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| 8-K - 8-K - Colfax CORP | cfx8-kxq22018earnings.htm |
Colfax Reports Second Quarter 2018 Results
• | Reported net income from continuing operations per diluted share of $0.52 versus $0.30 in the prior year quarter; adjusted net income per share of $0.61 versus $0.45 in the prior year quarter |
• | Achieved strong organic growth in Fabrication Technology sales and Air & Gas Handling industrial sector orders; strengthened adjusted operating margins |
• | Increased full year adjusted net income per share outlook |
• | Signed agreement for a complementary Fabrication Technology acquisition; repurchased Colfax shares |
ANNAPOLIS JUNCTION, MD - August 6, 2018 - Colfax Corporation (NYSE: CFX), a leading diversified industrial technology company, today announced its financial results for the second quarter of 2018.
The Company reported net income from continuing operations of $68 million or $0.52 per diluted share, compared to $0.30 in the prior year quarter. Colfax also reported second quarter 2018 adjusted net income of $75 million or $0.61 per share compared to $0.45 per share for the same prior year period.
Second quarter 2018 net sales of $925 million were 9% higher than the comparable period of 2017. Excluding acquisitions and foreign currency translation effects (FX), Fabrication Technology segment sales grew 8.2%, and Air & Gas Handling segment sales decreased 13.1%. Second quarter 2018 Air & Gas Handling orders increased 5.8% to $360 million compared to the prior year period. Excluding acquisitions and FX, orders decreased 10.7%. Sequentially from the first quarter of 2018, second quarter adjusted operating margins increased 90 basis points to 8.9%. Fabrication Technology segment operating income margins sequentially increased 70 basis points to 12.7%, and Air & Gas Handling margins increased 60 basis points to 7.3%.
As a result of second quarter performance, Colfax increased its adjusted earnings per share outlook for the year from $2.05-$2.20 to $2.15-$2.30 and expects its seasonally highest profits in the fourth quarter.
“Second quarter operating performance was in-line with our expectations, and we drove tax actions that allowed us to outperform,” said Matt Trerotola, Colfax President and CEO. “Recent acquisitions are performing as expected, the Fabrication Technology business posted significant global growth, and Air & Gas Handling operating margins expanded sequentially from the first quarter as expected. Air & Gas Handling industrial segment orders grew organically 24% year over year in the quarter, reflecting the successful long-term diversification of the business into higher-growth, less cyclical end markets. We expect strong performance in the second half of 2018, led by continued Fabrication Technology business growth, improved Air & Gas Handling margins, and benefits from the increased scope of our restructuring actions.”
The Company signed an agreement in the second quarter to acquire Gas Control Equipment (GCE), a European leader in industrial gas flow equipment serving critical applications, GCE is projected to close in the third quarter of this year following regulatory approval and other closing conditions, and the Company expects the business to contribute annual revenues in excess of $100 million. Colfax has repurchased $200 million of its common stock since May, including $144 million during the second quarter.
“We continue to execute our disciplined capital allocation strategy to create long-term value,” said Mr. Trerotola. “Our strong balance sheet and cash flow enable us to invest for long-term growth and take the opportunity to invest in our shares at an attractive value. The GCE acquisition complements our Fabrication Technology business with improved scale and customer reach while increasing our presence in specialty gas applications, and we look forward to completing the transaction and welcoming the GCE associates to the Colfax team.”
During the second quarter, the Company divested its CIRCOR International, Inc. shares for net cash proceeds of $139 million, successfully completing the December 2017 divestiture of its Fluid Handling business to CIRCOR.
Conference Call and Webcast
Colfax will host a conference call to provide details about its results today at 8:30 a.m. EDT. The call will be open to the public through +1-877-303-7908 (U.S. callers) or +1-678-373-0875 (international callers) and referencing the conference ID number 3078073 or through webcast via Colfax’s website at www.colfaxcorp.com under the “Investors” section. Access to a supplemental slide presentation can also be found at the Colfax website under the same heading. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call.
About Colfax Corporation
Colfax Corporation is a leading diversified industrial technology company that provides air & gas handling and fabrication technology products and services to customers around the world principally under the Howden and ESAB brands. Colfax believes that its brands are among the most highly recognized in each of the markets that it serves. The Company uses its Colfax Business System (CBS), a comprehensive set of tools, processes and values, to create superior value for customers, shareholders and associates. Colfax is traded on the NYSE under the ticker “CFX.” Additional information about Colfax is available at www.colfaxcorp.com.
Non-GAAP Financial Measures and Other Adjustments
Colfax has provided in this press release financial information that has not been prepared in accordance with GAAP. These non-GAAP financial measures are adjusted net income, adjusted net income per share, projected adjusted net income per share, adjusted operating income, organic sales growth, and organic order decline. Adjusted operating income excludes Restructuring and other related items, gain or loss on short term investments, Goodwill and intangible asset impairment charge and Pension settlement loss. Adjusted net income, adjusted net income per share and projected adjusted net income per share exclude Restructuring and other related charges, gain or loss on short term investments, Goodwill and intangible asset impairment charge, Pension settlement loss, acquisition-related intangibles amortization, and other non-cash acquisition related charges. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 15.0% and 17.9% for the second quarter and six months ended June 29, 2018. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 29.6% and 28.0% for the second quarter and six months ended June 30, 2017. Organic sales growth and organic order decline exclude the impact of acquisitions and foreign exchange rate fluctuations. These non-GAAP financial measures assist Colfax management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans that are fundamentally different from the ongoing productivity improvements of the Company. Colfax management also believes that presenting these measures allows investors to view its performance using the same measures that the Company uses in evaluating its financial and business performance and trends.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of non-GAAP financial measures presented above to GAAP results has been provided in the financial tables included in this press release.
CAUTIONARY NOTE CONCERNING FORWARD LOOKING STATEMENTS
This press release may contain forward-looking statements, including forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Colfax’s plans, objectives, expectations and intentions and other statements that are not historical or current fact. Forward-looking statements are based on Colfax’s current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause Colfax’s results to differ materially from current expectations include, but are not limited to factors detailed in Colfax’s reports filed with the U.S. Securities and Exchange Commission including its 2017 Annual Report on Form 10-K under the caption “Risk Factors.” In addition, these statements are based on a number of assumptions that are subject to change. This press release speaks only as of the date hereof. Colfax disclaims any duty to update the information herein.
The term “Colfax” in reference to the activities described in this press release may mean one or more of Colfax’s global operating subsidiaries and/or their internal business divisions and does not necessarily indicate activities engaged in by Colfax Corporation.
Contact:
Kevin Johnson, Vice President
Colfax Corporation
+1-301-323-9090
investorrelations@colfaxcorp.com
Colfax Corporation
Condensed Consolidated Statements of Income
Dollars in thousands, except per share data
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 29, 2018 | June 30, 2017 | June 29, 2018 | June 30, 2017 | ||||||||||||
Net sales | $ | 925,288 | $ | 847,962 | $ | 1,806,213 | $ | 1,581,592 | |||||||
Cost of sales | 637,854 | 589,898 | 1,248,159 | 1,083,699 | |||||||||||
Gross profit | 287,434 | 258,064 | 558,054 | 497,893 | |||||||||||
Selling, general and administrative expense | 204,784 | 176,882 | 405,303 | 351,715 | |||||||||||
Restructuring and other related charges | 16,946 | 11,060 | 24,875 | 15,833 | |||||||||||
Operating income | 65,704 | 70,122 | 127,876 | 130,345 | |||||||||||
Interest expense, net | 9,680 | 8,524 | 19,268 | 17,778 | |||||||||||
(Gain) loss on short term investments | (4,591 | ) | — | 10,128 | — | ||||||||||
Income from continuing operations before income taxes | 60,615 | 61,598 | 98,480 | 112,567 | |||||||||||
(Benefit) provision for income taxes | (6,893 | ) | 19,734 | (907 | ) | 32,312 | |||||||||
Net income from continuing operations | 67,508 | 41,864 | 99,387 | 80,255 | |||||||||||
(Loss) income from discontinued operations, net of taxes(1) | (25,729 | ) | 16,611 | (28,566 | ) | 19,707 | |||||||||
Net income | 41,779 | 58,475 | 70,821 | 99,962 | |||||||||||
Less: income attributable to noncontrolling interest, net of taxes | 3,322 | 5,081 | 7,829 | 8,026 | |||||||||||
Net income attributable to Colfax Corporation | 38,457 | 53,394 | 62,992 | 91,936 | |||||||||||
Net income (loss) per share - basic | |||||||||||||||
Continuing operations | $ | 0.52 | $ | 0.30 | $ | 0.74 | $ | 0.59 | |||||||
Discontinued operations | $ | (0.21 | ) | $ | 0.13 | $ | (0.23 | ) | $ | 0.16 | |||||
Consolidated operations | $ | 0.31 | $ | 0.43 | $ | 0.51 | $ | 0.75 | |||||||
Net (loss) income per share - diluted | |||||||||||||||
Continuing operations | $ | 0.52 | $ | 0.30 | $ | 0.74 | $ | 0.58 | |||||||
Discontinued operations | $ | (0.21 | ) | $ | 0.13 | $ | (0.23 | ) | $ | 0.16 | |||||
Consolidated operations | $ | 0.31 | $ | 0.43 | $ | 0.51 | $ | 0.74 | |||||||
(1) The loss from discontinued operations, net of taxes in the quarter ended June 29, 2018 includes an $18.0 million tax provision primarily related to the gain on the sale of the Fluid Handling business and a $4.3 million loss to adjust for the final consideration related to the sale. See the Company’s Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarter ended June 29, 2018 for additional information regarding the divestiture.
Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Amounts in thousands, except per share data
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 29, 2018 | June 30, 2017 | June 29, 2018 | June 30, 2017 | ||||||||||||
Adjusted Net Income and Adjusted Net Income Per Share | |||||||||||||||
Net income from continuing operations attributable to Colfax Corporation (1) | $ | 64,186 | $ | 36,783 | $ | 91,558 | $ | 72,229 | |||||||
Restructuring and other related charges- pretax | 16,946 | 11,060 | 24,875 | 15,833 | |||||||||||
Acquisition-related amortization and other non-cash charges- pretax (2) | 19,381 | 13,683 | 40,062 | 27,077 | |||||||||||
(Gain) Loss on short term investments-pretax | (4,591 | ) | — | 10,128 | — | ||||||||||
Tax adjustment (3) | (20,740 | ) | (5,823 | ) | (31,897 | ) | (11,221 | ) | |||||||
Adjusted net income from continuing operations | $ | 75,182 | $ | 55,703 | $ | 134,726 | $ | 103,918 | |||||||
Adjusted net income margin from continuing operations | 8.1 | % | 6.6 | % | 7.5 | % | 6.6 | % | |||||||
Weighted-average shares outstanding - diluted | 122,973 | 123,954 | 123,510 | 123,881 | |||||||||||
Adjusted net income per share continuing operations | $ | 0.61 | $ | 0.45 | $ | 1.09 | $ | 0.84 | |||||||
Net income per share- diluted from continuing operations (GAAP) | $ | 0.52 | $ | 0.30 | $ | 0.74 | $ | 0.58 | |||||||
Updated Guidance | Previous Guidance | ||||||||||||||
Low | High | Low | High | ||||||||||||
2018 Earnings Per Share | |||||||||||||||
Projected net income per share from continuing operations (GAAP)- diluted | $ | 1.19 | $ | 1.35 | $ | 1.22 | $ | 1.37 | |||||||
Restructuring and other related charges- pretax | 0.58 | 0.58 | 0.31 | 0.31 | |||||||||||
Acquisition-related amortization and other non-cash charges- pretax(2) | 0.61 | 0.61 | 0.60 | 0.60 | |||||||||||
Loss on short term investments- pretax | 0.08 | 0.08 | 0.12 | 0.12 | |||||||||||
Tax adjustment (3) | (0.31 | ) | (0.32 | ) | (0.20 | ) | (0.20 | ) | |||||||
Projected adjusted net income per share | $ | 2.15 | $ | 2.30 | $ | 2.05 | $ | 2.20 | |||||||
__________
(1) Net income from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes.
(2) Includes amortization of acquired intangibles and fair value charges on acquired inventory.
(3) The effective tax rates used to calculate adjusted net income and adjusted net income per share for the second quarter and six months ended June 29, 2018 are 15.0% and 17.9%, respectively. These rates exclude the benefit of a $12.5 million deferred tax asset valuation allowance reversal. The effective tax rates used to calculate adjusted net income and adjusted net income per share for the second quarter and six months ended June 30, 2017 are 29.6% and 28.0%, respectively. The estimated effective tax rate for adjusted net income and adjusted net income per share for the year ended December 31, 2018 is 20-22%.
Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Dollars in thousands
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 29, 2018 | June 30, 2017 | June 29, 2018 | June 30, 2017 | ||||||||||||
Continuing Operations | |||||||||||||||
Operating income | $ | 65,704 | $ | 70,122 | $ | 127,876 | $ | 130,345 | |||||||
Operating income margin | 7.1 | % | 8.3 | % | 7.1 | % | 8.2 | % | |||||||
Restructuring and other related charges | 16,946 | 11,060 | 24,875 | 15,833 | |||||||||||
Adjusted operating income | $ | 82,650 | $ | 81,182 | $ | 152,751 | $ | 146,178 | |||||||
Adjusted operating income margin | 8.9 | % | 9.6 | % | 8.5 | % | 9.2 | % | |||||||
Colfax Corporation
Change in Sales, Orders and Backlog
Dollars in millions
(Unaudited)
Air and Gas Handling | |||||||||||||
Net Sales | Orders | ||||||||||||
$ | % | $ | % | ||||||||||
For the three months ended June 30, 2017 | $ | 848.0 | $ | 339.8 | |||||||||
Components of Change: | |||||||||||||
Existing businesses(1) | (6.0 | ) | (0.7 | )% | (36.4 | ) | (10.7 | )% | |||||
Acquisitions(2) | 70.1 | 8.3 | % | 43.5 | 12.8 | % | |||||||
Foreign currency translation | 13.2 | 1.6 | % | 12.7 | 3.7 | % | |||||||
77.3 | 9.1 | % | 19.8 | 5.8 | % | ||||||||
For the three months ended June 29, 2018 | $ | 925.3 | $ | 359.6 | |||||||||
Air and Gas Handling | ||||||||||||||||||||
Net Sales | Orders | Backlog at Period End | ||||||||||||||||||
$ | % | $ | % | $ | % | |||||||||||||||
As of and for the six months ended June 30, 2017 | $ | 1,581.6 | $ | 675.4 | $ | 874.1 | ||||||||||||||
Components of Change: | ||||||||||||||||||||
Existing businesses(1) | 30.0 | 1.9 | % | (119.9 | ) | (17.8 | )% | (141.7 | ) | (16.2 | )% | |||||||||
Acquisitions(2) | 138.9 | 8.8 | % | 90.2 | 13.4 | % | 101.2 | 11.6 | % | |||||||||||
Foreign currency translation | 55.7 | 3.5 | % | 41.0 | 6.1 | % | 3.9 | 0.4 | % | |||||||||||
224.6 | 14.2 | % | 11.3 | 1.7 | % | (36.6 | ) | (4.2 | )% | |||||||||||
As of and for the six months ended June 29, 2018 | $ | 1,806.2 | $ | 686.7 | $ | 837.5 | ||||||||||||||
__________
(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price, product mix and volume.
(2) Represents the incremental sales, orders and order backlog from the acquisition completed in our Air and Gas Handling segment, and incremental sales for acquisitions completed in our Fabrication Technology segment.
Colfax Corporation
Condensed Consolidated Balance Sheets
Dollars in thousands, except share amounts
(Unaudited)
June 29, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 257,700 | $ | 262,019 | |||
Short term investments | — | 149,608 | |||||
Trade receivables, less allowance for doubtful accounts of $29,320 and $31,488 | 986,271 | 970,199 | |||||
Inventories, net | 490,159 | 429,627 | |||||
Other current assets | 213,350 | 258,379 | |||||
Total current assets | 1,947,480 | 2,069,832 | |||||
Property, plant and equipment, net | 510,695 | 552,802 | |||||
Goodwill | 2,505,377 | 2,538,544 | |||||
Intangible assets, net | 960,154 | 1,017,203 | |||||
Other assets | 538,997 | 531,316 | |||||
Total assets | $ | 6,462,703 | $ | 6,709,697 | |||
LIABILITIES AND EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Current portion of long-term debt | $ | 6,180 | $ | 5,766 | |||
Accounts payable | 586,276 | 587,129 | |||||
Customer advances and billings in excess of costs incurred | 149,019 | 145,853 | |||||
Accrued liabilities | 333,046 | 358,632 | |||||
Total current liabilities | 1,074,521 | 1,097,380 | |||||
Long-term debt, less current portion | 1,067,415 | 1,055,305 | |||||
Other liabilities | 783,327 | 829,748 | |||||
Total liabilities | 2,925,263 | 2,982,433 | |||||
Equity: | |||||||
Common stock, $0.001 par value; 400,000,000 shares authorized; 118,925,914 and 123,245,827 issued and outstanding | 119 | 123 | |||||
Additional paid-in capital | 3,100,201 | 3,228,174 | |||||
Retained earnings | 914,634 | 846,490 | |||||
Accumulated other comprehensive loss | (698,680 | ) | (574,372 | ) | |||
Total Colfax Corporation equity | 3,316,274 | 3,500,415 | |||||
Noncontrolling interest | 221,166 | 226,849 | |||||
Total equity | 3,537,440 | 3,727,264 | |||||
Total liabilities and equity | $ | 6,462,703 | $ | 6,709,697 | |||
Colfax Corporation
Condensed Consolidated Statements of Cashflows
Dollars in thousands
(Unaudited)
Six Months Ended | |||||||
June 29, 2018 | June 30, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 70,821 | $ | 99,962 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation, amortization and impairment charges | 71,958 | 68,606 | |||||
Stock-based compensation expense | 12,835 | 11,931 | |||||
Non-cash interest expense | 2,243 | 2,170 | |||||
Loss on short term investments | 10,128 | — | |||||
Deferred income tax benefit | (19,656 | ) | (3,700 | ) | |||
Gain on sale of facility | (7,839 | ) | (11,734 | ) | |||
Loss on sale of business | 4,337 | — | |||||
Changes in operating assets and liabilities: | |||||||
Trade receivables, net | (65,186 | ) | (59,419 | ) | |||
Inventories, net | (53,993 | ) | (29,932 | ) | |||
Accounts payable | 19,878 | 5,470 | |||||
Customer advances and billings in excess of costs incurred | 17,462 | (1,352 | ) | ||||
Changes in other operating assets and liabilities | (29,326 | ) | 16,556 | ||||
Net cash provided by operating activities | 33,662 | 98,558 | |||||
Cash flows from investing activities: | |||||||
Purchases of fixed assets | (24,808 | ) | (26,755 | ) | |||
Proceeds from sale of facility | 14,634 | 16,106 | |||||
Acquisitions, net of cash received | (50,912 | ) | (49,999 | ) | |||
Sale of business, net | 18,603 | — | |||||
Sale of short term investments, net | 139,480 | — | |||||
Net cash provided by (used in) investing activities | 96,997 | (60,648 | ) | ||||
Cash flows from financing activities: | |||||||
Payments under term credit facility | (56,250 | ) | (28,126 | ) | |||
Proceeds from borrowings on revolving credit facilities and other | 504,518 | 384,257 | |||||
Repayments of borrowings on revolving credit facilities and other | (422,361 | ) | (720,473 | ) | |||
Proceeds from borrowings on senior unsecured notes | — | 374,451 | |||||
Proceeds from issuance of common stock, net | 3,090 | 3,134 | |||||
Common stock repurchases | (143,902 | ) | — | ||||
Other | (838 | ) | (8,329 | ) | |||
Net cash (used in) provided by financing activities | (115,743 | ) | 4,914 | ||||
Effect of foreign exchange rates on Cash and cash equivalents | (19,235 | ) | 7,671 | ||||
(Decrease) increase in Cash and cash equivalents | (4,319 | ) | 50,495 | ||||
Cash and cash equivalents, beginning of period | 262,019 | 221,730 | |||||
Cash and cash equivalents, end of period | $ | 257,700 | $ | 272,225 | |||