Blount Announces First Quarter 2014 Results

• First quarter 2014 sales of $232.0 million, flat compared to 2013
• First quarter 2014 Adjusted EBITDA increased 8 percent to $34.6 million
• LTM Adjusted EBITDA of $126.0 million
• 2014 full-year sales and profit guidance maintained

PORTLAND, Ore., May 9, 2014 -- Blount International, Inc. today announced results for the first quarter ended March 31, 2014.

Results for the Quarter Ended March 31, 2014

Sales in the first quarter were $232.0 million, which were consistent with the first quarter of 2013. Operating income for the first quarter of 2014, which includes $1.5 million facility closure and restructuring expense, was $20.8 million compared to $19.1 million in the prior year. First quarter net income was $10.6 million, or $0.21 per diluted share, compared to $9.3 million, or $0.19 per diluted share, in the first quarter of 2013.

"We performed well during the first quarter, and we are pleased with our results. Market demand was generally flat to last year, but the profit improvement initiatives we have implemented over the past year are taking hold," stated Josh Collins, Blount's Chairman and CEO. "We remain cautiously optimistic about the remainder of 2014."

Mr. Collins continued, "Our margins improved significantly as a result of our continuous improvement program and our restructuring efforts in 2013. We are committed to further enhancing our operations through our Operational Excellence program and other targeted cost-reduction initiatives. We remain focused on managing for the long-term while balancing our business and investments with current market conditions."

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 first quarter 2014 sales of $165.2 million, which was slightly higher than the first quarter of 2013. When excluding the impact of foreign exchange rate changes, first quarter 2014 sales increased nearly one percent. Sales volume increases were offset by the impact of currency and a reduction in average prices due to targeted promotions.

First quarter 2014 sales increased approximately five percent in Europe and Russia while North American sales were approximately four percent lower than first quarter 2013.

Segment backlog was $156.8 million at March 31, 2014, a decrease of nearly four percent from $162.8 million on March 31, 2013. The reduction in backlog relates primarily to the timing of customer order intake at the end of the first quarter.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $28.1 million and $34.6 million (after $7.2 million of allocated shared services expenses), respectively, for the first quarter of 2014.

Segment contribution to operating income and Adjusted EBITDA improved by 14.3 percent and 9.5 percent, respectively, for the first quarter of 2014 versus 2013.

Higher sales volumes, an improved cost profile, and the favorable impact of foreign exchange increased the segment's contribution to operating income and Adjusted EBITDA. Targeted sales promotions partially offset these positive factors.

The segment's cost profile improved partially due to the closure of the higher cost FLAG manufacturing plant in Portland, Oregon announced in mid-2013 along with higher plant utilization rates of 88 percent in the first quarter of 2014 compared to 85 percent in the first quarter of 2013.

Farm, Ranch, and Agriculture

The FRAG segment reported first quarter 2014 sales of $59.9 million, a decrease of $0.4 million from the first quarter of 2013 mainly due to reduced sales volumes, partially offset by stronger average pricing. Sales volumes were negatively impacted primarily by reduced volume of agricultural blade sales in Europe.

Segment backlog was $22.9 million at March 31, 2014, compared to $16.6 million at March 31, 2013. The increased backlog reflects improved demand for log splitters and tractor attachments in the segment.

The FRAG segment had $3.1 million of Adjusted EBITDA in the first quarter of 2014. FRAG segment contribution to operating income was negative $0.9 million after $1.2 million of depreciation expense, $2.7 million of non-cash amortization of acquired intangible assets, and $2.0 million of allocated shared services expenses.

Average selling prices improved in the first quarter of 2014 compared to the first quarter of 2013 as a result of a routine annual price increases implemented over the last twelve months. However, the price improvement was more than offset by increased steel costs and higher component and conversion costs.

Conversion costs were unfavorable compared to the first quarter of 2013 as a result of temporary equipment outages and marginally higher labor costs as increased production volumes drove overtime and training expense for new personnel.

Corporate and Other

Corporate and Other generated net expense of $6.4 million in the first quarter of 2014 compared to net expense of $4.3 million in the first quarter of 2013. First quarter 2014 Corporate and Other net expense increased primarily due to $1.5 million of facility closure costs, which is related to the closure of the Company's Querétaro, Mexico blade plant that was announced on February 10, 2014 and wrapping up the closure of our Milwaukie, Oregon forestry plant.

Additionally, the remainder of the increase in corporate and other net expense is attributable to slightly lower sales volumes in the CCF business and acquisition accounting expense recorded in the first quarter of 2014.

Net Income

First quarter 2014 net income increased due to higher overall operating income in the first quarter of 2014 compared to 2013. The positive impact of higher operating income was partially offset by higher interest expense in the first quarter of 2014 versus the first quarter of 2013. Net interest expense increased $0.2 million to $4.5 million in the first quarter of 2014 as a result of higher average interest rates on borrowings. Other income declined as a result of foreign exchange impacts on non-operating assets.

Cash Flow and Debt

As of March 31, 2014, the Company had net debt of $403.2 million, an increase of $8.0 million from December 31, 2013 and a decrease of $76.8 million compared to March 31, 2013. The increase in net debt since the end of the fourth quarter of 2013 was primarily the result of free cash use of $5.6 million combined with the impact of acquiring the Pentruder(R) distribution business in the first quarter of 2014.

The free cash use in the first quarter of 2014 was due to an increase in working capital partially offset by improved operating results. Capital spending was approximately flat from year to year. Working capital increased due to an increase in accounts receivable partially offset by reduced inventory and increased short-term operating liabilities.

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 3.3x as of March 31, 2014, which is consistent with December 31, 2013.

2014 Financial Outlook

The Company's fiscal year 2014 outlook remains unchanged. Sales are expected to range between $925 million and $950 million, Adjusted EBITDA between $130 million and $135 million, and operating income to range between $75 million and $80 million.

Our expectation for sales continues to assume growth in FLAG segment sales of between two and four percent and growth in FRAG segment sales of between six and eight percent, both compared to estimated 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 $40 million to $45 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 35 percent and 38 percent in 2014.

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(R) , Carlton(R) , Woods(R) , TISCO, SpeeCo(R) , ICS(R) and Pentruder(R) brands.