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Columbus McKinnon Reports 18% Growth in Net Income and Earnings per Share for Fiscal 2015 Third Quarter

  • Third quarter gross margin expanded 120 basis points to 30.8%
  • Operating income increased 13.6% and operating margin improved to 9.0%, up 130 basis points
  • Earnings per diluted share was up 18% to $0.39
  • Generated $17.1 million of cash from operations

AMHERST, N.Y., Jan. 29, 2015 (GLOBE NEWSWIRE) -- Columbus McKinnon Corporation (Nasdaq:CMCO), a leading designer, manufacturer and marketer of material handling products and services, today announced financial results for its fiscal 2015 third quarter, which ended December 31, 2014.

Net sales for the quarter were $140.8 million, down $4.3 million, or 3.0%, from the prior-year period as a result of the negative impact of foreign currency exchange rates, lower sales volume outside of the U.S. and one less shipping day. Sales per day held fairly steady at $2.35 million compared with $2.38 million in the prior-year period. Sales from the acquisition completed in February 2014 were $3.6 million in the third quarter.

The fluctuation in sales for the third quarter of fiscal 2015 compared with the third quarter of fiscal 2014 is summarized as follows:

($ in millions) $ Change % Change
Foreign currency translation (4.3) (3.0)%
Volume (2.7) (1.9)%
Fewer shipping days (2.4) (1.6)%
Pricing 1.5 1.0%
Acquisition 3.6 2.5%
Total $ (4.3) (3.0)%

Timothy T. Tevens, President and Chief Executive Officer, commented, "We are excited about the recent addition of Stahlhammer Bommern (STB) and the continued contribution of our previous acquisitions. Strategically, these businesses expand our product offering enabling us to leverage our strong global sales presence to increase their commercial opportunities. The U.S. market remains solid for us and our opportunities in China, where we do not yet have the scale to be economically linked, are strong. Europe, South America and other emerging economies have slowed, but we believe our global diversity and growth strategies work to help offset these declines."

U.S. sales, which comprised 59% of total sales, were up by $4.3 million, or 5.4%, to $83.3 million compared with the third quarter of fiscal 2014. Increased volume, the incremental contribution from the acquisition and the benefit from price improvement more than offset the impact of one fewer shipping day.

Sales outside of the U.S. were down $8.5 million to $57.5 million. The benefit from price improvement was more than offset by reductions in sales volume, the impact of foreign currency translation and one fewer shipping day.

Strategic investments driving increased profitability

Gross profit increased to $43.4 million, up $0.4 million compared with the prior-year quarter. Gross margin improved 120 basis points to 30.8%. This was the seventeenth consecutive quarter of year-over-year gross margin improvement. The increase was driven by the acquisition, pricing net of material inflation and productivity improvements which more than offset the impact of lower sales volume and foreign currency translation.

Mr. Tevens commented, "We are acquiring businesses with strong profit profiles which are contributing to our margin expansion. In addition, our effort to drive productivity continues to be positive."

($ in millions) Impact on Gross Profit
Acquisition $1.5
Productivity $1.1
Pricing net of material cost inflation $1.1
Product liability $(0.7)
Foreign currency translation $(1.2)
Volume and mix $(1.4)
Total $0.4

Selling expense was up $1.2 million to $17.4 million when compared with the third quarter of fiscal 2014, but in line with the trailing quarters in fiscal 2015. As a percent of revenue, selling expense was 12.4% compared with 11.2% in the same period last year. When compared with the prior-year period, the acquisition added $0.3 million in expenses. The remaining increase was related to investments made to drive future sales growth, partially offset by favorable foreign currency translation.

General and administrative (G&A) expense was $12.8 million, down $2.4 million from the prior-year period. G&A as a percent of sales was 9.1% compared with 10.5% in the prior-year period. The acquisition added $0.2 million to G&A expense and the prior-year period included approximately $1.4 million of atypical merger and acquisition activity expenses. The remaining decrease was due to cost control measures taken as well as the favorable impact of foreign currency translation.

Overall cost discipline, productivity and the lack of unusual expenses resulted in operating income of $12.6 million, up 13.6% over the prior-year period. Operating margin expanded 130 basis points to 9.0%. The impact of foreign currency exchange on operating income was negligible.

Investment income increased 300% to $1.0 million. The increase was due to marketable security sales from the Company's captive insurance company which benefitted from market prices, and resulted in incremental investment income of $0.9 million.

The effective tax rate in the quarter was 23.1% reflecting the expected refinancing costs related to the previously announced call of the outstanding Senior Subordinated Notes. This will reduce taxable income in the U.S., which has the highest corporate tax rate in the Company. The full year fiscal 2015 effective tax rate is expected to be in the range of 23% to 28%.

Third quarter fiscal 2015 net income was up $1.2 million to $7.9 million, or $0.39 per diluted share. This compares with $6.7 million, or $0.33 per diluted share, in the fiscal 2014 third quarter.

Reduced interest expense and improved financial flexibility with refinancing

Cash and cash equivalents were $102.5 million at December 31, 2014. Gross debt at December 31, 2014 was $157.5 million. Debt, net of cash, was $55.0 million, or 15.3% of net total capitalization. Return on invested capital for the trailing twelve-month period was 12.5%, which exceeds the Company's estimated weighted average cost of capital.

As previously announced, the Company has elected to redeem its outstanding $150 million of 7.875% senior subordinated notes ("Notes") due February 1, 2019. The Notes will be redeemed on February 23, 2015 at a redemption price of $1,039.38 per $1,000 of principal amount of Notes, plus interest. In addition, the Company entered into a new $150 million senior secured revolving credit facility and established a new $125 million delayed-draw senior secured term loan facility, both with maturity dates in 2020. Cash interest expense will be reduced by $7.6 million annually and the refinancing will contribute approximately $0.27 per diluted share in fiscal 2016. The Company expects to record an $8.5 million debt retirement charge, which includes the call premium, in the fourth quarter of fiscal 2015.

Mr. Gregory P. Rustowicz, Chief Financial Officer, noted, "This refinancing measurably reduces our interest expense and it also provides us greater flexibility to put our cash to work and manage our debt levels. This important transaction will also allow us to continue to strategically invest in our organic and inorganic growth plans. Given our impressive cash generation and the strength of our balance sheet, we are in a solid position to grow the business."

Cash provided by operations was $17.1 million in the third quarter. Excluding the impact of the STB acquisition which closed on December 30, 2014, working capital as a percentage of sales improved to 19.6% at the end of the third quarter of fiscal 2015, compared with 22.1% at the end of the trailing fiscal 2015 second quarter and 19.9% at the end of fiscal 2014's third quarter.

Capital expenditures for the first nine months of fiscal 2015 were $11.3 million. Of this total, $3.3 million was associated with the implementation of a new enterprise resource planning system (ERP). The Company continues to expect fiscal 2015 capital spending to be about $15 to $20 million, the majority of which is dedicated to productivity and growth projects followed by maintaining existing capacity and the implementation of the global ERP system.

Fiscal 2015 year-to-date review

Net sales for the first nine months of fiscal 2015 were $430.7 million, up $7.9 million, or 1.9%, from the same period in fiscal 2014. Sales to the U.S., which represented 58% of total sales, were up 4.2% to $250.1 million. Non-U.S. sales of $180.6 million in the first nine months of fiscal 2015 decreased by 1.3% from the prior-year period and represented 42% of total sales. For the year-to-date period, acquisitions contributed $10.5 million to sales which more than offset the $3.8 million negative impact of foreign currency translation.

Gross profit in the first nine months of fiscal 2015 increased 4.1% to $136.1 million over the same period in fiscal 2014. Gross margin was 31.6%, up 70 basis points over the prior-year period. Improved gross margin was driven by similar factors as in the quarter.

Selling expenses for the first nine months of fiscal 2015 were $52.4 million, an increase of 4.4% over the prior-year period. Selling expense as a percent of sales was 12.2% compared with 11.9% in the same period in fiscal 2014. G&A expense of $40.2 million for the first nine months of 2015 was down by 4.8% over the prior-year period. Prior-year period G&A expense included approximately $1.6 million of atypical merger and acquisition costs. As a percent of sales, G&A expense was 9.3%, a 70 basis point decrease from 10.0% in the first nine months of fiscal 2014.

First nine months of fiscal 2015 operating income of $41.8 million was up 13.4%, or $4.9 million, over the same period in fiscal 2014. Operating margin as a percent of sales was 9.7% and represents a 100 basis point improvement over the prior-year period. Fiscal 2015 year-to-date sales growth resulted in operating leverage of 62.5%.

Net income was $25.2 million for the first nine months of fiscal 2015 and increased by 21.1%, or $4.4 million, over the prior-year period. Diluted earnings per share of $1.25 improved by $0.21 per diluted share over the prior-year period.

Expect moderate growth and solid returns on invested capital

Mr. Tevens commented, "While economic conditions continue to create uncertainty on a global basis, we remain encouraged with our efforts to build our global market share, expand our product offering and drive lean processes and continuous improvement throughout the organization. We expect we can continue to grow at a moderate rate, expand our opportunities through acquisitions and deliver solid returns on invested capital."

Backlog increased to $85.5 million at December 31, 2014, up $3.3 million, or 4.0%, from backlog of $82.2 million at September 30, 2014. Although the typical time to convert the majority of backlog to sales is from one day to a few weeks, backlog can include project-type orders from customers that have defined delivery schedules that may extend out 12 to 24 months. Approximately 62% of backlog at quarter end is expected to ship in the fourth quarter. Backlog that represents longer-lead time project orders was $32.8 million, or 38% of total backlog. These projects are scheduled for shipment beyond March 31, 2015, and compares with project backlog of $25.0 million at the end of the trailing second quarter and $31.1 million at December 31, 2013. Backlog is not necessarily a leading indicator of sales for the Company.

Both U.S. and Eurozone capacity utilization are leading market indicators for the Company. U.S. industrial capacity utilization has been steadily, albeit slowly, improving over the last twelve months. In December 2014, it was 79.3%, compared with 78.2% in September 2014 and 77.1% a year prior. Eurozone capacity utilization increased to 80.0% at December 31, 2014 compared with 79.9% at September 30, 2014 and 78.4% at the end of 2013. The Company's sales tend to lag changes in these indicators by one to two quarters.

Teleconference and 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 26, 2015 by dialing 402-220-9766. Alternatively, an archived webcast of the call will be on Columbus McKinnon's web site at: http://www.cmworks.com/investors. 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 integration of acquisitions and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. Consequently, such forward looking statements should be regarded as the Company's current plans, estimates and beliefs. 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, December 31,
2014 2013 Change
Net sales $ 140,791 $ 145,072 (3.0)%
Cost of products sold 97,382 102,075 (4.6)%
Gross profit 43,409 42,997 1.0%
Gross profit margin 30.8% 29.6%
Selling expense 17,398 16,188 7.5%
General and administrative expense 12,845 15,230 (15.7)%
Amortization 551 478 15.3%
Income from operations 12,615 11,101 13.6%
Operating margin 9.0% 7.7%
Interest and debt expense 3,344 3,395 (1.5)%
Investment income (1,016) (254) 300.0%
Foreign currency exchange loss 247 568 (56.5)%
Other (income) expense, net (181) (147) 23.1%
Income before income tax expense 10,221 7,539 35.6%
Income tax expense 2,360 875 169.7%
Net income $ 7,861 $ 6,664 18.0%
Average basic shares outstanding 19,974 19,691 1.4%
Basic income per share:
Basic income per share $ 0.39 $ 0.34 14.7%
Average diluted shares outstanding 20,232 20,019 1.1%
Diluted income per share:
Diluted income per share $ 0.39 $ 0.33 18.2%
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
Nine Months Ended
December 31, December 31,
2014 2013 Change
Net sales $ 430,714 $ 422,815 1.9%
Cost of products sold 294,584 292,067 0.9%
Gross profit 136,130 130,748 4.1%
Gross profit margin 31.6% 30.9%
Selling expense 52,434 50,216 4.4%
General and administrative expense 40,224 42,247 (4.8)%
Amortization 1,716 1,463 17.3%
Income from operations 41,756 36,822 13.4%
Operating margin 9.7% 8.7%
Interest and debt expense 9,977 10,138 (1.6)%
Investment income (1,683) (746) 125.6%
Foreign currency exchange loss 36 988 (96.4)%
Other (income) expense, net (289) (1,319) (78.1)%
Income before income tax expense 33,715 27,761 21.4%
Income tax expense 8,522 6,955 22.5%
Net income $ 25,193 $ 20,806 21.1%
Average basic shares outstanding 19,925 19,622 1.5%
Basic income per share:
Basic income per share $ 1.26 $ 1.06 18.9%
Average diluted shares outstanding 20,185 19,915 1.4%
Diluted income per share:
Diluted income per share $ 1.25 $ 1.04 20.2%
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
December 31, March 31,
2014 2014
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 102,488 $ 112,309
Trade accounts receivable 70,090 93,223
Inventories 107,421 97,576
Prepaid expenses and other 24,267 23,444
Total current assets 304,266 326,552
Net property, plant, and equipment 85,466 78,687
Goodwill 130,523 119,303
Other intangibles, net 17,773 20,842
Marketable securities 20,829 21,941
Deferred taxes on income 21,658 23,406
Other assets 12,819 7,943
Total assets $ 593,334 $ 598,674
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 23,646 $ 35,359
Accrued liabilities 52,147 52,348
Current portion of long-term debt 7,023 1,588
Total current liabilities 82,816 89,295
Senior debt, less current portion 1,592 2,020
Subordinated debt 148,890 148,685
Other non-current liabilities 54,914 67,388
Total liabilities 288,212 307,388
Shareholders' equity:
Common stock 200 198
Additional paid-in capital 202,013 198,546
Retained earnings 157,413 133,820
ESOP debt guarantee (142)
Accumulated other comprehensive loss (54,504) (41,136)
Total shareholders' equity 305,122 291,286
Total liabilities and shareholders' equity $ 593,334 $ 598,674
COLUMBUS McKINNON CORPORATION
Condensed Consolidated Statements of Cash Flows - UNAUDITED
(In thousands)
Nine Months Ended
December 31, December 31,
2014 2013
Operating activities:
Net income $ 25,193 $ 20,806
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,605 9,566
Deferred income taxes and related valuation allowance (1,273) (1,773)
Net gain on sale of real estate, investments, and other (1,233) (1,629)
Stock based compensation 2,991 2,707
Amortization of deferred financing costs and discount on debt 652 655
Property casualty loss 250
Changes in operating assets and liabilities, net of effects of business acquisition:
Trade accounts receivable 21,633 6,572
Inventories (8,470) (8,927)
Prepaid expenses (1,012) (1,588)
Other assets (531) 534
Trade accounts payable (9,056) (4,753)
Accrued liabilities 756 6,410
Non-current liabilities (10,655) (10,622)
Net cash provided by operating activities 29,850 17,958
Investing activities:
Proceeds from sale of marketable securities 2,585 5,444
Purchases of marketable securities (673) (3,611)
Capital expenditures (11,343) (13,484)
Purchase of business, net of cash acquired (19,931) (5,847)
Other 16
Net cash used for investing activities (29,346) (17,498)
Financing activities:
Proceeds from stock options exercised 1,362 1,464
Net payments under lines-of-credit (7)
Repayment of debt (1,099) (566)
Change in ESOP guarantee (800) 308
Restricted cash related to purchase of business (5,819)
Dividends paid (2,392)
Net cash (used for) provided by financing activities (8,748) 1,199
Effect of exchange rate changes on cash (1,577) 549
Net change in cash and cash equivalents (9,821) 2,208
Cash and cash equivalents at beginning of year 112,309 121,660
Cash and cash equivalents at end of period $ 102,488 $ 123,868
COLUMBUS McKINNON CORPORATION
Additional Data - UNAUDITED
December 31, March 31, December 31,
2014 2014 2013
Backlog (in millions) $ 85.5 $ 86.8 98.4
Trade accounts receivable1
days sales outstanding 43.8 days 52.9 days 47.4 days
Inventory turns per year1
(based on cost of products sold) 3.9 turns 4.5 turns 3.9 turns
Days' inventory1 93.6 days 81.1 days 93.6 days
Trade accounts payable1
days payables outstanding 21.9 days 29.2 days 26.9 days
Working capital as a % of sales1 19.6% 21.7% 19.9%
Debt to total capitalization percentage 34.0% 34.3% 36.2%
Debt, net of cash, to net total capitalization 15.3% 12.1% 9.4%
1 Excludes the impact of the acquisition of STB which closed on December 30, 2014
Shipping Days by Quarter
Q1 Q2 Q3 Q4 Total
FY16 63 64 60 63 250
FY 15 63 64 60 63 250
FY 14 64 63 61 62 250

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