PORTLAND, Ore., Nov. 5, 2014 -- Blount
International, Inc. today announced results for the third quarter
ended September 30, 2014.
Results for the Quarter Ended September 30, 2014
Sales in the third quarter were $245.2 million, an increase
of $14.6 million or 6.3 percent compared to the third quarter of
2013. Operating income for the third quarter of 2014 was $23.5
million compared to $15.6 million in the same quarter last year.
Third quarter net income was $16.1 million, or$0.32 per diluted
share, compared to $7.7 million, or $0.15 per diluted share, in
the third quarter of 2013.
"We performed well in the third quarter and demand
continued to be strong across most geographic regions," stated Josh
Collins, Blount's Chairman and CEO. "With the improved demand, our strong
focus on Operational Excellence, and our other targeted cost-reduction
initiatives, we expect to be toward the high end of the 2014 targets we
outlined last quarter."
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 third quarter 2014 sales of $159.1
million, which was $9.6 million higher than the third quarter of 2013.
Sales volume increases were partially offset by a reduction in average prices.
Third quarter 2014 sales increased in all geographic regions except Asia,
with North America generating approximately seven percent growth
and Europe and Russia achieving approximately 10 percent
growth. Asia sales were down one percent compared to the third
quarter of 2013. Lower average prices partially offset the effect of increased
volumes as a result of a higher mix of sales to original equipment
manufacturers and targeted price reductions in certain geographic markets. The
change in segment sales for the comparable third quarter periods is illustrated
below.
Change in FLAG
Segment Sales
|
||
(In millions;
amounts may not sum due to rounding)
|
Sales
|
Change
|
Third quarter 2013
|
$ 149.5
|
|
Increase /
(Decrease)
|
||
Foreign Exchange
|
0.1
|
0.1%
|
149.6
|
0.1%
|
|
Unit Volume
|
11.5
|
7.7%
|
Selling Price / Mix
|
(2.0)
|
(1.3)%
|
Third quarter 2014
|
$ 159.1
|
6.4%
|
Segment backlog was $135.7 million at September
30, 2014, an increase of 17% from $115.9 million on September
30, 2013. The increase in backlog was driven mostly by increased saw chain
demand compared to the prior year.
Segment contribution to operating income and Adjusted Earnings
Before Interest, Taxes, Depreciation, Amortization, and certain charges
("Adjusted EBITDA") was $26.5 million and $33.8
million, respectively, for the third quarter of 2014, and includes $7.5
million of allocated shared services expenses. Contribution to operating
income improved 22.7 percent and Adjusted EBITDA improved 18.5 percent for the
third quarter of 2014 versus the third quarter of 2013. The change in FLAG
contribution to operating income for the comparable third 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 |
|
Third quarter 2013
|
$ 21.6
|
14.5%
|
$ 6.9
|
$ 28.5
|
19.1%
|
Increase /
(Decrease)
|
|||||
Steel Costs
|
(1.4)
|
||||
Foreign Exchange
|
0.4
|
||||
20.6
|
13.8%
|
||||
Unit Volume
|
4.8
|
||||
Selling Price / Mix
|
(2.0)
|
||||
Costs / Mix
|
3.0
|
||||
26.4
|
16.6%
|
||||
Acquisition accounting(1)
|
0.1
|
||||
Third quarter 2014
|
$ 26.5
|
16.7%
|
$ 7.2
|
$ 33.8
|
21.2%
|
(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
lower average prices and mix 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 (88 percent in the third quarter
of 2014 compared to 71 percent in the third 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 compare more favorably to target than in 2013, increased advertising
costs, and additional training, travel, and relocation expenses.
Farm, Ranch, and Agriculture
The FRAG segment reported third quarter 2014 sales of $78.6
million, an increase of $4.3 million from the third quarter of 2013,
mainly due to improved sales volumes and stronger average pricing. Sales
volumes increased primarily as a result of continued strong sales of log
splitters compared to the prior year. The change in segment sales for the
comparable third quarter periods is illustrated below.
Change in FRAG
Segment Sales
|
||
(In millions;
amounts may not sum due to rounding)
|
Sales
|
Change
|
Third quarter 2013
|
$ 74.3
|
|
Increase /
(Decrease)
|
||
Foreign Exchange
|
0.1
|
0.1%
|
74.4
|
0.1%
|
|
Unit Volume
|
3.7
|
5.0%
|
Selling Price / Mix
|
0.5
|
0.7%
|
Third quarter 2014
|
$ 78.6
|
5.8%
|
Segment backlog was $32.0 million at September
30, 2014 compared to $31.0 million at September 30, 2013.
The FRAG segment had $7.8 million of Adjusted EBITDA in the third
quarter of 2014. FRAG segment contribution to operating income was $2.2
million after $4.0 million of depreciation and amortization
expense, $2.3 million of allocated shared services expenses, and
a $1.4 million non-cash charge related to impairment of an acquired
trade name. The change in the third quarter 2014 contribution to operating
income compared to the third 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 |
|
Third quarter 2013
|
$ 4.4
|
5.9%
|
$ 4.5
|
$ 8.9
|
12.0%
|
Increase /
(Decrease)
|
|||||
Steel Costs
|
—
|
||||
Foreign Exchange
|
—
|
||||
4.4
|
5.9%
|
||||
Unit Volume
|
1.1
|
||||
Selling Price / Mix
|
0.5
|
||||
Costs / Mix
|
(2.8)
|
||||
3.3
|
4.3%
|
||||
Acquisition
accounting(1)
|
0.3
|
||||
Impairment of Acq.
Intangibles
|
(1.4)
|
||||
Third quarter 2014
|
$ 2.2
|
2.8%
|
$ 5.5
|
$ 7.8
|
9.9%
|
(1) Represents
change in acquisition accounting impact for all FRAG business units
|
|||||
The benefit of improved sales volumes and average pricing were
more than offset by higher costs in the FRAG segment, mainly in the areas of
manufacturing, distribution, and supplier purchased components. Product costs
were unfavorable compared to the third quarter of 2013 as a result of higher
procurement costs on certain parts, higher labor costs driven by overtime, and
additional spending in SG&A. Also, product sales mix in the third quarter
of 2014 included relatively lower margin products compared to 2013.
Corporate and Other
Corporate and Other generated net expense of $5.2
million in the third quarter of 2014 compared to net expense of $10.4
million in the third quarter of 2013. Third quarter 2014 net expense was
smaller due to the absence of $4.6 million in restructuring charges
experienced in the third quarter of 2013 related to the closure of a saw chain
manufacturing facility in Portland, Oregon and the related
consolidation of production into other FLAG forestry facilities.
Net Income
Third quarter 2014 net income increased primarily due to higher
overall operating income in the third quarter of 2014 compared to 2013. Net
interest expense decreased $0.8 million to $4.1 million in the third
quarter of 2014 as a result of lower average borrowing levels. Other income
improved$4.2 million primarily as a result of foreign exchange impacts on
non-operating assets. Additionally, the effective income tax rate increased as
the prior year benefited from the expiration of the statute of limitations in
certain tax jurisdictions and release of the related income tax on uncertain
tax positions. The change in net income for the third quarter of 2014 compared
to the third quarter of 2013 is summarized in the table below.
Change in
Consolidated Net Income
|
||||
Diluted
|
||||
(In millions, except
per share data;
|
Income Tax
|
Net
|
Earnings per
|
|
amounts may not sum
due to rounding)
|
Pre-tax Income
|
Effect
|
Income
|
Share
|
Third quarter 2013
Results
|
$ 9.5
|
$ 1.8
|
$ 7.7
|
$ 0.15
|
Change due to:
|
||||
Increased operating
income excluding acquisition accounting
|
9.1
|
1.7
|
7.4
|
0.15
|
Acquisition
accounting
|
(1.2)
|
(0.2)
|
(1.0)
|
(0.02)
|
Decreased net
interest expense
|
0.8
|
0.1
|
0.6
|
0.01
|
Change in other
expense
|
4.2
|
0.8
|
3.4
|
0.07
|
Change in income tax
rate
|
—
|
2.0
|
(2.0)
|
(0.04)
|
Third quarter 2014
Results
|
$ 22.4
|
$ 6.3
|
$ 16.1
|
$ 0.32
|
Cash Flow and Debt
As of September 30, 2014, the Company had net debt
of $351.1 million, a decrease of $44.1
million from December 31, 2013 and a decrease of $53.8
million compared to September 30, 2013. The decrease in net debt
since December 31, 2013 was primarily the result of generating free
cash flow of$51.9 million during the first nine months of 2014. Third
quarter 2014 free cash flow generation was $37.9 million compared to $56.1
million in the third quarter of 2013. The decrease in free cash flow in
the third quarter of 2014 as compared to 2013 was the result of a large
conversion of working capital to cash in 2013 and an increase of $5.2
million in capital spending in 2014, mostly on capacity improvements
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 2.7x as
of September 30, 2014, which is an improvement compared to December
31, 2013 and reflects lower net debt and increased Adjusted EBITDA.
2014 Financial Outlook
The Company has updated its outlook for sales and free cash flow
while maintaining its outlook for Adjusted EBITDA. Sales are expected to range
between $940 million and $950 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 four and five percent and growth in FRAG segment sales of between five
and six 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 $3 million to $4 million unfavorable impact for the year compared
to 2013. The 2014 operating income outlook includes non-cash charges of
approximately $13 million related to acquisition accounting. Free
cash flow in 2014 is expected to range between $42 million and $48
million, after approximately $40 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 is expected to
be between 31 percent and 34 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
|
$ 945.0
|
Operating Income(1)
|
37.5
|
83.5
|
Adjusted EBITDA
|
123.5
|
137.5
|
Free Cash Flow
|
67.6
|
45.0
|
Net Capital
Expenditures
|
29.4
|
41.0
|
Net Debt at Period
End
|
395.2
|
357.5
|
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
|
||
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.
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