- Fourth quarter 2012 sales of $230 million
- Fourth quarter 2012 FLAG sales increased two percent, excluding currency impacts, compared to fourth quarter 2011
- 2013 full year sales growth of zero to five percent expected
PORTLAND,
Ore. -- March 7, 2013 -- Blount International, Inc. today announced results for
the fourth quarter ended December 31, 2012, and provided its 2013 full year
sales and operating income outlook.
Results for the
Quarter Ended December 31, 2012
Sales
in the fourth quarter were $229.6 million, a three percent decrease from the
fourth quarter of 2011. Operating income for the fourth quarter of 2012 was
$19.4 million compared to $21.4 million in the prior year. Fourth quarter net
income was $9.0 million, or $0.18 per diluted share, compared to $9.5 million,
or $0.19 per diluted share, in the fourth quarter of 2011.
Full
year 2012 sales were $927.7 million, a 12 percent increase from 2011. Full year
2012 sales declined five percent when excluding sales generated from acquired
businesses. Operating income for 2012 was $79.3 million compared to $98.0
million in 2011, and 2012 net income was $39.6 million ($0.79 per diluted
share) compared to $49.7 million ($1.01 per diluted share) in 2011.
"As
we have discussed over the past few quarters, the integration of the businesses
we acquired over the previous two years was a significant focus last
year," stated Josh Collins, Blount's Chairman and Chief Executive Officer.
"During 2012, our European and North American markets experienced slowing
demand, driven by economic uncertainty and weather-induced, slower buying
patterns by our customers. We anticipate a modest overall increase in customer
demand in 2013."
Mr.
Collins continued, "Over the last year, we had many achievements that our
overall profitability does not reflect. For example, we invested in our
infrastructure to position the Company for future growth through the expansion
of our Fuzhou, China, facility and consolidation of our North American assembly
and distribution operations. Although these moves came at a substantial cost,
we believe the heavy lifting is behind us. Our focus in 2013 will include
additional work in expanding the Fuzhou capacity and other efforts to satisfy
customer demand, as well as methodically completing the integration of Woods,
TISCO, PBL, and KOX."
Segment Results
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 reported fourth quarter 2012 sales of $165.9 million, a slight
increase from the fourth quarter of 2011. When excluding the impact of foreign
exchange rate changes, sales increased approximately two percent compared to
the fourth quarter of 2011. Sales volumes more than offset the impact of
currency rates and a slight reduction in average prices. Average pricing
declined slightly due to an unfavorable product and customer mix of sales in
the fourth quarter. Volumes improved, particularly in Europe, which accounted
for the largest component of the sales volume increase compared to the fourth
quarter of 2011.
Segment
backlog was $167.9 million at December 31, 2012, a decrease of eight percent
from the $182.4 million on December 31, 2011. The reduction in backlog relates
primarily to softer demand due to the uncertain economic climate in Europe.
Segment
contribution to operating income and Earnings Before Interest, Taxes,
Depreciation, Amortization and certain charges ("Adjusted EBITDA")
was $26.2 million and $32.9 million, respectively, for the fourth quarter of
2012. Segment contribution to operating income and Adjusted EBITDA declined by
$0.1 million and $0.5 million, respectively, for the fourth quarter of 2012
versus 2011.
Improved
sales volumes, lower SGandA spending, and lower steel costs all increased
segment operating income; however, production volume declines and related costs
and currency exchange rate changes more than offset the benefit from those
factors.
While
steel costs have declined consistent with the broader market and the timing of
our sell through of inventory, the benefit was more than offset by cost/mix,
average pricing, and currency impacts. Cost/mix spending was higher as a result
of slowing production in most of the FLAG product lines in response to soft
market conditions and higher inventory levels in the last half of 2012. FLAG
production volumes for the fourth quarter of 2012 were at approximately 82
percent of capacity, compared to 93 percent in the fourth quarter of 2011,
resulting in unfavorable plant efficiency and related cost absorption.
Partially
offsetting the increase in product costs was a reduction in SGandA expense,
mainly in the areas of travel, professional fees, and advertising. Foreign
currency exchange rates contributed to the decline in contribution to operating
income mostly as a result of the stronger U.S. Dollar versus the Euro, which
resulted in lower U.S. Dollar equivalent sales and profit. The U.S. Dollar-Euro
impact was partially offset by a weaker Brazilian Real driving lower
manufacturing and overhead costs in the Brazilian operations.
Farm, Ranch, and
Agriculture
The
FRAG segment reported fourth quarter 2012 sales of $57.2 million. Fourth
quarter 2012 sales decreased $8.5 million from the fourth quarter of 2011
mainly on softer sales in the Woods business, along with lower average selling
prices in the SpeeCo business unit. Tractor attachment and log splitter sales
were the primary driver of the decline as seasonally higher temperatures and
drought conditions in the U.S. in the last half of 2012 depressed sales of both
product lines.
Segment
backlog was $31.5 million at December 31, 2012, compared to the $30.8 million
at December 31, 2011.
Segment
contribution to operating income and Adjusted EBITDA was a $3.9 million loss
and income of $0.2 million, respectively, for the fourth quarter of 2012.
The
decline in sales volume generated a reduction to operating income contribution,
and cost/mix increased compared to the fourth quarter of 2011. Average prices
declined, primarily in the log splitter product line, as a result of the mix of
products sold in that category. The increase in cost/mix was driven primarily
by a $2.0 million inventory charge in the fourth quarter of 2012 related to the
discontinuance of a line of log splitters. Additionally, FRAG support costs
increased by approximately $1.0 million compared to the fourth quarter of 2011,
primarily in the area of supply chain as well as information systems costs associated
with planned investments in infrastructure.
Corporate and Other
Corporate
and other generated net expense of $2.9 million in the fourth quarter of 2012
compared to net expense of $4.3 million in the fourth quarter of 2011. The
smaller net expense was primarily attributable to improved sales of CCF
products and lower SGandA spending, driven mostly by reduced
acquisition-related activity compared to the prior year.
Net Income
Fourth
quarter 2012 net income decreased due to lower overall operating income in the
fourth quarter of 2012 compared to 2011. The impact of lower operating income,
discussed above, was partially offset by lower interest expense and lower
income taxes in the comparable fourth quarter periods. Net interest expense was
$4.3 million in the fourth quarter of 2012 versus $4.5 million in the fourth
quarter of 2011.
Cash Flow and Debt
As
of December 31, 2012, the Company had net debt of $466.5 million, a decrease of
$1.4 million from September 30, 2012, and a decrease of $1.8 million compared
to December 31, 2011. The decrease in net debt since the end of the third
quarter of 2012 was the result of free cash use of $0.7 million, which was more
than offset by the impact of exchange rate changes on cash balances of $1.6
million and cash generated from equity compensation plans.
Free
cash use was $0.7 million in the fourth quarter of 2012 resulting from cash
generated by operations of $12.4 million offset by net capital expenditures of
$13.1 million. Free cash generated in the fourth quarter of 2012 declined by
$2.2 million compared to the fourth quarter of 2011 mostly as a result of
reduced cash from operating activities of $4.4 million, partially offset by
$2.1 million of decreased capital equipment spending. Cash from operating
activities declined primarily as a result of a decline in net income in the
fourth quarter of 2012 compared to the fourth quarter of 2011, and net capital
expenditures were smaller in the fourth quarter of 2012 than the fourth quarter
of 2011 as spending related to the Fuzhou, China expansion slowed somewhat
between phases of that project.
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 3.4x as of December 31, 2012, which
increased from 2.8x at December 31, 2011. The increase in leverage from the end
of 2011 is primarily the result of reduced 2012 profitability.
2013 Financial
Outlook
The
Company's fiscal year 2013 outlook for sales is estimated to range between $930
million and $980 million, and operating income to range between $88 million and
$98 million. Our expectation for sales assumes growth in FLAG segment sales of
zero to four percent, and growth in FRAG segment sales of one to six percent,
both compared to 2012 levels.
In
2013, operating income is expected to experience headwind from foreign currency
exchange rates of between $1 million and $2 million and steel prices are
expected to remain approximately stable compared to 2012 with no significant
impact on a full year basis compared to 2012. The 2013 operating income outlook
includes non-cash charges of approximately $14 million related to acquisition
accounting.
Free
cash flow in 2013 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 2013,
and the effective income tax rate for continuing operations is expected to be between
35 percent and 38 percent in 2013.
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®, and ICS® brands.
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