Revenues and Net Income Increase 9% Compared to the Previous Year
Company Continues to Generate Strong Cash Flow
QUINCY, Ill., Oct. 20 /PRNewswire-FirstCall/ -- Gardner Denver, Inc.
(NYSE: GDI) announced that revenues for the three months ended September 30,
2003 were $112.1 million, a 9% increase compared with the third quarter of the
previous year. Net income for the three-month period of 2003 was
$5.3 million, a 9% increase compared to the same period last year. Diluted
earnings per share (DEPS) in the three-month period of 2003 were $0.32, 7%
better than $0.30 in the previous year.
CEO's Comments Regarding Results
"I am encouraged by the increase in orders that we booked in the third
quarter and the feedback we are currently receiving from our distributors
regarding their demand outlook for industrial products in 2004. Orders for
compressed air products are higher, both year-over-year and sequentially.
Excluding the impact of changes in foreign currency exchange rates and
acquisitions, revenues increased for this segment (compared to the same
quarter of the previous year) for the first time since 2000. Demand for well
stimulation pumps and pump replacement parts also increased significantly
year-over-year. Although orders for drilling pumps have not yet increased
appreciably, I believe that demand for petroleum products in 2004 will exceed
that of 2003. We are positioning drilling pump inventory to capitalize on this
projected upturn to minimize leadtime and capture incremental demand," stated
Ross J. Centanni, Chairman, President and CEO.
"Our product development efforts are progressing according to plan. We
have completed the rationalization of our centrifugal blower product offering
and are actively developing new energy-efficient screw compressors to serve
the global market. The expected benefits of our material and manufacturing
cost reductions and lead time improvements will be more visible when they are
leveraged through incremental revenue volume, but previous cost reductions are
evident in selling and administrative expenses. Selling and administrative
expenses for the nine months ended September 30, 2003 increased $2.2 million
compared to the same period of the previous year, primarily due to unfavorable
foreign currency exchange rates. Excluding the impact of foreign currency
exchange rate changes, these expenses decreased approximately $0.2 million
from the prior year period due to cost reductions, including acquisition
integration, despite higher sales commissions and fringe benefit costs.
"We continued to strengthen our balance sheet and improve our capital
structure, reducing our debt to total capital (debt plus equity) to less than
30%. Our receivables are in excellent condition and we are beginning to see
improvement in inventory turnover, despite the positioning of some drilling
pump inventory. Inventory turnover as of September 30 was 4.4, slightly better
than as of June 30. Cash flow from operations totaled almost $24 million for
the nine-month period, which enabled us to repay more than $18 million in
debt, fund a machine shop acquisition and continue investing capital to
improve our operations. The inherent ability to continue generating strong
cash flows in a period of weak economic demand is a key strength for our
Company. In the first nine months of 2003, we invested almost $8 million in
capital expenditures to reduce costs and develop new products. For the year,
we expect to invest $12-$14 million to improve our operations. We believe that
we are well positioned to pursue our strategies for growth, including
synergistic acquisitions.
"Given the geographic segmentation of the well stimulation market, we
acquired a small machine shop in Odessa, Texas for $2.4 million during August
2003. We currently operate a remanufacturing center in Fort Worth, Texas, but
require other regional service centers to expand our share of the aftermarket.
This acquisition was a step toward expanding this penetration and
strengthening relationships with existing customers. We plan to utilize this
facility to service and repair well stimulation and drilling pumps serving the
Permian Basin. This business had also developed a line of pumps and uniquely
designed fluid cylinders to serve the well stimulation market, which we will
use to enhance our product offering."
Outlook
"We have begun the detailed planning stage of our inventory reduction
program and, as mentioned, realized some early benefits from improved
inventory turnover. I anticipate that inventory turnover will continue to
improve through enhanced production planning and execution, supply chain
management, information systems and inventory management techniques. Our goal
is to achieve 5 turns by 2005, which could generate more than $12 million of
cash flow at current production levels.
"We believe the customer base for industrial compressors continues to
relocate to regions of the world with lower production costs, such as China.
To further penetrate the Asian market, we are establishing an operation in the
Shanghai area to package reciprocating compressors for PET bottle blowing,
rotary screw compressors for industrial applications, and multistage
centrifugal blowers for wastewater and industrial applications. We are in the
process of filing a request with the Chinese government to create a legal
entity and have engaged an engineering firm to oversee and manage the
construction of a new leased facility. We believe the entity will be created
in the fourth quarter of 2003 and the new facility will be operational next
fall. In addition to an ability to penetrate the Asian market, we believe that
this operation will enable us to more easily source lower-cost castings and
package components for use by our U.S. and European operations. We expect to
begin seeing benefits of this global sourcing strategy in the second quarter
of 2004. Certain start-up expenses will be incurred in the fourth quarter of
2003 as a result of this effort, and we anticipate a slight net loss during
the start-up of this operation in 2004. The business is expected to operate at
breakeven in 2005 and become profitable the following year.
"In the fourth quarter of 2003, the Company is also initiating an
aggressive restructuring program to eliminate redundant manufacturing
capacity, streamline operations and reduce costs. These activities represent
further integration of previously completed acquisitions which we expect will
result in better leverage of our existing manufacturing facilities. The
projects include closing three facilities - a fabrication facility in Baltic,
Ohio and packaging operations in Toronto, Canada and Houston, Texas. The
functions performed in Baltic and Toronto will be consolidated into our
facility in Peachtree City, Georgia. The packaging that was previously
performed in Houston will be consolidated into our Quincy, Illinois facility.
"As part of the restructuring program, we will also refocus the marketing
strategies of our German blower and U.K. compressor businesses. The emphasis
of our blower operation in Schopfheim, Germany will be to serve the truck
blower market for liquid and dry bulk conveyance, rather than the more limited
industrial applications for these products. We will reduce manpower at this
location through layoffs and a proactive early retirement program to
appropriately size this operation's overhead for the markets served. We also
plan to focus our U.K. operations on standard industrial packaging rather than
highly engineered products. Demand for standard products is less cyclical than
that of highly engineered packages and sales of standard products generate
better margins with lower business risk. This change will also allow us to
reduce manpower and eliminate the fixed overhead necessary to support the
highly engineered products.
"We believe the aggregate financial impact of the inventory reduction
initiative, establishing a packaging operation in China, and the restructuring
program will be a reduction in DEPS in the fourth quarter of 2003 of $0.10 to
$0.12. The majority of the fourth quarter expenses are for severance and
fringe benefits costs associated with the reduction in manpower. As a result
of the restructuring, we expect a net reduction in headcount of almost 80
personnel, approximately 4% of our total workforce, by 2005. Although we
anticipate some additional expenses related to these projects in 2004, we
currently believe the benefits realized from these efforts will offset
incremental costs and that there will be minimal net impact on earnings in
2004. By 2005, we anticipate that these projects will generate ongoing annual
improvements in DEPS of at least $0.09 to $0.11."
Looking forward, Mr. Centanni stated, "We believe that the demand outlook
for the fourth quarter of 2003 is comparable with that of the third. We also
believe that the demand outlook in 2004 is more positive than negative and we
should see some revenue growth in a slowly recovering U.S. economy. Our
packaging operation in China should facilitate further material cost
reductions as we access lower-cost suppliers and we are strengthening our
distribution channels in the U.S. and Europe through further training and
development. Our ongoing investments in capital projects and lean
manufacturing techniques should enable us to respond quickly when orders begin
to increase.
"We expect improved demand for petroleum pumps and replacement parts in
2004, if North American rig counts continue to rise, and believe that our
investments in drilling pump inventory will enable a quick response if further
orders are received. If natural gas prices remain elevated, supported by an
economic recovery, demand for well servicing and drilling should increase
further, stimulating demand for petroleum pumps in 2004.
"The Company currently expects DEPS to be approximately $0.22 to $0.26 for
the fourth quarter of 2003, taking into account the impact of the $0.10 to
$0.12 one-time reduction associated with the projects mentioned earlier.
Therefore, DEPS is expected to be approximately $1.09 to $1.13 for the year,
which is within the range of our previous guidance after adjustment for such
one-time impact. At present, we believe that DEPS for 2004 will be
approximately $1.25 to $1.45, depending on the increase in revenue volume."
Third Quarter Results
Revenues for the three-month period increased $9.3 million (9%) to
$112.1 million, compared to the same period of 2002, due to favorable changes
in foreign currency exchange rates and increased shipments of rotary screw
compressors, reciprocating compressor packages, well stimulation pumps and
petroleum pump parts. Compared to the same period of 2002, Compressed Air
Products revenues increased $6.1 million (7%) to $91.6 million. Excluding the
favorable impact of changes in foreign currency exchange rates, revenues in
this segment would have increased $3.0 million (4%) due to improved orders for
industrial products, particularly from Europe and Asia. Pump Products revenues
for the three-month period increased $3.2 million (19%) compared to the same
period of 2002, primarily as a result of increased demand for well stimulation
pumps and petroleum pump parts.
Net income was $5.3 million for the three-month period of 2003, compared
to $4.8 million in the same period of 2002. Favorable changes in exchange
rates increased net income by approximately $0.2 million in the third quarter
of 2003, compared to the previous year. The 2003 results reflect an effective
tax rate of 32%, compared to 34% in the previous year, as a result of benefits
from higher U.S. export sales. DEPS was $0.32 for the third quarter of 2003,
compared to $0.30 for the same period of 2002. Higher warranty and fringe
benefit expenses and costs associated with a disruption within our casting
supply chain have been offset by cost reductions, including acquisition
integration, favorable changes in exchange rates, lower interest expense and
the benefit of a lower tax rate.
Nine Month Results
Revenues for the nine-month period of 2003 increased 3% to $322.9 million
compared to the same period of 2002, due to favorable changes in foreign
currency exchange rates which contributed $12.4 million to revenues in the
nine-month period. Compressed Air Products revenues increased $7.9 million
(3%) due to favorable changes in foreign currency exchange rates. Excluding
the favorable impact of changes in foreign currency exchange rates, revenues
in this segment decreased $4.5 million (2%) for the nine-month period compared
to the previous year, due to softer industrial economic conditions in the U.S.
and Europe. Pump Products revenues for the nine-month period increased
$0.8 million (1%) compared to the same period of 2002 as a result of the
increased shipments of well stimulation pumps and petroleum pump replacement
parts. In 2002, Pump Products segment revenues were primarily supported by
drilling pump backlog carried over from 2001 orders.
Net income for the nine-month period of 2003 was $14.1 million ($0.87
DEPS), compared to $14.9 million ($0.93 DEPS) for the same period of 2002.
Favorable changes in exchange rates increased net income by approximately
$0.7 million in the first nine months of 2003, compared to the previous year.
The unfavorable comparison in net income and DEPS for the nine-month period
reflects the lower first half revenue volume and unfavorable sales mix due to
the reduction of drilling pump sales, which generate above-average margins.
Charges incurred to change the casting supply base and increased warranty and
fringe benefit costs were partially offset by cost reduction programs, such as
acquisition integrations, and lower interest expense.
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 the statements
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 and expectations and beliefs relating to matters that are not
historical in nature. Such forward-looking statements are subject to
uncertainties and factors relating to Gardner Denver'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 maintain and to enter into key purchasing,
supply and outsourcing relationships; (2) the ability to effectively manage
the transition of iron casting supply to alternate sources and the skill,
commitment and availability of such alternate sources; (3) the ability to
identify, negotiate and complete future acquisitions; (4) the speed with which
the Company is able to integrate acquisitions and realize the related
financial benefits; (5) the successful implementation of other strategic
initiatives, including, without limitation, profitability improvement
projects, inventory management programs and other cost reduction efforts; (6)
the domestic and/or worldwide level of oil and natural gas prices and oil and
gas drilling and production, which affect demand for the Company's petroleum
products; (7) changes in domestic and/or worldwide industrial production and
industrial capacity utilization rates, which affect demand for the Company's
compressed air products; (8) pricing of Gardner Denver products; (9) the
degree to which the Company is able to penetrate niche and international
markets; (10) the ability to attract and retain quality management personnel;
(11) market performance of pension plan assets and changes in discount rates
used for actuarial assumptions in pension and other post-employment obligation
and expense calculations; (12) the continued ability to effectively manage and
defend litigation matters pending, or asserted in the future, against the
Company; (13) the development and acceptance of the Company's new product
offerings; and (14) the continued successful implementation and utilization of
the Company's electronic services. The Company does not undertake, and hereby
disclaims, any duty to update these forward-looking statements, even though
its situation and circumstances may change in the future.
Comparisons of the financial results for the three and nine-month periods
ended September 30, 2003 and 2002 follow.
Gardner Denver will broadcast, through a live webcast, its conference call
to discuss third quarter earnings on Tuesday, October 21, 2003 at 9:30 a.m.
Eastern. 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 on
CCBN's website ( http://www.fulldisclosure.com ).
Gardner Denver, with 2002 revenues of $418 million, is a leading
manufacturer of reciprocating, rotary and vane compressors and blowers for
various industrial applications and pumps used in the petroleum and industrial
markets. 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 STATEMENT OF OPERATIONS
(in thousands, except per share amounts and percentages)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2003 2002 Change 2003 2002 Change
Revenues $112,061 $102,791 9 $322,940 $314,254 3
Costs and
Expenses:
Cost of sales 78,198 70,261 11 225,123 216,152 4
Depreciation and
amortization 3,740 3,718 1 11,053 10,859 2
Selling and
administrative 21,063 19,897 6 62,421 60,177 4
Interest expense 1,070 1,566 (32) 3,411 4,978 (31)
Other (income)
expense, net 230 32 619 133 (535) (125)
Income before
income taxes 7,760 7,317 6 20,799 22,623 (8)
Provision for
income taxes 2,483 2,488 -- 6,656 7,692 (13)
Net income $5,277 $4,829 9 $14,143 $14,931 (5)
Basic earnings
per share $0.33 $0.30 10 $0.88 $0.94 (6)
Diluted earnings
per share $0.32 $0.30 7 $0.87 $0.93 (6)
Basic weighted
average number
of shares
outstanding 16,079 15,887 16,047 15,833
Diluted weighted
average number
of shares
outstanding 16,393 16,038 16,269 16,058
Shares outstanding
as of 9/30 16,094 15,903
GARDNER DENVER, INC.
BUSINESS SEGMENT RESULTS
(in thousands, except percentages)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2003 2002 Change 2003 2002 Change
Compressed Air
Products
Revenues $91,554 $85,496 7 $271,183 $263,247 3
Operating
earnings 7,089 7,375 (4) 21,364 23,515 (9)
% of Revenues 7.7% 8.6% 7.9% 8.9%
Orders 90,272 80,743 12 265,133 259,926 2
Backlog 56,521 56,943 (1) 56,521 56,943 (1)
Pump Products
Revenues 20,507 17,295 19 51,757 51,007 1
Operating
earnings 1,971 1,540 28 2,979 3,551 (16)
% of Revenues 9.6% 8.9% 5.8% 7.0%
Orders 18,944 14,482 31 53,386 40,722 31
Backlog 8,707 10,328 (16) 8,707 10,328 (16)
CONDENSED BALANCE SHEET ITEMS
(in thousands, except percentages)
(Unaudited)
%
09/30/03 06/30/03 Change 12/31/02
Cash and equivalents $24,623 $23,031 7 $25,667
Receivables, net 78,257 75,986 3 74,490
Inventories, net 70,351 73,042 (4) 67,448
Current assets 182,536 183,341 -- 177,775
Total assets 475,956 477,726 -- 472,181
Short-term debt and cur.
maturities 13,750 10,625 29 7,500
Current liabilities 79,497 77,456 3 77,660
Long-term debt, ex. cur.
maturities 88,514 100,272 (12) 112,663
Total liabilities 229,329 237,907 (4) 249,258
Total stockholders' equity 246,627 239,819 3 222,923
SOURCE Gardner Denver, Inc.
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Related links:
http://www.gardnerdenver.com
Company News On-Call:
http://www.prnewswire.com/comp/303875.html
CONTACT:
Helen W. Cornell, Vice President, Strategic
Planning and Operations Support of Gardner Denver,
+1-217-228-8209
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