Organic Growth and Cost Reductions Drive Increased Profitability and Cash
Flow from Operating Activities
- Company Raises Full-Year DEPS Outlook Range by $0.25 to $3.00 to $3.10
- Compared to the First Quarter of 2006:
- Revenues increased 11 percent
- Net income and diluted earnings per share increased 40 percent
- Total segment operating earnings(1) increased 25 percent
- Cash flow from operating activities increased to $36.7 million
QUINCY, Ill., April 25 /PRNewswire-FirstCall/ -- Gardner Denver, Inc.
(NYSE: GDI) announced that revenues and net income for the three months
ended March 31, 2007 were $441.4 million and $42.8 million, respectively,
exceeding the previous records achieved in the three-month period ended
December 31, 2006. Diluted earnings per share ("DEPS") for the three months
ended March 31, 2007 were $0.80, 40 percent higher than the comparable
period of 2006. The improved financial performance for the first quarter of
2007 is primarily attributable to the incremental flow-through
profitability of organic revenue growth, operational improvements,
including the benefits from acquisition integration, and a lower effective
tax rate. The Company's profitability in the first three months of 2007
also contributed to the generation of approximately $36.7 million of cash
flow from operating activities, the highest ever posted in the first
quarter by the Company. Current and prior year DEPS and all share amounts
presented in this press release reflect the effect of the two-for-one stock
split (in the form of a 100 percent stock dividend) that was completed on
June 1, 2006.
CEO's Comments Regarding Results
"I am pleased to report new records for the Company in terms of
quarterly revenues and net income. While Gardner Denver has experienced
significant growth during the last three years from strategic acquisitions,
we believe ongoing operational improvements, including lean manufacturing
initiatives, continue to drive the Company's profitability. This is
reflected in our total segment operating earnings(1) as a percentage of
revenues (segment operating margin(1)), which improved from 13.6 percent in
the first quarter of 2006 to 15.4 percent in the same period of 2007," said
Ross J. Centanni, Chairman, President and CEO.
"We have demonstrated an ability to leverage flow-through profitability
of organic revenue growth by containing operating and administrative
costs," said Mr. Centanni. "In the first quarter of 2007, this resulted in
net income growing 40 percent compared with the same period of the prior
year; more than three times faster than the Company's revenue growth rate
over the same timeframe. The Company also reported record first quarter
cash flows from operating activities, despite lower inventory turnover
compared with the fourth quarter of 2006. The decline in inventory
turnover, which is expected to be temporary, resulted from production and
supply chain inefficiencies related to manufacturing relocations."
Mr. Centanni continued, "I believe the general tone of business was
better than our Compressor and Vacuum Products segment order rate
indicates. First quarter demand in the segment remained strong across
nearly all end market segments in Europe and Asia. As expected, North
America's rate of growth slowed during the quarter, led by declines in
blowers used on Class 8 trucks. We believe manufacturing plant relocations
negatively impacted orders and production efficiency during the quarter.
Management expects this effect to be temporary and, as lead times decline,
order growth to accelerate. Furthermore, the first quarter of 2006 included
OEM orders with delivery times beyond 90 days, which have been excluded
from orders in 2007 as a result of implementing our internal policy at the
acquired Thomas Industries locations. This reporting change negatively
impacted the year-over-year comparison in Compressor and Vacuum Products
segment orders.
"Year-over-year revenues in the Fluid Transfer Products segment grew 27
percent in the first quarter," said Mr. Centanni. "As expected, however,
the segment experienced decreased demand for drilling pumps in the first
quarter of 2007, which was partially offset by continued growth in demand
for well servicing pumps. The net result of this demand shift was a 15
percent decrease in segment orders compared to the same period of 2006."
Commenting on profitability initiatives, Mr. Centanni stated, "Our
integration projects remain substantially on schedule. Attrition resulted
in manpower reductions ahead of schedule, which generated savings earlier
than planned, but also led to some production inefficiencies. We are
working to improve labor productivity and supply chain efficiencies to
realize the full benefit of the actions completed to date. Our operations
in China and Brazil are gaining operating efficiencies with the product
lines that were transferred from Nuremberg, Germany and we continue to
expect to achieve the full benefit of this initiative by the end of the
second quarter of 2007, realizing annualized savings of approximately $3
million.
"The manufacturing integration of a former Thomas Industries German
location also continues as planned," said Mr. Centanni. "Manufacturing and
other process improvements in the Thomas Industries non-U.S. locations are
expected to generate cost savings of approximately $6.4 million annually by
the fourth quarter of 2007, when the integration projects are expected to
be completed.
"As a result of our continued improvement in profitability and asset
management, our annualized return on equity (defined as net income divided
by average equity) increased to 19.5 percent in the first quarter of 2007,
compared to 17.6 percent for the full-year 2006. We believe that the value
of previously completed acquisitions is being realized as planned. We are
generating cash, repaying debt and proactively seeking acquisitions."
Outlook
"Manufacturing capacity utilization rates in the U.S. have remained
above 80% for each of the first three months of 2007, which has
historically indicated a favorable demand environment for industrial
equipment such as compressors and blowers. We expect the industrial
production rate of growth to slow in the U.S. throughout 2007, offset
somewhat by increasing demand in the U.S. for environmental applications,"
said Mr. Centanni. "The Asian markets are expected to remain strong and we
continue to see growing industrial demand in Europe. As a result of these
growth expectations, my outlook is positive for the Compressor and Vacuum
Products segment in the second and third quarters of 2007 and cautiously
optimistic for the fourth quarter of the year.
"As a result of the decline in backlog within the Fluid Transfer
Products segment, we have less visibility of the demand for our petroleum
pumps than at this time last year. While demand for well servicing pumps
and aftermarket parts is expected to grow throughout 2007, I expect
drilling pump demand to continue to decelerate through the remainder of the
year, resulting in declining backlog and lower second half segment revenues
compared to the first half. Quotations for drilling pumps for international
rigs have recently increased, but the time associated with securing these
orders, compared with North American activity, is significantly longer. As
segment revenues decline in the second half of 2007, we expect lower
segment operating margins(1) to result from an unfavorable mix of drilling
pump shipments and less volume leverage. The deterioration in margins will
be somewhat mitigated, however, by ongoing demand for well servicing pumps
and aftermarket parts and our ability to bring previously outsourced
manufacturing in-house," said Mr. Centanni.
"Given our current economic outlook, existing backlog, and expected
operational improvements from integration projects, we are raising our
full-year 2007 DEPS outlook range by $0.25 to $3.00 to $3.10. Second
quarter DEPS is expected to be $0.80 to $0.85. Our outlook for the second
quarter is based on increased revenue expectations in both reportable
segments, compared to the first quarter of 2007. Net income in the second
half of 2007 is currently expected to be less than that of the first half
of 2007 due to fewer production days and lower drilling pump shipments. The
midpoint of the DEPS range for the second quarter of 2007 ($0.83)
represents a 34 percent increase over the same period of 2006. The midpoint
of the new DEPS range for the full-year 2007 ($3.05) represents a 22
percent increase over 2006 results. Based on current expectations, the
effective tax rate assumed in the DEPS guidance for the second through
fourth quarters of 2007 is 32.3 percent."
Revised Presentation of Operating Results for the Reporting of
Depreciation and Amortization Expense
The Company's presentation of its operating results now reflects the
inclusion of depreciation and amortization expense in cost of sales and
selling and administrative expenses. Depreciation and amortization was
previously reported as a separate caption in the consolidated statements of
operations. The 2006 consolidated statement of operations included in this
press release has been reclassified to conform to the current presentation.
Depreciation and amortization expense included in cost of sales and selling
and administrative expense for the three months ended March 31, 2006 was
approximately $7.4 million and $4.6 million, respectively. This
reclassification had no effect on reported consolidated income before
income taxes, net income, per share amounts, reportable segment operating
earnings(1) or cash used in operating activities. The Company intends to
furnish reclassified statements of operations for each quarter of the year
ended December 31, 2006 and for the years ended December 31, 2006, 2005 and
2004 in a Securities and Exchange Commission Current Report on Form 8-K on
or about April 25, 2007.
First Quarter Results
Revenues increased $42.1 million (11 percent) to $441.4 million for the
three months ended March 31, 2007, compared to the same period of 2006.
Compressor and Vacuum Products segment revenues increased 6 percent for the
three-month period of 2007, compared to the previous year, driven by
favorable changes in currency exchange rates and organic growth in most
product lines except mobile blowers. Fluid Transfer Products segment
revenues increased 27 percent for the three months ended March 31, 2007,
compared to the same period of 2006. Revenue growth was primarily related
to increased volume in drilling and well servicing pumps resulting from
incremental production output, supply chain improvements and price
increases (See Selected Financial Data Schedule).
Compressor and Vacuum Products orders of $367.5 million for the
three-month period ended March 31, 2007 were $33.8 million (10 percent)
higher than the same period of the previous year due to organic growth and
favorable changes in exchange rates. Backlog in this reportable segment was
22 percent higher than on March 31, 2006 and 9 percent higher than on
December 31, 2006.
Orders for Fluid Transfer Products of $74.6 million for the three
months ended March 31, 2007 were $13.5 million (15 percent) lower than the
same period of the previous year, primarily due to reduced demand for
drilling pumps, partially offset by increased orders for well servicing
pumps. Backlog for Fluid Transfer Products decreased 8 percent to $158.8
million compared to March 31, 2006 and 15 percent from December 31, 2006.
Cost of sales as a percentage of revenues improved slightly to 66.3
percent in the three-month period ended March 31, 2007, from 66.8 percent
in the same period of 2006. This improvement was attributable to cost
reduction initiatives and leveraging fixed and semi-fixed costs over
additional production volume. Favorable sales mix also contributed to the
improvement as the first quarter of 2007 included a higher percentage of
drilling and well servicing pump shipments than the previous year and these
products have cost of sales percentages below the Company's average.
As a percentage of revenues, selling and administrative expenses
improved to 18.3 percent for the three-month period ended March 31, 2007,
compared to 19.6 percent for the same period of 2006 as a result of cost
control initiatives and leveraging revenue growth. Selling and
administrative expenses increased $2.6 million in the three-month period
ended March 31, 2007 to $80.8 million, as compared to the same period of
2006, primarily due to unfavorable changes in foreign currency exchange
rates. Compensation and benefit expense increases were more than offset by
cost reductions realized through completed integration initiatives.
Stock-based compensation expense was $2.9 million in the three-month period
ended March 31, 2007, compared to $2.8 million recognized in the same
period of 2006. A disproportionate amount of stock-based compensation
expense is recognized in the first quarter of each year due to the number
of options and restricted stock awards granted to employees eligible for
retirement, the total value of which is recognized at the time the award is
granted. Stock-based compensation expense in each of the remaining quarters
of 2007 is expected to be lower than in the first quarter and comparable to
that recorded in each of the last three quarters of 2006.
Segment operating earnings(1) as a percentage of revenues (segment
operating margin(1)) for the Compressor and Vacuum Products segment were
11.5 percent in the three months ended March 31, 2007, compared with 11.2
percent in the same period of 2006. The Fluid Transfer Products segment
generated segment operating margin(1) of 28.4 percent in the three months
ended March 31, 2007, an improvement from 23.0 percent in the first quarter
of 2006 and a new record level for this reportable segment. The improved
results for each reportable segment reflect significant leveraging of fixed
and semi-fixed costs over higher revenues and the cost reductions realized
to date through acquisition integration initiatives. Price increases and
favorable product mix resulting from the increased sales of drilling and
well servicing pumps also contributed to the improved operating margin for
the Fluid Transfer Products segment.
Interest expense decreased $3.5 million (34 percent) to $6.7 million
for the three months ended March 31, 2007, compared to the same period of
2006, due to significantly lower borrowing levels.
Net income for the three months ended March 31, 2007 increased $12.3
million (40 percent) to $42.8 million, compared to $30.5 million in same
period of 2006. DEPS for the three-month period of 2007 were $0.80, 40
percent higher than the comparable period of the previous year as a result
of the increased net income. These results reflect an effective tax rate of
30.8% for the three-month period of 2007, compared to 32.0% for the
three-month period of 2006. The reduction in the effective tax rate is the
result of the favorable resolution of previously open tax matters.
Cash provided by operating activities was approximately $36.7 million
in the three-month period of 2007, compared to cash used in operating
activities of approximately $8.8 million in the same period of 2006. This
improvement reflects the Company's increased earnings and working capital
management. Nevertheless, production and supply chain inefficiencies
negatively impacted inventory turnover, which declined to 4.8 times from
5.2 times in the fourth quarter of 2006, but still showed improvements
compared to 4.7 times in the first quarter of 2006. Days sales outstanding
for the first quarter of 2007 increased to 57 days, compared to 55 days in
the fourth quarter of 2006, but also compares favorably to the first
quarter of 2006 (59 days). The change in DSO primarily reflects changes to
product mix and timing of shipments within the quarter.
The Company invested approximately $8.3 million in capital expenditures
in the first three months of 2007, compared to $6.5 million in the same
period of 2006. As expected, capital spending for the first quarter of 2007
was higher than the same period of 2006 due primarily to spending on
integration activities that carried over into 2007. For the full-year 2007,
capital spending is expected to be approximately $45 million to $50
million. For the three-month period of 2007, depreciation and amortization
was approximately $14.2 million, compared to $12.0 million in the
three-month period of 2006.
Total debt as of March 31, 2007 was $390.6 million, $16.6 million less
than total debt as of December 31, 2006. As of March 31, 2007, debt to
total capital was 30.1 percent, compared to 32.3 percent on December 31,
2006 and 45.3 percent on March 31, 2006.
Cautionary Statement Regarding Forward-Looking Statements
All of the statements in this release, other than historical facts, are
forward-looking statements made in reliance upon the safe harbor of the
Private Securities Litigation Reform Act of 1995, including, without
limitation, the statements made under the "CEO's Comments Regarding
Results," "Outlook" and "First Quarter Results" sections. As a general
matter, forward-looking statements are those focused upon anticipated
events or trends, expectations, and beliefs relating to matters that are
not historical in nature. Such forward-looking statements are subject to
uncertainties and factors relating to the Company's operations and business
environment, all of which are difficult to predict and many of which are
beyond the control of the Company. These uncertainties and factors could
cause actual results to differ materially from those matters expressed in
or implied by such forward-looking statements.
The following uncertainties and factors, among others, could affect
future performance and cause actual results to differ materially from those
expressed in or implied by forward-looking statements: (1) the Company's
exposure to economic downturns and market cycles, particularly the level of
oil and natural gas prices and oil and gas drilling production, which
affect demand for Company's petroleum products, and industrial production
and manufacturing capacity utilization rates, which affect demand for the
Company's compressor and vacuum products; (2) the risks of large or rapid
increases in raw material costs or substantial decreases in their
availability, and the Company's dependence on particular suppliers,
particularly iron casting and other metal suppliers; (3) the risks
associated with intense competition in the Company's markets, particularly
the pricing of the Company's products; (4) the ability to effectively
integrate acquisitions, including product and manufacturing rationalization
initiatives, and realize anticipated cost savings, synergies and revenue
enhancements; (5) the ability to attract and retain quality executive
management and other key personnel; (6) the ability to continue to identify
and complete other strategic acquisitions and effectively integrate such
acquisitions to achieve desired financial benefits; (7) economic, political
and other risks associated with the Company's international sales and
operations, including changes in currency exchange rates (primarily between
the U.S. dollar, the Euro, the British pound and the Chinese yuan); (8) the
risks associated with potential product liability and warranty claims due
to the nature of the Company's products; (9) the risks associated with
environmental compliance costs and liabilities; (10) the risks associated
with pending asbestos and silicosis personal injury lawsuits; (11) risks
associated with the Company's indebtedness and changes in the availability
or costs of new financing to support the Company's operations and future
investments; (12) the risks associated with enforcing the Company's
intellectual property rights and defending against potential intellectual
property claims; (13) the ability to avoid employee work stoppages and
other labor difficulties; (14) changes in discount rates used for actuarial
assumptions in pension and other postretirement obligation and expense
calculations and market performance of pension plan assets; and (15) the
risk of possible future charges if the Company determines that the value of
goodwill and other intangible assets, representing a significant portion of
its total assets, is impaired. The Company does not undertake, and hereby
disclaims, any duty to update these forward-looking statements, although
its situation and circumstances may change in the future.
Comparisons of the financial results for the three-month periods ended
March 31, 2007 and 2006 follow.
Gardner Denver will broadcast a conference call to discuss first
quarter earnings on Thursday, April 26, 2007 at 9:30 a.m. Eastern time
through a live webcast. This free webcast will be available in listen-only
mode and can be accessed, for up to ninety days following the call, through
the Investor Relations page on the Gardner Denver website
(http://www.gardnerdenver.com) or through Thomson StreetEvents at
http://www.earnings.com.
Gardner Denver, Inc., with 2006 revenues of $1.7 billion, is a leading
worldwide manufacturer of reciprocating, rotary and vane compressors,
liquid ring pumps and blowers for various industrial and transportation
applications, pumps used in the petroleum and industrial markets, and other
fluid transfer equipment serving chemical, petroleum, and food industries.
Gardner Denver's news releases are available by visiting the Investor
Relations page on the Company's website (http://www.gardnerdenver.com).
(1) Segment operating earnings (defined as revenues less cost of sales and
selling and administrative expenses), and segment operating margin
(defined as segment operating earnings divided by segment revenues)
are indicative of short-term operational performance and ongoing
profitability. For a reconciliation of segment operating earnings to
consolidated income before income taxes, see "Business Segment
Results."
GARDNER DENVER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts and percentages)
(Unaudited)
Three Months Ended
March 31,
%
2007 2006 Change
Revenues $441,418 $399,294 11
Costs and expenses:
Cost of sales (1) 292,491 266,610 10
Selling and administrative
expenses (1) 80,829 78,268 3
Interest expense 6,737 10,232 (34)
Other income, net (553) (687) (20)
Total costs and expenses 379,504 354,423 7
Income before income taxes 61,914 44,871 38
Provision for income taxes 19,098 14,359 33
Net income $42,816 $30,512 40
Basic earnings per share (2) $0.81 $0.59 37
Diluted earnings per share (2) $0.80 $0.57 40
Basic weighted average
number of shares outstanding (2) 52,754 52,109
Diluted weighted average
number of shares outstanding (2) 53,755 53,255
Shares outstanding as of March 31 (2) 52,871 52,318
(1) Current and prior year results reflect the inclusion of depreciation
and amortization expense in cost of sales and selling and
administrative expenses.
(2) Current and prior year amounts reflect the effect of a two-for-one
stock split (in the form of a 100% stock dividend) completed on
June 1, 2006.
GARDNER DENVER, INC.
CONDENSED BALANCE SHEET ITEMS
(in thousands, except percentages)
(Unaudited)
%
3/31/2007 12/31/2006 Change
Cash and equivalents $75,916 $62,331 22
Accounts receivable, net 281,862 261,115 8
Inventories, net 245,176 225,067 9
Total current assets 636,664 579,718 10
Total assets 1,801,824 1,750,231 3
Short-term borrowings and current
maturities of long-term debt 27,595 23,789 16
Accounts payable and accrued
liabilities (1) 310,683 292,988 6
Total current liabilities (1) 338,278 316,777 7
Long-term debt, less current
maturities 363,006 383,459 (5)
Total liabilities 896,558 897,701 --
Total stockholders' equity $905,266 $852,530 6
(1) In connection with the adoption of FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of
FASB Statement No. 109" effective January 1, 2007, the Company
reassessed its unrecognized income tax benefits and classified the
related liability at March 31, 2007 established for matters not
expected to be resolved within the next twelve months as a non-current
liability. The balance sheet at December 31, 2006 was reclassified
to conform to the March 31, 2007 presentation. Accordingly, a
liability of approximately $10 million associated with unrecognized
income tax benefits at December 31, 2006 was reclassified from current
liabilities to non-current liabilities.
GARDNER DENVER, INC.
BUSINESS SEGMENT RESULTS
(in thousands, except percentages)
(Unaudited)
Three Months Ended
March 31,
%
2007 2006 Change
Compressor and Vacuum Products
Revenues $338,857 $318,433 6
Operating earnings 38,962 35,808 9
% of revenues 11.5% 11.2%
Orders 367,478 333,697 10
Backlog 385,476 314,873 22
Fluid Transfer Products
Revenues 102,561 80,861 27
Operating earnings 29,136 18,608 57
% of revenues 28.4% 23.0%
Orders 74,582 88,094 (15)
Backlog 158,843 172,179 (8)
Reconciliation of Segment Results
to Consolidated Results
Compressor and Vacuum Products
operating earnings $38,962 $35,808
Fluid Transfer Products operating
earnings 29,136 18,608
Total segment operating earnings 68,098 54,416
% of revenues 15.4% 13.6%
Interest expense 6,737 10,232
Other income, net (553) (687)
Income before income taxes $61,914 $44,871
% of revenues 14.0% 11.2%
The Company has determined its reportable segments in accordance with
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company
evaluates the performance of its reportable segments based on income
before interest expense, other income, net, and income taxes.
Reportable segment operating earnings (defined as revenues less cost of
sales and selling and administrative expenses) and segment operating
margin (defined as segment operating earnings divided by revenues) are
indicative of short-term operating performance and ongoing
profitability. Management closely monitors the operating earnings of
its reportable segments to evaluate past performance, management
performance and compensation, and actions required to improve
profitability.
GARDNER DENVER, INC.
SELECTED FINANCIAL DATA SCHEDULE
(in millions, except percentages)
(Unaudited)
Three Months Ended
March 31,
%
$ Millions Change
Compressor and Vacuum Products
2006 Revenues 318.4
Effect of currency exchange rates 16.1 5
Organic growth 4.4 1
2007 Revenues 338.9 6
2006 Orders 333.7
Effect of currency exchange rates 18.0 5
Organic growth 15.8 5
2007 Orders 367.5 10
Backlog as of 03/31/06 314.9
Effect of currency exchange rates 20.0 6
Organic growth 50.6 16
Backlog as of 03/31/07 385.5 22
Fluid Transfer Products
2006 Revenues 80.9
Effect of currency exchange rates 1.9 2
Organic growth 19.8 25
2007 Revenues 102.6 27
2006 Orders 88.1
Effect of currency exchange rates 2.3 3
Organic growth (15.8) (18)
2007 Orders 74.6 (15)
Backlog as of 03/31/06 172.2
Effect of currency exchange rates 2.4 1
Organic growth (15.8) (9)
Backlog as of 03/31/07 158.8 (8)
Consolidated Revenues
2006 399.3
Effect of currency exchange rates 18.0 5
Organic growth 24.2 6
2007 441.5 11
SOURCE Gardner Denver, Inc.
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Related links:
http://www.gardnerdenver.com
http://www.prnewswire.com/comp/303875.html /
CONTACT:
Christian E. Rothe, Director, Strategic
Planning and Development of Gardner Denver, Inc., +1-217-228-8224
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