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Columbus McKinnon Reports Third Quarter Fiscal Year 2017 Financial Results

01/26/2017

AMHERST, N.Y., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Columbus McKinnon Corporation (NASDAQ:CMCO), a leading designer, manufacturer and marketer of material handling products, technologies and services, today announced financial results for its fiscal year 2017 third quarter, which ended December 31, 2016.

Third Quarter Summary (compared with prior-year period, unless otherwise noted)

  • Revenue was $152.5 million; excluding unfavorable FX, revenue was $153.9 million
  • Gross profit of $44.8 million was negatively impacted by $1.3 million of atypical items; excluding those items, gross margin was 30.2%
  • STAHL CraneSystems acquisition scheduled to close on January 31, 2017; based on improved debt financing terms, acquisition is expected to be accretive to EPS by $0.34 in Fiscal 18 (before purchase accounting and charges)
  • Common equity offering to close with acquisition:  net proceeds of $47.2 million reduce borrowing requirements for acquisition resulting in lower cost of debt at LIBOR plus 3.0%; also secured a
    $100 million revolver facility
  • Income from operations of $5.3 million included $3.1 million of expenses related to STAHL acquisition; adjusted income from operations was $8.5 million, or 5.5% of sales; atypical items had a 1.2% negative impact to margin
  • Repaid $5.7 million of debt in the quarter; net debt to net total capitalization down 1.0 percentage point from trailing quarter to 38.4%

Timothy T. Tevens, President and Chief Executive Officer, commented, "The quarter was weaker than we had anticipated, especially in the U.S. and EMEA, but our optimism for the longer term is not deterred.  Our belief is that new product development combined with the Magnetek and STAHL acquisitions expand our competitive advantages and provides a stronger global market position as industrial economies strengthen."

He continued, "We will be launching our �drive in every hoist' strategic initiative with our Lodestar and Global King product lines in early Fiscal 2018.  In addition, STAHL will measurably augment our reach into Europe with powered wire rope and electric chain hoists, as well as broaden our explosion-proof line of products globally.  We have positioned the Company for future growth and profitably and are excited to leverage the breadth of our brands and product offerings to build a bigger business."  

Third Quarter Review
Sales

($ in millions) Q3 FY 17   Q3 FY 16   Change   % Change
Net sales $ 152.5     $ 159.7     $ (7.2 )   (4.5 )%
  FX impact $ 1.4              
Net sales excluding FX $ 153.9         $ (5.8 )   (3.7 )%
U.S. sales $ 98.1     $ 102.6     $ (4.5 )   (4.4 )%
  % of total 64 %   64 %        
Non-U.S. sales $ 54.4     $ 57.1     $ (2.7 )   (4.7 )%
  % of total 36 %   36 %        
  FX impact $ 1.4              
Non-U.S. sales excluding FX $ 55.8         $ (1.3 )   (2.3 )%

Sales to the U.S. were impacted by lower volume when compared with the prior-year period.  Non-U.S. sales were impacted by lower volume, partially offset by price increases.

Operating Results

($ in millions) Q3 FY 17   Q3 FY 16   Change   % Change
Gross profit $ 44.8     $ 48.3     $ (3.5 )   (7.3 )%
  Gross margin 29.4 %   30.3 %   (90) bps    
Income from operations $ 5.3     $ 11.0     $ (5.6 )   (51.5 )%
  Operating margin 3.5 %   6.9 %   (340) bps    
Net income $ 0.5     $ 7.2     $ (6.7 )   (93.0 )%
  Diluted EPS $ 0.02     $ 0.36     $ (0.34 )   (94.4 )%

Gross profit was primarily down on lower sales volume, which had a $2.0 million negative impact.  Atypical items in the quarter included higher product liability expense of $1.0 million, that includes a $0.5 million legal settlement, and severance expenses related to cost-saving initiatives.  For more information on changes in gross profit, please see the attached tables.

Income from operations was $5.3 million.  Adjusted income from operations of $8.5 million was down $4.0 million on weaker gross profit.  Please see the attached tables for a reconciliation of GAAP income from operations to adjusted income from operations.

The effective tax rate of 67% was impacted by $3.1 million of non-deductible STAHL acquisition related costs.  This also impacts the effective tax rate for the full year of fiscal 2017.  It is now expected to be between 31% and 36%.

Net income was $0.5 million.  Adjusted net income was $4.5 million, which excludes the STAHL acquisition related costs, a $1.8 million loss on the revaluation of the euro call option to hedge the STAHL purchase price, and a tax rate normalization adjustment.  Adjusted net income reflects the impact of lower sales volume, lower gross profit margin due to atypical items as well as lower productivity and other cost changes.  Please see the attached tables for a reconciliation of GAAP net income and earnings per share to adjusted net income and earnings per share.

Equity Financing Improves Acquisition Accretion; Strong Cash Generation Reduces Debt

During the quarter, the Company entered into a definitive agreement to sell 2,273,000 shares of its common stock in a private placement, which is expected to result in gross proceeds of $50.0 million and net proceeds of $47.2 million (after deducting transaction fees and expenses).  The offering and related debt financing are expected to close in conjunction with the closing of the STAHL acquisition, which is planned for January 31, 2017.

Gregory P. Rustowicz, Vice President - Finance and Chief Financial Officer, noted, "The sale of common equity demonstrably improved the overall financing of the STAHL acquisition by reducing required borrowings and measurably lowering the interest rate on the debt. The debt financing is now expected to be an all first lien, $445 million term loan at a rate of LIBOR plus 3.0%. In addition, we have finalized a $100 million revolver which will provide additional liquidity for the Company.  As a result, the STAHL acquisition is now expected to be $0.34 accretive to earnings in fiscal 2018 and $0.51 accretive to earnings in fiscal 2019 (before purchase accounting and charges). Our plan is to pay down $45 million to $50 million of debt in Fiscal 2018 and ramp the rate of debt reduction to $50 million to $55 million in Fiscal 2019 and beyond."   

Cash generated from operating activities in the third quarter was $22.9 million. Gross debt was $234.1 million at December 31, 2016 after $5.7 million of repayments during the quarter. The Company has repaid a total of $33.3 million of debt during the nine-month period ended December 31, 2016. Net debt to net total capitalization, which was 38.4% as of December 31, 2016, is down 4.6 percentage points since the beginning of the fiscal year.

Capital expenditures for the nine months ended December 31, 2016 were $11.3 million and are expected to be $16 million for fiscal 2017, unchanged from previous guidance.

Teleconference/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 www.cmworks.com/investors.  A question and answer session will follow the formal discussion.

Columbus McKinnon's conference call can be accessed by calling 201-493-6780 and asking for the "Columbus McKinnon conference call."  The webcast can be monitored on Columbus McKinnon's website at www.cmworks.com/investors.  An audio recording of the call will be available two hours after its completion through Thursday, February 2, 2017 by dialing 412-317-6671 and entering the passcode 13652416.  Alternatively, an archived webcast of the call can be found on the Company's website.  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, technologies, systems and services, which efficiently and ergonomically move, lift, position and secure materials and people.  Key products include hoists, cranes, actuators, rigging tools, light rail work stations and digital power and motion control systems.  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 https://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 effect of operating leverage, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the speed at which shipments improve, the effectiveness of new products, the Company's overall leverage and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. 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, 2016   December 31, 2015   Change
Net sales   $ 152,497     $ 159,738     (4.5 )%
Cost of products sold   107,676     111,397     (3.3 )%
Gross profit   44,821     48,341     (7.3 )%
Gross profit margin   29.4 %   30.3 %    
Selling expenses   17,988     19,295     (6.8 )%
% of net sales   11.8 %   12.1 %    
General and administrative expenses   19,751     16,399     20.4 %
% of net sales   13.0 %   10.3 %    
Amortization of intangibles   1,765     1,689     4.5 %
Income from operations   5,317     10,958     (51.5 )%
Operating margin   3.5 %   6.9 %    
Interest and debt expense   2,299     2,425     (5.2 )%
Investment (income) loss   (61 )   (164 )   (62.8 )%
Foreign currency exchange (gain) loss   1,673     476     251.5 %
Other (income) expense, net   (110 )   (189 )   (41.8 )%
Income before income tax expense   1,516     8,410     (82.0 )%
Income tax expense   1,011     1,183     (14.5 )%
Net income   $ 505     $ 7,227     (93.0 )%
             
Average basic shares outstanding   20,239     20,104     0.7 %
Basic income per share   $ 0.02     $ 0.36     (94.4 )%
             
Average diluted shares outstanding   20,490     20,295     1.0 %
Diluted income per share   $ 0.02     $ 0.36     (94.4 )%
             
Dividends declared per common share   $ 0.04     $ 0.04      
                     

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
         
    Nine Months Ended    
    December 31, 2016   December 31, 2015   Change
Net sales   $ 453,435     $ 442,015     2.6 %
Cost of products sold   310,838     303,145     2.5 %
Gross profit   142,597     138,870     2.7 %
Gross profit margin   31.4 %   31.4 %    
Selling expenses   55,834     53,292     4.8 %
% of net sales   12.3 %   12.1 %    
General and administrative expenses   52,346     53,541     (2.2 )%
% of net sales   11.5 %   12.1 %    
Amortization of intangibles   5,280     3,276     61.2 %
Income from operations   29,137     28,761     1.3 %
Operating margin   6.4 %   6.5 %    
Interest and debt expense   7,398     5,213     41.9 %
Investment (income) loss   (366 )   (668 )   (45.2 )%
Foreign currency exchange (gain) loss   890     1,750     (49.1 )%
Other (income) expense, net   (238 )   (302 )   (21.2 )%
Income before income tax expense   21,453     22,768     (5.8 )%
Income tax expense   7,731     9,078     (14.8 )%
Net income   $ 13,722     $ 13,690     0.2 %
             
Average basic shares outstanding   20,192     20,071     0.6 %
Basic income per share   $ 0.68     $ 0.68     -- %
             
Average diluted shares outstanding   20,400     20,299     0.5 %
Diluted income per share   $ 0.67     $ 0.67     -- %
             
Dividends declared per common share   $ 0.08     $ 0.08      
                     

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
         
    December 31, 2016   March 31,
 2016
    (unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents   $ 51,538     $ 51,603  
Trade accounts receivable   74,853     83,812  
Inventories   109,131     118,049  
Prepaid expenses and other   16,293     19,265  
Total current assets   251,815     272,729  
         
Property, plant, and equipment, net   99,163     104,790  
Goodwill   168,513     170,716  
Other intangibles, net   117,002     122,129  
Marketable securities   8,147     18,186  
Deferred taxes on income   69,608     73,158  
Other assets   11,364     11,143  
Total assets   $ 725,612     $ 772,851  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities:        
Trade accounts payable   $ 28,209     $ 36,061  
Accrued liabilities   51,212     53,210  
Current portion of long-term debt   13,051     43,246  
Total current liabilities   92,472     132,517  
         
Senior debt, less current portion   136     844  
Term loan and revolving credit facility   220,946     223,542  
Other non-current liabilities   119,735     129,639  
Total liabilities   433,289     486,542  
         
Shareholders' equity:        
Common stock   202     201  
Additional paid-in capital   210,502     206,682  
Retained earnings   186,277     174,173  
Accumulated other comprehensive loss   (104,658 )   (94,747 )
Total shareholders' equity   292,323     286,309  
Total liabilities and shareholders' equity   $ 725,612     $ 772,851  
                 


COLUMBUS McKINNON CORPORATION
Condensed Consolidated Statements of Cash Flows - UNAUDITED
(In thousands)
     
    Nine Months Ended
    December 31, 2016   December 31, 2015
Operating activities:        
Net income   $ 13,722     $ 13,690  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   17,695     13,872  
Deferred income taxes and related valuation allowance   2,627     290  
Net gain on sale of real estate, investments, and other   (116 )   (379 )
Stock based compensation   4,027     3,368  
Amortization of deferred financing costs and discount on debt   515     428  
Loss on revaluation of foreign exchange option   1,826      
Changes in operating assets and liabilities, net of effects of business acquisitions:        
Trade accounts receivable   6,909     13,451  
Inventories   5,267     (790 )
Prepaid expenses and other   8,153     2,100  
Other assets   (483 )   3,249  
Trade accounts payable   (5,465 )   (9,713 )
Accrued liabilities   2,082     2,856  
Non-current liabilities   (8,239 )   (9,520 )
Net cash provided by operating activities   48,520     32,902  
         
Investing activities:        
Proceeds from sale of marketable securities   10,336     5,732  
Purchases of marketable securities   (242 )   (4,239 )
Capital expenditures   (11,274 )   (15,518 )
Purchase of business, net of cash acquired   (588 )   (182,467 )
Purchase of foreign exchange option   (6,370 )    
Net cash used for investing activities   (8,138 )   (196,492 )
         
Financing activities:        
Proceeds from exercises of stock options   353     242  
Net borrowings (repayments) under line-of-credit agreements   (23,500 )   164,057  
Repayment of debt   (9,792 )   (9,854 )
Restricted cash related to purchase of business   (588 )    
Dividends paid   (2,421 )   (2,408 )
Other   (558 )   (890 )
Net cash (used for) provided by financing activities   (36,506 )   151,147  
         
Effect of exchange rate changes on cash   (3,941 )   1,268  
         
Net change in cash and cash equivalents   (65 )   (11,175 )
Cash and cash equivalents at beginning of year   51,603     63,056  
Cash and cash equivalents at end of period   $ 51,538     $ 51,881  
                 


COLUMBUS McKINNON CORPORATION
Q3 FY 2016 to Q3 FY 2017 Sales Bridge
         
    Third Quarter   Year to Date
($ in millions)   $ Change   % Change   $ Change   % Change
Q3 Fiscal 2016 Sales   $ 159.7         $ 442.0      
Magnetek acquisition         %     40.3     9.1 %
Pricing     0.2     0.1 %     0.8     0.2 %
Volume     (6.0 )   (3.8 )%     (25.6 )   (5.8 )%
Subtotal of change     (5.8 )   (3.7 )%     15.5     3.5 %
Foreign currency translation     (1.4 )   (0.8 )%     (4.1 )   (0.9 )%
Total change   $ (7.2 )   (4.5 )%   $ 11.4     2.6 %
Q3 Fiscal 2017 Sales   $ 152.5         $ 453.4      
                         


COLUMBUS McKINNON CORPORATION
Q3 FY 2016 to Q3 FY 2017 Gross Profit Bridge
     
($ in millions) Third Quarter Year to Date
Q3 Fiscal 2016 Gross Profit $ 48.3   $ 138.9  
Magnetek Acquisition       14.2  
Productivity, net of other cost changes   (1.2 )   0.8  
Prior year purchase accounting & restructuring costs   1.1     2.4  
Pricing, net of material cost inflation       (0.2 )
Product liability   (1.0 )   (2.3 )
Sales volume and mix   (2.0 )   (10.0 )
Subtotal of change   (3.1 )   4.9  
Foreign currency translation   (0.4 )   (1.2 )
Total change $ (3.5 ) $ 3.7  
Q3 Fiscal 2017 Gross Profit $ 44.8   $ 142.6  
             


COLUMBUS McKINNON CORPORATION
Additional Data - UNAUDITED
             
    December 31,
2016
  March 31,
2016
  December 31,
 2015
Backlog (in millions)   $ 97.9         $ 98.6         $ 97.6      
Project backlog (in millions, expected to ship beyond 3 months)   $ 41.3         $ 41.2         $ 38.5      
Project backlog as % of total backlog   42.2     %   41.8     %   39.4     %
                         
Trade accounts receivable                        
Days sales outstanding   44.7     days   49.2     days   46.5     days
                         
Inventory turns per year                        
(based on cost of products sold)   3.9     turns   3.6     turns   3.7     turns
Days' inventory   93.6     days   101.0     days   98.6     days
                         
Trade accounts payable                        
Days payables outstanding   23.8     days   30.8     days   24.3     days
                         
Working capital as a % of sales(1)   19.9     %   21.5     %   21.6     %
                         
Debt to total capitalization percentage   44.5     %   48.3     %   50.0     %
                         
Debt, net of cash, to net total capitalization   38.4     %   43.0     %   44.9     %

(1) March 31, 2016 and December 31, 2015 figures exclude the impact of the acquisition of Magnetek

Shipping Days by Quarter
    Q1   Q2   Q3   Q4   Total
FY 18   63   62   60   63   248
                     
FY 17   64   63   60   64   251
                     
FY 16   63   64   60   63   250


COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Income from Operations to Non-GAAP Adjusted Income from Operations and Operating Margin
($ in thousands, except per share data)
       
  Three Months Ended December 31,   Nine Months Ended December 31,
    2016       2015       2016       2015  
  $   $   $   $
Income from operations $ 5,317     $ 10,958     $ 29,137     $ 28,761  
Add back:              
Canadian pension lump sum settlements               247        
Acquisition deal costs   3,140       414       3,140       5,746  
Acquisition related severance costs                     2,300  
Acquisition inventory step-up expense         655             1,446  
Acquisition amortization of backlog         447             581  
European facility consolidation costs                     585  
Non-GAAP adjusted income from operations $ 8,457     $ 12,474     $ 32,524     $ 39,419  
               
Sales   152,497       159,738       453,435       442,015  
Adjusted operating margin   5.5 %     7.8 %     7.2 %     8.9 %
                               

Adjusted income from operations is defined as income from operations as reported, adjusted for certain items and to apply a normalized tax rate.  Adjusted income from operations is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable to the measures as used by other companies.  Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted income from operations, is important for investors and other readers of the Company's financial statements and assists in understanding the comparison of the current quarter's and current year's income from operations to the historical periods' income from operations.

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Net Income and Diluted Earnings per Share to Non-GAAP Adjusted Net Income and Diluted Earnings per Share
($ in thousands, except per share data)
       
 
Three Months Ended December 31,
  Nine Months Ended December 31,
 
2016    2015     2016     2015 
 
$   $   $   $
Net income $ 505     $ 7,227     $ 13,722     $ 13,690  
Add back:              
Canadian pension lump sum settlements               247        
Acquisition deal costs   3,140       414       3,140       5,746  
Loss on revaluation of foreign exchange option   1,826             1,826        
Acquisition related severance costs                     2,300  
Acquisition inventory step-up expense         655             1,446  
Acquisition amortization of backlog       447           581  
European facility consolidation costs                     585  
Normalize tax rate to 30%(1)   (934 )     (1,795 )     (269 )     (950 )
Non-GAAP adjusted net income $ 4,537     $ 6,948     $ 18,666     $ 23,398  
               
Average diluted shares outstanding   20,490       20,295       20,400       20,299  
               
Diluted income per share - GAAP $ 0.02     $ 0.36     $ 0.67     $ 0.67  
               
Diluted income per share - Non-GAAP $ 0.22     $ 0.34     $ 0.92     $ 1.15  
                               

(1)  Applies a normalized tax rate of 30% to GAAP pre-tax income and non-GAAP adjustments above, which are each pre-tax.

Adjusted net income and diluted EPS are defined as net income and diluted EPS as reported, adjusted for certain items and to apply a normalized tax rate. Adjusted net income and diluted EPS are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable to the measures as used by other companies.  Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted net income and diluted EPS, is important for investors and other readers of the Company's financial statements and assists in understanding the comparison of the current quarter's and current year's net income and diluted EPS to the historical periods' net income and diluted EPS.

Contacts:
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.com

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