Eurozone capacity utilization are leading market indicators for the Company. In December 2013, U.S. industrial capacity utilization was 77.9%, compared with 77.1% in December 2012, and 76.8% in September 2013. Eurozone capacity utilization was 78.4% in the quarter ended December 31, 2013, up from 77.2% during the quarter ended December 31, 2012, and up slightly from 78.3% in the quarter ended September 30, 2013. The Company's sales tend to lag changes in these indicators by one to two quarters.

Mr. Tevens commented, "We are encouraged with our sales efforts to drive growth in targeted industries and geographic markets. Order levels in the third quarter were the strongest so far this fiscal year. Backlog is up sequentially as is capacity utilization in the U.S. and Europe. We expect to benefit from our leading market position in developed markets and investments we have made in emerging markets. We generate strong levels of cash throughout the cycle that provides us the opportunity to execute our strategic growth plans organically and through acquisitions. We continue to identify and target strategic acquisitions to help stimulate our growth and have a pipeline of opportunities that we are pursuing."

Teleconference/webcast

Columbus McKinnon will host a conference call and live webcast today at 10:00 AM Eastern Time, at which Timothy T. Tevens, President and Chief Executive Officer, and Gregory P. Rustowicz, Vice President - Finance and Chief Financial Officer, will review the Company's financial results and strategy. The review will be accompanied by a slide presentation, which will be available on Columbus McKinnon's website at http://www.cmworks.com/investors. A question and answer session will follow the formal discussion.

Columbus McKinnon's conference call can be accessed by calling 210-234-7695 and asking for the "Columbus McKinnon conference call." The webcast can be monitored on Columbus McKinnon's website at http://www.cmworks.com/investors. An audio recording of the call will be available two hours after its completion through February 21, 2014 by dialing 203-369-3041. Alternatively, an archived webcast of the call will be on Columbus McKinnon's web site at: http://www.cmworks.com/investors until February 21, 2014. In addition, a transcript of the call will be posted to the website once available.

About Columbus McKinnon

Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of material handling products, systems and services, which efficiently and ergonomically move, lift, position and secure materials. Key products include hoists, cranes, actuators and rigging tools. The Company is focused on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-how. Comprehensive information on Columbus McKinnon is available on its website at http://www.cmworks.com.

Safe Harbor Statement

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future revenue and earnings, involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the effect of operating leverage, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the speed at which shipments improve, and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update the forward-looking information contained in this release.

Financial Tables follow.

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except per share and percentage data)
Three Months Ended
December 31, 2013 December 31, 2012 Change
Net sales $145,072 $153,225 -5.3%
Cost of products sold 102,075 109,428 -6.7%
Gross profit 42,997 43,797 -1.8%
Gross profit margin 29.6% 28.6%
Selling expense 16,188 16,390 -1.2%
General and administrative expense 15,230 12,725 19.7%
Amortization 478 493 -3.0%
Income from operations 11,101 14,189 -21.8%
Operating margin 7.7% 9.3%
Interest and debt expense 3,395 3,413 -0.5%
Investment income (254) (354) -28.2%
Foreign currency exchange loss 568 293 93.9%
Other (income) expense, net (147) 65 NM
Income before
Income tax expense 7,539 10,772 -30.0%
Income tax expense 875 1,193 -26.7%
Net income $6,664 $9,579 -30.4%
Average basic shares outstanding 19,691 19,451 1.2%
Basic income per share:
Basic income per share $0.34 $0.49 -30.6%
Average diluted shares outstanding 20,019 19,697 1.6%
Diluted income per share:
Diluted income per share $0.33 $0.49 -32.7%
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except per share and percentage data)
Nine Months Ended
December 31, 2013 December 31, 2012 Change
Net sales $422,815 $452,710 -6.6%
Cost of products sold 292,067 322,687 -9.5%
Gross profit 130,748 130,023 0.6%
Gross profit margin 30.9% 28.7%
Selling expense 50,216 49,204 2.1%
General and administrative expense 42,247 39,448 7.1%
Amortization 1,463 1,481 -1.2%
Income from operations 36,822 39,890 -7.7%
Operating margin 8.7% 8.8%
Interest and debt expense 10,138 10,418 -2.7%
Investment income (746) (1,017) -26.6%
Foreign currency exchange loss 988 147 572.1%
Other (income) expense, net (1,319) (429) 207.5%
Income before
Income tax expense 27,761 30,771 -9.8%
Income tax expense 6,955 4,504 54.4%
Net income $20,806 $26,267 -20.8%
Average basic shares outstanding 19,622 19,406 1.1%
Basic income per share:
Basic income per share $1.06 $1.35 -21.5%
Average diluted shares outstanding 19,915 19,620 1.5%
Diluted income per share:
Diluted income per share $1.04 $1.34 -22.4%
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
December 31, 2013 March 31, 2013
ASSETS
Current assets:
Cash and cash equivalents $123,868 $121,660
Trade accounts receivable 75,555 80,224
Inventories 105,158 94,189
Prepaid expenses and other 19,639 17,905
Total current assets 324,220 313,978
Net property, plant, and equipment 72,063 65,698
Goodwill 112,280 105,354
Other intangibles, net 12,638 13,395
Marketable securities 22,187 23,951
Deferred taxes on income 39,692 37,205
Other assets 6,490 7,286
Total assets $589,570 $566,867
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $30,126 $34,329
Accrued liabilities 57,231 48,884
Current portion of long-term debt 1,138 1,024
Total current liabilities 88,495 84,237
Senior debt, less current portion 2,060 2,641
Subordinated debt 148,618 148,412
Other non-current liabilities 82,300 91,590
Total liabilities 321,473 326,880
Shareholders' equity:
Common stock 197 195
Additional paid-in capital 196,226 192,308
Retained earnings 124,997 104,191
ESOP debt guarantee (244) (552)
Accumulated other comprehensive loss (53,079) (56,155)
Total shareholders' equity 268,097 239,987
Total liabilities and shareholders' equity $589,570 $566,867
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
December 31, 2013 December 31, 2012
Operating activities:
Net income $20,806 $26,267
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,566 9,116
Deferred income taxes and related valuation allowance (1,773) 153
Gain on sale of real estate, investments, and other (1,629) (493)
Stock based compensation 2,707 2,474
Amortization of deferred financing costs and discount on debt 655 288
Changes in operating assets and liabilities, net of effects of business acquisition and divestiture:
Trade accounts receivable 6,572 9,330
Inventories (8,927) 4,129
Prepaid expenses (1,588) (345)
Other assets 534 415
Trade accounts payable (4,753) (8,835)
Accrued and non-current liabilities (4,212) (16,212)
Net cash provided by operating activities 17,958 26,287
Investing activities:
Proceeds from sale of marketable securities 5,444 4,907
Purchases of marketable securities (3,611) (2,724)
Capital expenditures (13,484) (7,139)
Purchase of business, net of cash acquired (5,847) --
Proceeds from sale of assets -- 2,357
Net cash used for investing activities (17,498) (2,599)
Financing activities:
Proceeds from stock options exercised 1,464 232
Net payments under lines-of-credit (7) (52)
Repayment of debt (566) (592)
Payment of deferred financing costs -- (684)
Change in ESOP guarantee 308 318
Net cash provided by (used for) financing activities 1,199 (778)
Effect of exchange rate changes on cash 549 (446)
Net change in cash and cash equivalents 2,208 22,464
Cash and cash equivalents at beginning of year 121,660 89,473
Cash and cash equivalents at end of period $123,868 $111,937
COLUMBUS McKINNON CORPORATION
Additional Data
(Unaudited)
December 31, December 31, March 31,
2013 2012 2013
Backlog (in millions) $98.4 $95.4 $99.0
Trade accounts receivable
Days sales outstanding 47.4 days 46.7 days 50.5 days
Inventory turns per year
(based on cost of products sold) 3.9 turns 4.3 turns 4.3 turns
Days' inventory 93.6 days 84.9 days 84.9 days
Trade accounts payable
Days payables outstanding 26.9 days 25.2 days 31.1 days
Working capital as a % of sales 19.9% 17.5% 18.3%
Debt to total capitalization percentage 36.2% 44.6% 38.8%
Debt, net of cash, to net total capitalization 9.4% 17.6% 11.2%
Shipping Days by Quarter
Q1 Q2 Q3 Q4 Total
FY14 64 63 61 62 250
FY13 63 63 60 62 248
COLUMBUS McKINNON CORPORATION
Reconciliation GAAP Diluted EPS to Adjusted Diluted EPS
Three Months Ended
December 31, 2013 December 31, 2012
GAAP diluted EPS $0.33 $0.49
Adjusted to reflect normalized 30% tax rate ($0.07) ($0.11)
Adjusted for non-recurring M&A expenses (after tax) $0.05 --
Adjusted diluted EPS $0.31 $0.38
Nine Months Ended
December 31, 2013 December 31, 2012
GAAP diluted EPS $1.04 $1.34
Adjusted to reflect normalized 30% tax rate ($0.06) ($0.24)
Adjusted for non-recurring M&A expenses (after tax) $0.05 --
Adjusted diluted EPS $1.03 $1.10

Adjusted diluted EPS is defined as diluted EPS as reported, adjusted to apply a normalized tax rate. Adjusted diluted EPS is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP and may not be comparable to the measure as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information such as adjusted diluted EPS is important for investors and other readers of the Company's financial statements, and assists in understanding the comparison of the current quarter's diluted EPS to the historical period's diluted EPS.

CONTACT: Gregory P. Rustowicz Vice President - Finance and Chief Financial Officer Columbus McKinnon Corporation 716-689-5442 greg.rustowicz@cmworks.com Investor Relations: Deborah K. Pawlowski Kei Advisors LLC 716-843-3908 dpawlowski@keiadvisors.comSource:Columbus McKinnon Corporation