- First quarter 2012 operating income and operating margin negatively affected by the Farm, Ranch, and Agriculture ("FRAG") business segment transition and integration costs
- First quarter 2012 sales increased 25% compared to the prior year and declined 4% when excluding sales associated with acquired businesses.
- Overall demand for products remains strong; order backlog remains at record levels for continuing operations
PORTLAND,
Ore., May 7 -- Blount International, Inc. today announced results for the first
quarter ended March 31, 2012, and updated its outlook for 2012.
Results
for the Quarter Ended March 31, 2012
Sales
in the first quarter were $226.3 million, a 25% increase from the first quarter
of 2011. Excluding the impact of businesses acquired since January 1, 2011,
sales declined 4%.
Operating
income for the first quarter of 2012 was $13.6 million compared to $27.8
million in the prior year. Businesses acquired since January 1, 2011 increased
sales by $52.2 million and increased operating income by $0.6 million in the
first quarter of 2012 compared to the prior year.
First
quarter net income was $5.9 million, or $0.12 per diluted share, compared to
$15.6 million, or $0.31 per diluted share, in the first quarter of 2011. First
quarter 2012 operating income includes non-cash charges of $4.4 million related
to accounting for acquisitions, an increase of $2.2 million, or $0.03 per
diluted share, from the first quarter of 2011.
Additionally,
consolidation of existing operations into Blount's new Kansas City, Missouri
("Kansas City") distribution and assembly facility resulted in
charges of $4.9 million, or $0.07 per diluted share.
"While
overall demand and backlog remain strong, we experienced a challenging first
quarter with reduced profit due to lower than expected sales in certain markets
and the ongoing consolidation of our Forestry, Lawn, and Garden
("FLAG") product distribution center and SpeeCo assembly and
distribution operations into our new Kansas City facility. While the time and
financial investment to consolidate these operations has been significant, we
believe it is warranted given the long-term benefit to our customers and our
business," stated Josh Collins, Blount's Chairman and Chief Executive
Officer.
"In
addition, we incurred other costs to work through supply issues related to our
SpeeCo operations. We expect the impact of those items are largely behind us;
however, higher costs to expedite products and complete the Kansas City
facility transition will be felt in the second quarter and possibly in the
third quarter as we work to meet the forecasted demand through those
periods."
Mr.
Collins continued, "Integration of the companies we acquired over the last
two years is our top priority for 2012. We continue to anticipate significant
opportunities for growth, increased scale, and cross-selling in the FLAG and
FRAG businesses as we integrate the companies into our global sales, supply
chain, and distribution network.
The
work we are doing to integrate all the FRAG businesses into Blount, including
the move into the Kansas City facility, is necessary in order to realize fully
the benefits of these acquisitions to the company. The issues we experienced in
the first quarter are significant, but they are temporary. The benefits to the
company will be lasting."
The
consolidation of the SpeeCo distribution and assembly operations and FLAG
distribution center into Blount's new Kansas City distribution and assembly
facility began in late 2011 and is expected to be completed by mid-way through
the third quarter of 2012. The consolidation will provide synergies and
scalability in the FLAG and FRAG businesses and result in approximately $1.0
million of run-rate cost savings on an annual basis by the end of 2012. The
new, 350,000-square-feet facility will replace Blount's existing distribution center
in Kansas City and will provide the capacity to meet Blount's projected needs
for the next decade.
Segment
Results
Blount
operates 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 reported first quarter 2012 sales of $161.6 million. First quarter
2012 sales increased 4% from the first quarter of 2011, but declined 3% when
excluding businesses acquired since January 1, 2011.
For
comparability, all sales statistics are quoted excluding the impact of acquired
businesses for the period during which Blount did not own the acquired
business. A decline in first quarter 2012 sales in Asia (16%) and North America
(6%) accounted for most of the overall sales decline compared to the prior
year, partially offset by increases in the South and Latin American markets
(30%). Sales in our Europe region were flat compared to the first quarter of
2011, but improved by 12% when compared to the fourth quarter of 2011.
Average
pricing improved as price increases in place since mid-2011 improved first
quarter 2012 prices on a comparative basis. The change in segment sales for the
comparable first quarter period is illustrated below, with sales of $11.5
million from businesses acquired since January 1, 2011, presented entirely as
acquired volume increase.
Segment
backlog was $206.3 million at March 31, 2012, an increase of 13% from the
$182.4 million on December 31, 2011. A portion of the increase in backlog
relates to shipping interruptions due to the distribution center consolidation;
the remainder reflects strong demand for our products.
Segment
contribution to operating income and Earnings Before Interest, Taxes,
Depreciation, Amortization and certain charges ("Adjusted EBITDA")
was $27.8 million and $34.4 million, respectively, for the first quarter of
2012.
Segment
contribution to operating income and Adjusted EBITDA decreased by 12.3% and
7.8%, respectively, for the first quarter of 2012 versus 2011.
While
increased average selling prices had the largest positive impact on segment
operating income, volume decline and additional costs (as outlined below) more
than offset the average pricing benefit. A reconciliation of the first quarter
2012 FLAG contribution to operating income compared to the first quarter of
2011 is presented below.
Sales
volumes, steel costs, and cost/mix combined to more than offset the improvement
in average prices. Cost/mix spending was higher in several areas as the Company
integrated the FLAG and FRAG product lines into the new distribution center in
Kansas City, continued promotion of the recently introduced OREGON® PowerNow™
cordless chain saw, and executed strategic programs in the areas of supply
chain and marketing.
By
category, the primary drivers of cost/mix increases were personnel-related
costs, mainly in the areas of supply chain, marketing and information systems,
which increased $1.6 million (including training and travel), advertising
spending that increased $0.7 million, information systems and supply chain
infrastructure spending, and logistics costs, including distribution center
expenses and costs of freight to customers, that account for the majority of
the remaining cost increase.
Farm,
Ranch, and Agriculture
The
FRAG segment reported first quarter 2012 sales of $57.6 million. First quarter
2012 sales increased $38.4 million from the first quarter of 2011, driven by
sales generated by acquired businesses and partially offset by a sales volume
decline in the SpeeCo business unit. Excluding the impact of acquired
businesses, sales declined 12%. The change in segment sales for the comparable
first quarter periods is illustrated below, with sales from businesses acquired
since January 1, 2011 of $40.7 million presented entirely as acquired volume
increase.
Segment
backlog was $24.7 million at March 31, 2012, compared to $28.3 million at
December 31, 2011. March 31, 2012, backlog includes $13.8 million related to
businesses acquired in 2011.
Segment
contribution to operating income and Adjusted EBITDA was negative $3.7 million
and positive $0.8 million, respectively, for the first quarter of 2012. A
reconciliation of the first quarter 2012 contribution to operating income
compared to the first quarter of 2011 is presented below.
Year-over-year
sales volumes were down, mostly driven by shipping constraints during the
consolidation of SpeeCo distribution and assembly operations to the new Kansas
City distribution center during the quarter.
The
largest driver of the $4.6 million in unfavorable cost/mix was increased
freight charges of $1.9 million, which were incurred to expedite shipments from
vendors as well as finished goods to customers.
Additionally,
support costs, primarily in the areas of supply chain and information systems,
increased $1.5 million with planned investments in the infrastructure necessary
to achieve long term strategic targets.
Elevated
product costs and incremental warranty expense to address an issue identified
in the fourth quarter of 2011 represent the majority of the remaining cost/mix
increase.
Acquired
businesses had a net positive impact on segment contribution to operating
income, partially offset by changes in acquisition accounting.
Corporate
and Other
Corporate
and other generated net expense of $10.4 million in the first quarter of 2012
compared to net expense of $4.9 million in the first quarter of 2011. The
year-over-year increase was almost entirely attributed to the $4.9 million
expense associated with consolidation of the SpeeCo distribution and assembly
and FLAG distribution operations into the new Kansas City distribution and
assembly facility. Of the $4.9 million, approximately $2.4 million relates to
plant and equipment, inventory, and other assets that will no longer be
utilized by the SpeeCo business; the remainder relates to wind down and startup
expenses incurred to move the SpeeCo operation and existing FLAG distribution
to the new Kansas City distribution facility.
Net
Income
First
quarter 2012 net income declined primarily due to lower operating income, discussed
above including the impact of non-cash purchase accounting charges and the
facility closure and restructuring charges.
Partially
offsetting the impact of operating income changes and purchase accounting
charges were lower interest and other expenses. Net interest expense was $4.4
million in the first quarter of 2012 versus $4.8 million in the first quarter
of 2011.
The
impact of lower interest rates more than offset the higher average borrowing
levels driven by acquisitions in 2011. The change in net income for the first
quarter of 2012 compared to the first quarter of 2011 is illustrated in the
table below.
Cash
Flow and Debt
As
of March 31, 2012, the Company had net debt of $478.8 million, an increase of
$10.6 million from December 31, 2011. The increase in net debt since the fourth
quarter of 2011 resulted primarily from the use of $1.4 million of cash by
operations and net capital expenditures of $10.1 million in the first quarter
of 2012.
Net
capital expenditures were $4.5 million larger in the first quarter of 2012 than
the first quarter of 2011 driven primarily by $2.2 million spent on the
Company's China manufacturing plant expansion and increased spending of $0.5
million related to recently acquired businesses. Additionally, capital spending
rates increased as a result of maintenance capital spending for FLAG
manufacturing equipment.
The
Company used $11.6 million of free cash in the first quarter of 2012. Free cash
use increased by $23.0 million from the first quarter of 2011 as a result of lower
profit levels, increased capital spending, and an increase in use of cash on
inventory of $11.7 million. The Company defines free cash flow as cash flows
from operating activities less net capital spending.
The
ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted
EBITDA was 3.1x as of March 31, 2012, which is up from 2.8x at December 31,
2011. The increase in leverage from the end of 2011 is primarily the result of
increased inventory and reduced profitability in the first quarter of 2012 and
the resulting increase in net debt.
2012
Financial Outlook
The
Company expects 2012 sales to be between $1,015 million and $1,045 million.
Full
year 2012 operating income is expected to be between $112 million and $120
million. The expectation for 2012 assumes that unfavorable foreign currency
exchange rates will reduce operating income on a year-over-year basis by
between zero and $1.0 million and increased steel prices will further reduce
year-over-year operating income between $2.0 million and $3.0 million.
The
outlook for 2012 operating income also includes estimated non-cash charges as a
result of acquisition accounting of approximately $16 million. Free cash flow
for 2012 is expected to range between $40 million and $50 million, after
approximately $45 million to $50 million of capital expenditures. Net interest
expense is expected to be between $17 million and $18 million in 2012, and the
effective income tax rate for continuing operations is expected to be between
34% and 37% in 20
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®, OREGON® PowerNow™, Carlton®,
Woods®, TISCO, SpeeCo®, and ICS® brands. For more information about Blount,
please visit our website at http://www.blount.com/.
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