Momentum Continues to Build Through Organic Growth, Pricing, Lean
Initiatives and Benefit of Acquisitions
Compared to the First Quarter of 2005: -- Revenues increase 67% -- Net
income increases 196% -- Diluted earnings per share increases 130%, even
with 29% more shares outstanding -- Total segment operating earnings
increase 201%
QUINCY, Ill., April 26 /PRNewswire-FirstCall/ -- Gardner Denver, Inc.
(NYSE: GDI) announced that revenues and net income for the three months
ended March 31, 2006 were $399.3 million and $30.5 million, respectively.
These results represent record levels for the Company, exceeding the
previous records achieved in the three-month period ended December 31,
2005. Diluted earnings per share (DEPS) for the three months ended March
31, 2006 was $1.15, 130% higher than the comparable period of the previous
year, despite 29% more average shares outstanding in 2006 than in 2005 and
the effect of recognizing stock-based compensation expense ($0.07 DEPS) in
accordance with SFAS 123(R). The improved financial performance in 2006 is
primarily attributable to flow- through profitability on strong organic
revenue growth, price increases, cost reduction initiatives and the
incremental benefit of acquisitions.
CEO's Comments Regarding Results
"In the first quarter of 2006, our financial performance reflected the
efforts of our employees and channel partners. Demand continued to improve,
especially for compressor and vacuum products, and our previous capital
investments and lean manufacturing initiatives resulted in reduced lead
times and increased productivity. Outsourcing some production also
contributed to the revenue growth for fluid transfer products in the first
quarter of 2006. As a result, we were able to increase output and achieve
significant flow- through profitability on the organic revenue growth. This
flow-through profitability resulted in total segment operating earnings as
a percentage of revenues increasing to 13.6% for the three months ended
March 31, 2006 from 7.6% for the same period of 2005. We continue to add
value for our shareholders through increased earnings as we integrate our
strategic acquisitions, generate organic revenue growth and complete cost
reduction initiatives. The Company achieved a return on equity of 17.9% for
the first quarter of 2006 compared to 15.6% for the fourth quarter of
2005," stated Ross Centanni, Chairman, President and CEO.
"In April, we initiated the process of rationalizing our European
blower product lines and manufacturing facilities. We intend to merge the
Rietschle and Wittig operations, which are both located in Schopfheim,
Germany, and relocate the mobile product line from Wittig to our facility
in the U.K. where other European mobile equipment is manufactured. The
operations that remain in Schopfheim will then focus on industrial blower
applications. We also intend to rationalize the side channel blower product
line, acquired as part of Nash Elmo, with Rietschle's similar product
offering and centralize the production of standard products in the Elmo
manufacturing facility in Bad Neustadt, Germany. Common manufacturing
processes will be re-aligned to increase productivity and reduce our
investment in inventory in both the U.K. and Germany. When this project is
completed, which is expected to occur in the fourth quarter of 2007, we
plan to have eliminated production constraints currently encountered at the
Schopfheim facilities, reduced redundant administrative and manufacturing
overhead and improved manufacturing productivity and lead time. This
project is expected to eliminate approximately 65 positions in Schopfheim.
"We continue to seek opportunities to reduce costs and sell excess
assets as we further streamline our operations. In the first quarter of
2006, we sold a Thomas Industries distribution facility in the U.K.,
generating approximately .3.3 million (approximately $5.8 million) of cash.
Our previously announced liquid ring pump manufacturing and product
rationalization initiative involves shifting production from Nuremberg,
Germany to China and Brazil. This project is on track to generate expected
annualized savings in excess of $3 million beginning in the second quarter
of 2007. To date, we have reached agreement with the local works council
regarding redundancy obligations, ordered the necessary capital equipment
and broken ground on a facility expansion in China. Additional synergistic
benefits are expected as we further integrate the sales companies acquired
as part of Syltone, Nash Elmo and Thomas Industries."
Outlook
"Our end markets have continued to improve and in the first quarter of
2006 we began to see some increased demand in certain segments, such as
European mobile applications, that had previously been lagging. The Federal
Reserve Board reported that total industry capacity utilization in the U.S.
was at least 81% in both February and March 2006, which is a positive
indicator of demand for our compressor and vacuum products. To meet the
demand growth, we have been outsourcing certain manufacturing operations to
relieve production bottlenecks and have invested in capital for longer-term
solutions. Demand for our drilling and well stimulation pumps remains
strong and we expect this to continue through 2007. Further revenue
increases for these products will depend upon our ability to identify
additional outsourcing alternatives and implement further price increases.
"The first quarter results demonstrated the benefits of the production
efficiency improvements and investments in lean manufacturing programs that
we have been pursuing. I expect the benefit of these improvements to
continue through 2006, although net income in the second half of 2006 is
currently expected to be less than that of the first half of 2006 due to
fewer production days in Europe and incremental expenses and manufacturing
inefficiencies associated with our blower manufacturing rationalization
project. I also believe our lean manufacturing techniques will contribute
to inventory reductions over time," noted Mr. Centanni.
"Given our current economic outlook, as well as our existing level of
backlog and recent manufacturing improvements, we are increasing our DEPS
outlook for 2006 significantly to a range of $4.05 to $4.25, with second
quarter DEPS approximating $1.00 to $1.15. The midpoint of the range for
2006 ($4.15) represents a 51% increase over the 2005 results, despite the
reduction in DEPS associated with recognizing stock-based compensation
expense in accordance with SFAS 123(R) and a greater number of average
shares outstanding for the twelve-month period of 2006, compared to 2005.
The implementation of SFAS 123(R) is expected to reduce net income by $0.4
million in each of the remaining quarters of 2006 ($0.05 DEPS for the
remainder of the year). Based on current expectations for the sources and
magnitude of earnings in 2006, the effective tax rate assumed in the DEPS
guidance for 2006 is 32%. The anticipated effective tax rate for 2006 is
expected to increase from the rate incurred in the prior year (and our
previous expectation for 2006) primarily as a result of incremental pretax
income generated by the Company's operations in the United States and
Germany in 2006, which are taxed at rates higher than the effective average
of 2005 (30%). This outlook for DEPS does not reflect the two-for-one stock
split (in the form of a stock dividend) that was previously approved by our
Board of Directors. If stockholders approve the requested increase in the
number of authorized shares of the Company's common stock necessary to
complete the stock split, the record date for the split will be May 11,
2006 and the expected distribution date will be June 1, 2006."
Revised Reportable Segment Composition
The Company also announced a change in the composition of its
reportable segments. The Company's line of specialty bronze and high alloy
pumps for the general industrial and marine market segments, acquired in
July 2005 as part of Thomas Industries Inc., and the Company's line of
self-sealing couplings, acquired as part of Syltone plc in January 2004,
were previously included in the Compressor and Vacuum Products segment from
their respective dates of acquisition. Self-sealing couplings are used to
safely transfer petroleum products, chemicals and various other liquids.
During the first quarter of 2006, Gardner Denver completed an internal
reorganization and these businesses are now part of the Company's Fluid
Transfer Division. Accordingly, their financial results are included in the
Fluid Transfer Products segment. The Todo Group, a manufacturer of
self-sealing couplings acquired by Gardner Denver in January 2006, is also
included in the Fluid Transfer Products segment. The 2005 reportable
segment results included in this press release have been restated to
conform to the current presentation.
First Quarter Results
Revenues increased $160.5 million (67%) to $399.3 million for the three
months ended March 31, 2006, compared to the same period of 2005.
Compressor and Vacuum Products segment revenues increased 68% for the
three-month period of 2006, compared to the previous year, primarily due to
the incremental effect of acquisitions, stronger demand, manufacturing and
supply chain improvements that resulted in increased production output, and
price increases. Fluid Transfer Products segment revenues increased 63% for
the three months ended March 31, 2006, compared to the same period of 2005,
due to stronger demand for drilling and well servicing pumps, manufacturing
and supply chain improvements, incremental shipments as a result of
increased outsourcing and price increases. (See Selected Financial Data
Schedule.)
Orders for the three-month period ended March 31, 2006 were $125.3
million (42%) higher than the same period of the previous year, due to
acquisitions and organic growth. The year-over-year organic growth in
orders for compressor and vacuum products was 9%. This segment represented
approximately 80% of the Company's total revenues in the first three months
of 2006. This organic order growth was relatively broad-based, with no
specific market segment or region driving the improvement. The 7% organic
order growth for fluid transfer products for the three-month period of 2006
resulted from a key customer placing two large orders for drilling pumps.
Management was aware of the demand for these pumps, which are scheduled to
ship in 2006, and was holding production capacity to satisfy these
requirements. Despite the increased production levels in 2006, orders in
each reportable segment exceeded revenues for the first quarter of 2006,
resulting in a 5.8% total backlog increase from December 31, 2005.
Gross margin (defined as revenues less cost of sales) as a percentage
of revenues (gross margin percentage) increased to 35.1% in the three-month
period ended March 31, 2006, from 32.6% in the same period of 2005. This
improvement was attributable to cost reduction initiatives, leveraging
fixed and semi-fixed costs over additional production volume, acquisitions
and price increases. Favorable sales mix also contributed to increased
gross margin as the first quarter of 2006 included a higher percentage of
drilling pump and replacement pump parts sales than the previous year and
these products generate gross margin percentages in excess of the Company's
average.
As a percentage of revenues, selling and administrative expenses
decreased to 18.5% for the first three months of 2006, compared to 22.0%
for the same period of 2005. Selling and administrative expenses increased
$21.3 million in the three-month period ended March 31, 2006 to $73.7
million, due primarily to the incremental effect of acquisitions ($20.0
million) and stock-based compensation expense ($2.8 million), partially
offset by changes in currency exchange rates and cost reductions. A
disproportionate amount of stock-based compensation expense was recognized
in the first quarter of 2006 due to the number of options and awards held
by employees eligible for retirement.
As a result of the improved gross margin percentage and leveraging
selling and administrative expenses over higher revenues, operating margin
for each reportable segment improved for the three-month period ended March
31, 2006, compared to the same period of 2005 and the three-month period
ended December 31, 2005. Operating margin for the Compressor and Vacuum
Products segment was 11.2% in the three months ended March 31, 2006,
compared to 6.7% in the same period of 2005 and 10.5% for the three-month
period ended December 31, 2005. The Fluid Transfer Products segment
operating margin increased to 23.0% for the three months ended March 31,
2006, compared to 10.8% in the same period of 2005 and 21.0% for the three
months ended December 31, 2005.
Incremental borrowings necessary to complete acquisitions and higher
effective interest rates resulted in increased interest expense for the
three months ended March 31, 2006, compared to the same period of 2005.
Furthermore, as a result of a more rapid repayment of debt, interest
expense for the three-month period of 2006 included approximately $0.6
million of accelerated amortization of debt issuance costs. Including this
accelerated amortization, the weighted average interest rate for the
three-month period of 2006 was 6.9%, compared to 5.1% in the prior year
period.
Net income for the three months ended March 31, 2006 increased $20.2
million (196%) to $30.5 million, compared to $10.3 million in same period
of 2005, despite the inclusion of stock-based compensation expense and a
higher effective tax rate in 2006 (32%) than in 2005 (30%). These results
include approximately $4.2 million of net income from Thomas Industries'
operations for the three months ended March 31, 2006. The net income
attributable to the acquisition of the Todo Group was not material during
the first quarter of 2006. Diluted earnings per share for the first three
months of 2006 was $1.15, 130% higher than the previous year as a result of
the increased net income. The improvement in DEPS includes the dilutive
effect of the issuance of 5.7 million shares in May 2005.
Cash used in operating activities was approximately $8.8 million in the
three-month period of 2006, compared to $12.1 million in the same period of
2005. Although the Company realized some benefit of lean manufacturing
initiatives, investments in accounts receivable and inventory increased in
the first quarter of 2006 as a result of rising revenues and greater
material requirements associated with higher production levels.
Opportunities for inventory reductions exist through the expanded use of
lean manufacturing techniques and additional supplier performance
improvements, and the Company expects to see improvements in inventory
turnover during 2006.
The Company invested approximately $6.5 million in capital expenditures
in the three-month period of 2006, compared to $5.2 million in the same
period of 2005. The higher spending in 2006 reflects incremental
investments in acquisition integration, cost reductions and capital
spending at Thomas Industries' operations. Capital spending is currently
expected to be approximately $45 million to $50 million in 2006, and will
be used primarily to integrate businesses, introduce new products and
improve operations. Other than capital expenditures, cash provided by
operations was used to repay debt. At the end of March 2006, debt to total
capital was 45.3%, compared to 46.4% on December 31, 2005.
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" and "Outlook" 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 ability to
effectively integrate acquisitions, including product and manufacturing
rationalization initiatives, and realize anticipated cost savings,
synergies and revenue enhancements; (2) the risk that the Company may incur
significant cash integration costs to achieve any such cost savings; (3)
the Company's exposure to economic downturns and market cycles,
particularly the level of oil and natural gas prices and oil and gas
drilling and production, which affect demand for the Company's petroleum
products, and industrial production and manufacturing capacity utilization
rates, which affect demand for the Company's compressor and vacuum
products; (4) 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; (5) the risks associated with intense competition in the
Company's markets, particularly the pricing of the Company's products; (6)
the Company's ability to continue to identify and complete other strategic
acquisitions and effectively integrate such acquisitions to achieve desired
financial benefits; (7) the risks associated with the reduced liquidity
generated by the substantial additional indebtedness incurred to complete
the Thomas Industries acquisition, including reduced liquidity for working
capital and other purposes, increased vulnerability to general economic
conditions and floating interest rates, and reduced financial and operating
flexibility due to increased covenant and other restrictions in the
Company's credit facilities and indentures; (8) 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); (9) the
risks associated with pending asbestos and silicosis personal injury
lawsuits, as well as other potential product liability and warranty claims
due to the nature of the Company's products; (10) the risks associated with
environmental compliance costs and liabilities; (11) the ability to attract
and retain quality management personnel; (12) the ability to avoid employee
work stoppages and other labor difficulties; (13) the risks associated with
defending against potential intellectual property claims and enforcing
intellectual property rights; (14) market performance of pension plan
assets and changes in discount rates used for actuarial assumptions in
pension and other postretirement obligation and expense calculations; (15)
the risk of possible future charges if the Company determines that the
value of goodwill or other intangible assets has been impaired; and (16)
changes in laws and regulations, including accounting standards, tax
requirements and related interpretations or guidance. 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, 2006 and 2005 follow.
Gardner Denver will broadcast a conference call to discuss first
quarter earnings on Thursday, April 27, 2006 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 2005 revenues of $1.2 billion ($1.4 billion
on a pro forma basis including the acquisition of Thomas Industries, which
was completed in July 2005) 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 ).
GARDNER DENVER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts and percentages)
(Unaudited)
Three Months Ended
March 31,
%
2006 2005 Change
Revenues $399,294 $238,824 67
Costs and Expenses:
Cost of sales 259,175 161,014 61
Depreciation and amortization 11,998 7,282 65
Selling and administrative 73,705 52,424 41
Interest expense 10,232 4,033 154
Other (income), net (687) (632) 9
Total costs and expenses 354,423 224,121 58
Income before income taxes 44,871 14,703 205
Provision for income taxes 14,359 4,411 226
Net income $30,512 $10,292 196
Basic earnings per share $1.17 $0.51 129
Diluted earnings per share $1.15 $0.50 130
Basic weighted average
number of shares outstanding 26,055 20,044
Diluted weighted average
number of shares outstanding 26,628 20,638
Shares outstanding as of March 31 26,159 20,106
GARDNER DENVER, INC.
CONDENSED BALANCE SHEET ITEMS
(in thousands, except percentages)
(Unaudited) %
3/31/2006 12/31/2005 Change
Cash and equivalents $100,914 $110,906 (9)
Receivables, net 262,502 229,467 14
Inventories, net 226,562 207,326 9
Total current assets 630,859 586,267 8
Total assets 1,772,614 1,715,060 3
Short-term debt and current
maturities of long-term debt 31,830 26,081 22
Accounts payable and accrued
liabilities 280,157 287,763 (3)
Total current liabilities 311,987 313,844 (1)
Long-term debt, excluding
current maturities 550,981 542,641 2
Total liabilities 1,068,818 1,056,771 1
Total stockholders' equity $703,796 $658,289 7
GARDNER DENVER, INC.
BUSINESS SEGMENT RESULTS
(in thousands, except percentages)
(Unaudited)
Three Months Ended
March 31,
%
2006 2005 Change
Compressor and Vacuum Products
Revenues $318,433 $189,173 68
Operating earnings (1) 35,808 12,718 182
% of Revenues 11.2% 6.7%
Orders 333,697 217,916 53
Backlog 314,873 193,994 62
Fluid Transfer Products
Revenues 80,861 49,651 63
Operating earnings (1) 18,608 5,386 245
% of Revenues 23.0% 10.8%
Orders 88,094 78,648 12
Backlog 172,179 82,882 108
Reconciliation of Segment Results
to Consolidated Results
Compressor and Vacuum Products
operating earnings $35,808 $12,718
Fluid Transfer Products
operating earnings 18,608 5,386
Total segment operating
earnings 54,416 18,104
Interest expense 10,232 4,033
Other (income), net (687) (632)
Income before income taxes $44,871 $14,703
(1) Operating earnings are defined as revenues less cost of sales,
depreciation and amortization, and selling and administrative
expenses.
GARDNER DENVER, INC.
SELECTED FINANCIAL DATA SCHEDULE
(in millions, except percentages)
(Unaudited)
Three Months Ended
March 31,
%
$ Millions Change
Compressor and Vacuum Products
2005 Revenues 189.2
Incremental effect of acquisitions 108.4 57
Effect of currency exchange rates (7.3) (4)
Organic growth 28.1 15
2006 Revenues 318.4 68
2005 Orders 217.9
Incremental effect of acquisitions 104.3 48
Effect of currency exchange rates (7.8) (4)
Organic growth 19.3 9
2006 Orders 333.7 53
Backlog as of 03/31/05 194.0
Incremental effect of acquisitions 87.1 45
Effect of currency exchange rates (4.4) (2)
Organic growth 38.2 19
Backlog as of 03/31/06 314.9 62
Fluid Transfer Products
2005 Revenues 49.6
Incremental effect of acquisitions 4.5 9
Effect of currency exchange rates (1.3) (3)
Organic growth 28.1 57
2006 Revenues 80.9 63
2005 Orders 78.6
Incremental effect of acquisitions 5.9 7
Effect of currency exchange rates (1.8) (2)
Organic growth 5.4 7
2006 Orders 88.1 12
Backlog as of 03/31/05 82.9
Incremental effect of acquisitions 2.2 3
Effect of currency exchange rates (2.2) (3)
Organic growth 89.3 108
Backlog as of 03/31/06 172.2 108
Consolidated Revenues
2005 238.8
Incremental effect of acquisitions 112.9 47
Effect of currency exchange rates (8.6) (4)
Organic growth 56.2 24
2006 399.3 67
GARDNER DENVER, INC.
SELECTED FINANCIAL DATA SCHEDULE
(in millions, except percentages)
(Unaudited)
Three Months Ended
March 31,
% % of
$ Millions Change Revenues
2005 Compressor and Vacuum
Operating Earnings 12.7 6.7
Incremental effect of acquisitions 13.7 108 12.6
Other changes 9.4 74
2006 Compressor and Vacuum Operating
Earnings 35.8 182 11.2
2005 Fluid Transfer Operating Earnings 5.4 10.8
Incremental effect of acquisitions 0.8 15 17.8
Other changes 12.4 230
2006 Fluid Transfer Operating Earnings 18.6 245 23.0
Gross Margin
2005 77.8 32.6
Incremental effect of acquisitions 39.5 51 35.0
Other changes 22.8 29
2006 140.1 80 35.1
Depreciation & Amortization
2005 7.3 3.1
Incremental effect of acquisitions 5.0 69 4.4
Other changes (0.3) (4)
2006 12.0 65 3.0
Selling & Administrative
2005 52.4 22.0
Incremental effect of acquisitions 20.0 38 17.7
Other changes 1.3 3
2006 73.7 41 18.5
Total Segment Operating Earnings
2005 18.1 7.6
Incremental effect of acquisitions 14.5 80 12.8
Other changes 21.8 121
2006 54.4 201 13.6
Net Income
2005 10.3 4.3
Incremental effect of acquisitions 4.3 42 3.8
Other changes 15.9 154
2006 30.5 196 7.6
SOURCE Gardner Denver, Inc.
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Related links:
http://www.gardnerdenver.com
http://www.prnewswire.com/comp/303875.html/
CONTACT:
Helen W. Cornell, Vice President, Finance and
CFO, +1-217-228-8209
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