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Blount Announces Second Quarter 2014 Results

  • Second quarter 2014 sales increased 7% to $235 million year-over-year; Adjusted EBITDA increased 9% to $35 million
  • Full year 2014 guidance raised
  • Share repurchase program authorized by Board of Directors

PORTLAND, Ore., Aug. 6, 2014 (GLOBE NEWSWIRE) -- Blount International, Inc. (NYSE:BLT) ("Blount" or "Company") today announced results for the second quarter ended June 30, 2014.

Results for the Quarter Ended June 30, 2014

Sales in the second quarter were $235.4 million, an increase of $15.0 million or 6.8 percent compared to the second quarter of 2013. Operating income for the second quarter of 2014, which includes $0.5 million facility closure and restructuring charges, was $22.4 million compared to $19.3 million in the same quarter last year. Second quarter net income was $12.3 million, or $0.25 per diluted share, compared to $9.3 million, or $0.19 per diluted share, in the second quarter of 2013.

"We continued to perform well in the second quarter. Additionally, demand continued to increase across nearly all geographic regions," stated Josh Collins, Blount's Chairman and CEO. "The improved demand and the results of our profit improvement initiatives over the past year have bolstered our confidence that we will achieve or outperform our sales and profit targets for 2014."

Mr. Collins continued, "We are maintaining a strong focus on our Operational Excellence and other targeted cost-reduction initiatives that will continue to enhance our businesses long term. Additionally, our Board of Directors has authorized a share repurchase program that will return cash to shareholders as our balance sheet and leverage levels continue to improve."

Blount operates primarily in two business segments – the Forestry, Lawn, and Garden ("FLAG") segment and the Farm, Ranch, and Agriculture ("FRAG") segment. The Company reports separate results for the FLAG and FRAG segments. Blount's Concrete Cutting and Finishing ("CCF") business is included in "Corporate and Other."

Forestry, Lawn, and Garden

The FLAG segment had second quarter 2014 sales of $160.1 million, which was $9.4 million higher than the second quarter of 2013. Sales volume increases were partially offset by a reduction in average prices. Second quarter 2014 sales increased in all geographical regions except Asia, with North America generating approximate 15 percent growth and Europe and Russia achieving approximately eight percent growth. Asia sales were down more than nine percent compared to the second quarter of 2013. The change in segment sales for the comparable second quarter periods is illustrated below.

Change in FLAG Segment Sales
(In millions; amounts may not sum due to rounding)
Sales Change
Second quarter 2013 $150.8
Increase / (Decrease)
Foreign Exchange 0.0%
150.8 0.0%
Unit Volume 11.0 7.3%
Selling Price / Mix (1.6) (1.1)%
Second quarter 2014 $160.1 6.2%

Segment backlog was $160.9 million at June 30, 2014, an increase of three percent from $156.3 million on June 30, 2013. The increase in backlog relates primarily to increased saw chain demand compared to the prior year.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $23.8 million and $30.3 million, respectively, for the second quarter of 2014, and includes $7.6 million of allocated shared services expenses. Contribution to operating income improved 15.2 percent and Adjusted EBITDA improved 10.6 percent for the second quarter of 2014 versus the second quarter of 2013. The change in FLAG contribution to operating income for the comparable second quarter periods is presented below.

Change in FLAG Segment Contribution to Operating Income and Adjusted EBITDA
(In millions; amounts may not sum due to rounding)
Contribution
to
Operating
Income
As a
Percent of
Segment
Sales
Depreciation,
Amortization,
and
Other
Adjusted
EBITDA
As a
Percent of
Segment
Sales
Second quarter 2013 $20.7 13.7% $6.7 $27.4 18.2%
Increase / (Decrease)
Steel Costs (1.5)
Foreign Exchange 0.5
19.7 13.1%
Unit Volume 4.6
Selling Price / Mix (1.6)
Costs / Mix 0.9
23.7 14.8%
Acquisition accounting(1) 0.2
Second quarter 2014 $23.8 14.9% $6.5 $30.3 18.9%
(1) Represents change in non-cash acquisition accounting impact for all FLAG business units

Segment contribution to operating income and Adjusted EBITDA improved primarily due to higher sales volumes, a more efficient cost profile, and favorable foreign exchange rates. Increased steel costs and the impact of targeted sales promotions slightly offset the improvements in those areas. The closure of a higher cost FLAG manufacturing plant announced in mid-2013 and higher plant utilization rates – 91 percent in the second quarter of 2014 compared to 76 percent in the second quarter of 2013 – contributed to improved overall operating efficiency. The manufacturing cost improvement was partially offset by an increase in SG&A spending, driven by incentive compensation expense as 2014 results compared more favorably to target than in 2013, along with increased advertising and professional service fees.

Farm, Ranch, and Agriculture

The FRAG segment reported second quarter 2014 sales of $67.3 million, an increase of $4.6 million from the second quarter of 2013, mainly due to improved sales volumes and stronger average pricing. Sales volumes increased primarily due to stronger sales of log splitters. The change in segment sales for the comparable second quarter periods is illustrated below.

Change in FRAG Segment Sales
(In millions; amounts may not sum due to rounding)
Sales Change
Second quarter 2013 $62.7
Increase / (Decrease)
Foreign Exchange 0.2 0.3%
62.9 0.3%
Unit Volume 3.3 5.3%
Selling Price / Mix 1.1 1.8%
Second quarter 2014 $67.3 7.4%

Segment backlog was $19.1 million at June 30, 2014, compared to $16.3 million at June 30, 2013. The increased backlog reflects improved demand for log splitters and agriculture parts in the segment.

The FRAG segment had $6.8 million of Adjusted EBITDA in the second quarter of 2014. FRAG segment contribution to operating income was $2.6 million after $4.2 million of depreciation and amortization expense, and $2.4 million of allocated shared services expenses. The change in the second quarter 2014 contribution to operating income compared to the second quarter of 2013 is presented below.

Change in FRAG Segment Contribution to Operating Income and Adjusted EBITDA
(In millions; amounts may not sum due to rounding)
Contribution
to
Operating
Income
As a
Percent of
Segment
Sales
Depreciation,
Amortization,
and
Other
Adjusted
EBITDA
As a
Percent of
Segment
Sales
Second quarter 2013 $2.0 3.2% $4.4 $6.4 10.3%
Increase / (Decrease)
Steel Costs 0.1
Foreign Exchange
2.1 3.3%
Unit Volume 1.3
Selling Price / Mix 1.1
Costs / Mix (2.3)
2.3 3.3%
Acquisition accounting(1) 0.4
Second quarter 2014 $2.6 3.9% $4.2 $6.8 10.1%
(1) Represents change in acquisition accounting impact for all FRAG business units

The benefit of improved sales volumes and average pricing were largely offset by higher costs in the FRAG segment, mainly in the areas of manufacturing, distribution, and supplier purchased components. Conversion costs were unfavorable compared to the second quarter of 2013 as a result of marginally higher labor costs as increased production volumes drove overtime and training expense for new personnel. Product sales mix in the second quarter of 2014 included relatively lower margin products compared to 2013.

Corporate and Other

Corporate and Other generated net expense of $4.1 million in the second quarter of 2014 compared to net expense of $3.4 million in the second quarter of 2013. Second quarter 2014 net expense increased primarily due to $0.5 million of facility closure costs related to the closure of the Company's Querétaro, Mexico blade plant announced in February 2014, as well as higher incentive compensation expense.

Net Income

Second quarter 2014 net income increased primarily due to higher overall operating income in the second quarter of 2014 compared to 2013. Net interest expense decreased $0.1 million to $4.5 million in the second quarter of 2014 as a result of lower average borrowing levels. Other income improved as a result of foreign exchange impacts on non-operating assets. The change in net income for the second quarter of 2014 compared to the second quarter of 2013 is summarized in the table below.

Change in Consolidated Net Income
(In millions, except per share data;
amounts may not sum due to rounding)
Pre-tax
Income
Income
Tax Effect
Net
Income
Diluted
Earnings
per Share
Second quarter 2013 Results $13.7 $4.4 $9.3 $0.19
Change due to:
Increased operating income excluding acquisition accounting 2.7 0.9 1.9 0.04
Acquisition accounting 0.4 0.1 0.2
Decreased net interest expense 0.1 0.1
Change in other expense 1.2 0.4 0.8 0.02
Change in income tax rate n/a
Second quarter 2014 Results $18.1 $5.8 $12.3 $0.25

Cash Flow and Debt

As of June 30, 2014, the Company had net debt of $385.2 million, a decrease of $10.0 million from December 31, 2013 and a decrease of $75.4 million compared to June 30, 2013. The decrease in net debt since December 31, 2013 was primarily the result of generating free cash flow of $14.0 million partially offset by the Pentruder® distribution business acquisition in the first quarter of 2014. Second quarter free cash flow generation was $19.7 million compared to $15.9 million in the second quarter of 2013. The increase in free cash flow in the second quarter of 2014 was driven by improved operating results along with a reduction in working capital compared to the prior year, partially offset by a $1.6 million increase in capital spending, mostly on capacity in China and Canada. The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to last-twelve-months ("LTM") Adjusted EBITDA was 3.0x as of June 30, 2014, which is an improvement compared to December 31, 2013 and reflects lower net debt and increased Adjusted EBITDA.

Share Repurchase Program

The Company's Board of Directors has authorized a new share repurchase program of up to $75 million of Blount common stock to be completed on or before December 31, 2016. "The share repurchase program is a result of our solid cash flow in 2013, the continued strength of our balance sheet, and our confidence in the long-term future of Blount," stated Chief Financial Officer Calvin Jenness. "We expect to execute on this new $75 million share repurchase program while retaining sufficient capital capacity to continue making long-term investments in our business."

2014 Financial Outlook

As a result of sales demand and the generally improved cost profile in the FLAG business, the Company is revising its fiscal year 2014 outlook upward for both sales and Adjusted EBITDA. Sales are expected to range between $935 million and $960 million, Adjusted EBITDA between $135 million and $140 million, and operating income between $81 million and $86 million. Our expectation for sales assumes growth in FLAG segment sales of between three and six percent and growth in FRAG segment sales of between six and eight percent, both compared to full year 2013 levels. In 2014, operating income is expected to experience benefit from foreign currency exchange rates of between $2 million and $3 million, and steel costs are expected to have a $2 million to $3 million unfavorable impact for the year compared to 2013. The 2014 operating income outlook includes non-cash charges of approximately $12 million related to acquisition accounting. Free cash flow in 2014 is expected to range between $32 million and $38 million, after approximately $38 million to $42 million of capital expenditures. Net interest expense is expected to be between $17 million and $18 million in 2014, and the effective income tax rate for continuing operations is expected to be between 33 percent and 36 percent in 2014.

A comparison of key operating indicators for 2013 actual results and the 2014 outlook mid-point is provided in the table below.

(In millions) 2013
Actual
2014
Outlook
Mid-Point
Sales $900.6 $947.5
Operating Income1 37.5 83.5
Adjusted EBITDA 123.5 137.5
Free Cash Flow 67.6 35.0
Net Capital Expenditures 29.4 40.0
Net Debt at Period End 395.2 364.2
Net Debt/Adjusted EBITDA 3.2x 2.6x
(1) 2013 Actual Operating Income includes a $24.9 million non-cash charge related to impairment of certain acquired intangible assets

Adjusted EBITDA and Free Cash Flow are non-GAAP measures and are reconciled to Operating Income and Cash Flow from Operations in the attached financial data table.

Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for consumers and professionals operating primarily in two market segments: Forestry, Lawn, and Garden ("FLAG"); and Farm, Ranch, and Agriculture ("FRAG"). Blount also sells products in the construction markets and is the market leader in manufacturing saw chain and guide bars for chain saws. Blount has a global manufacturing and distribution footprint and sells its products in more than 115 countries around the world. Blount markets its products primarily under the OREGON®, Carlton®, Woods®, TISCO, SpeeCo®, ICS® and Pentruder® brands. For more information about Blount, please visit our website at http://www.blount.com.

"Forward looking statements" in this release, including without limitation Blount's "outlook," "expectations," "beliefs," "plans," "indications," "estimates," "anticipations," "guidance" and their variants, as defined by the Private Securities Litigation Reform Act of 1995, are based upon available information and upon assumptions that Blount believes are reasonable; however, these forward looking statements involve certain risks and should not be considered indicative of actual results that Blount may achieve in the future. In particular, among other things, guidance given in this release is expressly based upon certain assumptions concerning market conditions, foreign currency exchange rates, and raw material costs, especially with respect to the price of steel, the presumed relationship between backlog and future sales trends and certain income tax matters, as well as being subject to the uncertainty of the current global economic situation. To the extent that these assumptions are not realized going forward, or other unforeseen factors arise, actual results for the periods subsequent to the date of this announcement may differ materially.

Blount International, Inc. Financial Data (Unaudited)
Condensed Consolidated Statements of Income Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands, except per share data) 2013 2014 2013 2014
Sales $ 220,407 $ 235,423 $ 453,022 $ 467,382
Cost of sales 159,745 166,632 329,255 331,698
Gross profit 60,662 68,791 123,767 135,684
Selling, general, and administrative expenses 41,389 45,977 85,351 90,545
Facility closure & restructuring charges 463 2,000
Operating income 19,273 22,351 38,416 43,139
Interest expense, net of interest income (4,576) (4,462) (8,893) (8,950)
Other income (expense), net (969) 242 (144) 244
Income from continuing operations before income taxes 13,728 18,131 29,379 34,433
Provision for income taxes 4,398 5,841 10,710 11,557
Net income $ 9,330 $ 12,290 $ 18,669 $ 22,876
Basic income per share: $ 0.19 $ 0.25 $ 0.38 $ 0.46
Diluted income per share: $ 0.19 $ 0.25 $ 0.37 $ 0.46
Shares used for per share computations:
Basic 49,430 49,635 49,402 49,633
Diluted 50,057 50,143 50,113 50,198
Free Cash Flow Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2013 2014 2013 2014
Net cash provided by operating activities $ 23,536 $ 29,011 $ 17,728 $ 28,737
Net purchases of property, plant, and equipment (7,661) (9,263) (14,066) (14,732)
Free cash flow $ 15,875 $ 19,748 $ 3,662 $ 14,005
Segment Information Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2013 2014 2013 2014
Sales:
FLAG $ 150,758 $ 160,112 $ 315,901 $ 325,327
FRAG 62,696 67,349 122,944 127,230
Corporate and Other 6,953 7,962 14,177 14,825
Total sales $ 220,407 $ 235,423 $ 453,022 $ 467,382
Operating income:
FLAG $ 20,685 $ 23,834 $ 45,253 $ 51,912
FRAG 2,011 2,607 924 1,708
Corporate and Other (3,423) (4,090) (7,761) (10,481)
Operating income $ 19,273 $ 22,351 $ 38,416 $ 43,139
Condensed Consolidated Balance Sheets December 31, June 30,
(Amounts in thousands) 2013 2014
Assets:
Cash and cash equivalents $ 42,797 $ 24,343
Accounts receivable 110,807 137,380
Inventories 156,955 162,062
Asset held for sale 7,680 7,680
Other current assets 38,114 36,978
Property, plant, and equipment, net 164,194 163,256
Other non-current assets 295,804 293,401
Total Assets $ 816,351 $ 825,100
Liabilities:
Current maturities of long-term debt $ 15,016 $ 15,077
Other current liabilities 113,485 125,888
Long-term debt, net of current maturities 422,972 394,417
Other long-term liabilities 110,478 108,635
Total liabilities 661,951 644,017
Stockholders' equity 154,400 181,083
Total Liabilities and Stockholders' Equity $ 816,351 $ 825,100
Net debt (Current maturities of long-term debt plus Long-term debt less Cash and cash equivalents) $ 395,191 $ 385,151
Sales and Adjusted EBITDA
(Amounts may not sum due to rounding)
Three Months Ended June 30, Forestry, Lawn and Garden Farm, Ranch, and Agriculture Corporate and Other Total Company
(Amounts in thousands) 2013 2014 2013 2014 2013 2014 2013 2014
Actual Actual Actual Actual Actual Actual Actual Actual
Total sales $ 150,758 $ 160,112 $ 62,696 $ 67,349 $ 6,953 $ 7,962 $ 220,407 $ 235,423
Operating income 20,685 23,834 2,011 2,607 (3,423) (4,090) $ 19,273 $ 22,351
Depreciation 6,215 6,137 1,247 1,353 185 161 7,647 7,651
Non-cash acquisition accounting charges 507 336 3,180 2,830 169 3,687 3,335
Stock compensation 1,382 964 1,382 964
Facility closure and restructuring charges 463 463
Other
Adjusted EBITDA $ 27,407 $ 30,307 $ 6,438 $ 6,790 $ (1,856) $ (2,333) $ 31,989 $ 34,764
Six Months Ended June 30, Forestry, Lawn and Garden Farm, Ranch, and Agriculture Corporate and Other Total Company
(Amounts in thousands) 2013 2014 2013 2014 2013 2014 2013 2014
Actual Actual Actual Actual Actual Actual Actual Actual
Total sales $ 315,901 $ 325,327 $ 122,944 $ 127,230 $ 14,177 $ 14,825 $ 453,022 $ 467,382
Operating income 45,253 51,912 924 1,708 (7,761) (10,481) $ 38,416 $ 43,139
Depreciation 12,702 12,284 2,485 2,520 353 322 15,540 15,126
Non-cash acquisition accounting charges 1,020 672 6,341 5,648 318 7,361 6,638
Stock compensation 2,744 2,417 2,744 2,417
Facility closure and restructuring charges 2,000 2,000
Other
Adjusted EBITDA $ 58,975 $ 64,868 $ 9,750 $ 9,876 $ (4,665) $ (5,424) $ 64,062 $ 69,320
Total Company
Twelve Months Ended December 31, 2013 2014
Actual Outlook
Total sales $ 900,595 $ 947,500
Operating income $ 37,521 $ 83,500
Depreciation 33,479 34,000
Non-cash acquisition accounting charges 14,753 12,000
Impairment charges 24,879
Stock compensation 5,607 6,000
Facility closure and restructuring charges (1) 6,046 2,000
Other 1,196
Adjusted EBITDA $ 123,481 $ 137,500
(1) The 2014 outlook includes approximately $1.2 million of cash transition costs and approximately $0.8 million of non-cash charges.

CONTACT: David Dugan Director, Corporate Communications and Investor Relations 503-653-4692Source:Blount International, Inc.