Blount Announces Third Quarter 2012 Results - Third quarter 2012 sales increased 9% compared to the prior year; declined 6% excluding sales associated with recently acquired businesses

- Full year sales and profit outlook for 2012 reaffirmed

PORTLAND, Ore., Nov. 1, 2012 /PRNewswire/ -- Blount International, Inc. (NYSE: BLT) ("Blount" or "Company") today announced results for the third quarter ended September 30, 2012, and reaffirmed its outlook for 2012. 

Results for the Quarter Ended September 30, 2012

Sales in the third quarter were $233 million, a 9% increase from the third quarter of 2011. Excluding the impact of businesses acquired since July 1, 2011, sales declined 6%, with half of the decline attributed to currency fluctuation. Operating income for the third quarter of 2012 was $22.5 million compared to $23.9 million in the prior year. Third quarter net income was $11.6 million, or $0.23 per diluted share, compared to $10.8 million, or $0.22 per diluted share, in the third quarter of 2011.

"While our top line improved with the impact of acquired businesses, our year-over-year performance continued to reflect the weight of soft market conditions and slow demand in Europe and North America driven by economic uncertainty and weather-related conditions," stated Josh Collins, Blount's Chairman and Chief Executive Officer.  

Mr. Collins continued, "As we anticipated, the excess costs associated with the consolidation of distribution and log splitter assembly in the new Kansas City, Missouri, facility substantially abated by the end of the third quarter. Managing through the current soft market environment and integration of the businesses we acquired in the last two years continue to be our top priorities."

Segment Results

Blount operates primarily in two business segments – the Forestry, Lawn, and Garden ("FLAG") segment and the Farm, Ranch, and Agriculture ("FRAG") segment. The Company reports separate results for the FLAG and FRAG segments. Blount's Concrete Cutting and Finishing ("CCF") business is included in "Corporate and Other."

Forestry, Lawn, and Garden

The FLAG segment reported third quarter 2012 sales of $156.7 million. Third quarter 2012 sales decreased 2% from the third quarter of 2011. However, when excluding businesses acquired since July 1, 2011 and the impact of foreign exchange rate changes, sales increased slightly compared to the third quarter of 2011. For comparability, all sales statistics are quoted excluding the impact of acquired businesses for the period during which Blount did not own the acquired business. Foreign exchange, particularly driven by the Brazil Real and Euro currency rates, was the largest driver of the sales decline and accounted for more than a 3% reduction, while volumes and prices had a net positive impact on sales. Average pricing improved slightly as select price increases put in place in the middle of the 2012 third quarter enhanced results on a comparative basis. Sales in Europe declined 20% while sales in North America grew nearly 10% in the third quarter of 2012 compared to 2011. The change in segment sales for the comparable third quarter periods is illustrated below, with sales of $1.6 million from businesses acquired since July 1, 2011, presented as acquired volume increase.

Change in FLAG Segment Sales

(U.S. Dollars in millions; amounts may not sum due to rounding)

Sales

Change

       Third Quarter 2011

$160.3


              Increase / (Decrease)



                 Foreign Exchange

(5.5)

(3.4)%


154.8

(3.4)%

                 Unit Volume

(0.6)

(0.4)%

                 Selling Price / Mix

0.9

0.5%


155.1

(3.2) %

                 Acquired Volume (1)

1.6

1.0%

       Third Quarter 2012

$156.7

(2.3)%


(1) Represents third quarter 2012 sales from the FLAG portion of PBL compared to the prior year period during which Blount did not own that business







Segment backlog was $141.5 million at September 30, 2012, a decrease of 22% from the $182.4 million on December 31, 2011. The reduction in backlog relates to softer demand related to the uncertain economic climate in Europe and Asia.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $25.0 million and $31.6 million, respectively, for the third quarter of 2012. Segment contribution to operating income and Adjusted EBITDA declined by $1.9 million and $1.8 million, respectively, for the third quarter of 2012 versus 2011. Lower steel costs, changes in foreign exchange rates, and higher average selling prices all improved segment operating income; however, production volume declines and related costs more than offset the benefit from those factors. A reconciliation of FLAG contribution to operating income for the comparable third quarter periods is presented below.



Change in FLAG Segment Contribution to Operating Income and Adjusted EBITDA

 (U.S. Dollars in millions; amounts may not sum due to rounding)



Contribution

to

Operating Income

Percent of Segment Sales

Depreciation,

Amortization,

and

Other

Adjusted EBITDA

Percent of Segment Sales

Third Quarter 2011

$26.9

16.8%

$6.5

$33.4

20.9%


Increase / (Decrease)







Steel Costs

1.3






Foreign Exchange

0.4







28.5

18.4%





Unit Volume

(0.1)






Selling Price / Mix

0.9






Costs / Mix

(4.8)







24.5

15.8%





Acquired businesses excluding
     acquisition accounting

0.0






Acquisition accounting(1) 

0.5





Third Quarter 2012

$25.0

15.9%

$6.6

$31.6

20.2%









(1)

Represents change in acquisition accounting impact for all FLAG business units regardless of date acquired


 

The benefit from currency exchange rates was driven mostly by a stronger U.S. Dollar versus the Brazilian Real, which resulted in lower U.S. Dollar equivalent manufacturing and overhead costs in the Brazilian operations. Steel costs have declined with the broader market. Cost/mix spending was higher as a result of slowing production in most of the FLAG product lines in response to soft market conditions in both Europe and the U.S.  FLAG production volumes for the third quarter of 2012 were at approximately 82% of capacity, compared to 94% in the third quarter of 2011, resulting in unfavorable plant efficiency and related cost absorption. Partially offsetting the increase in product costs was a reduction in SG&A expense, mainly in the areas of travel, professional fees, and advertising.

Farm, Ranch, and Agriculture

The FRAG segment reported third quarter 2012 sales of $69.7 million. Third quarter 2012 sales increased $23.1 million from the third quarter of 2011 due to sales generated by acquired businesses, partially offset by base business volume decline. Excluding the impact of acquired businesses, sales declined 15%. Log splitter sales were the primary driver of the decline as temperatures in the U.S. were unusually high entering the key selling season; sales were in line with the overall log splitter market for the quarter. The change in segment sales for the comparable third quarter periods is illustrated below, with sales from businesses acquired since July 1, 2011 of $30.2 million presented entirely as acquired volume increase. Sales from businesses acquired are mainly sales in the Woods/TISCO business. Woods/TISCO sales on a pro forma basis were down approximately 6% compared to the prior year third quarter, primarily as a result of the U.S. drought conditions.

 

Change in FRAG Segment Sales

(U.S. Dollars in millions; amounts may not sum due to rounding)

Sales

Change

      Third Quarter 2011

$46.6


             Increase / (Decrease)



             Foreign Exchange

(0.1)

(0.3)%


46.5

(0.3)%

             Unit Volume

(6.8)

(14.7)%

             Selling Price / Mix

(0.1)

(0.2) %


39.5

(15.1)%

             Acquired Volume (1)

30.2

n.m.

      Third Quarter 2012

$69.7

49.7%


(1) Represents third quarter 2012 sales from Woods/TISCO and the FRAG portion of PBL compared to the prior year period during which Blount did not own those businesses


Segment backlog was $25.4 million at September 30, 2012, a 10% reduction compared to the $28.3 million at December 31, 2011.

Segment contribution to operating income and Adjusted EBITDA was $1.1 million and $5.2 million, respectively, for the third quarter of 2012. A reconciliation of the third quarter 2012 contribution to operating income compared to the third quarter of 2011 is presented below.


Change in FRAG Segment Contribution to Operating Income and Adjusted EBITDA

(U.S. Dollars in millions; amounts may not sum due to rounding)


Contribution

to

Operating Income

Percent of Segment Sales

Depreciation,

Amortization,

and

Other

Adjusted EBITDA

Percent of Segment Sales

Third Quarter 2011


$3.8

8.2%

$3.5

$7.3

15.7%


Increase / (Decrease)







Foreign Exchange

0.1







3.9

8.4%





Unit Volume

(3.1)






Selling Price / Mix

(0.1)






Costs / Mix

(3.4)







(2.6)

(6.6)%





Acquired businesses excluding
      acquisition accounting

 

3.6






Acquisition accounting(1) 

0.1





Third Quarter 2012


$1.1

1.5%

$4.1

$5.2

7.5%









(1)

Represents change in acquisition accounting impact for all FRAG business units regardless of date acquired

The decline in sales volume generated a reduction to operating income contribution, while cost/mix increased compared to the third quarter of 2011. Incremental logistics costs of $2.5 million and increased support costs of $0.8 million were the main drivers of the cost/mix increase. Logistics costs were driven by elevated air freight of $1.2 million with continued efforts to shorten the FRAG supply chain lead time and incremental distribution costs of $1.0 million. Support costs are primarily in the area of supply chain as well as information systems costs associated with planned investments in infrastructure. Acquired businesses had a net positive impact on segment contribution to operating income, with changes in acquisition accounting representing a $0.1 million change to contribution to operating income.

Corporate and Other

Corporate and other generated net expense of $3.6 million in the third quarter of 2012 compared to net expense of $6.8 million in the third quarter of 2011. The smaller net expense was due to lower SG&A, driven mostly by reduced acquisition-related spending compared to the prior year. Partially offsetting the spending reduction in SG&A was $0.8 million of transition expenses associated with consolidation of the SpeeCo distribution and assembly and FLAG distribution operations into the new Kansas City distribution and log splitter assembly facility. The bulk of the $0.8 million relates primarily to incremental labor and equipment rental costs early in the third quarter to complete the stabilization of the distribution center operations.

Net Income

Third quarter 2012 net income increased due to lower other expense. Other expense declined as a result of charges to income related to amending the terms of the Company's Senior Credit Facility in 2011 which were not repeated in the third quarter of 2012. Lower operating income, discussed above, partially offset the impact of lower other expense. Net interest expense was $4.3 million in the third quarter of 2012 versus $4.4 million in the third quarter of 2011. The impact of lower interest rates more than offset higher average borrowing levels in the third quarter of 2012 versus the 2011. The change in net income for the third quarter of 2012 compared to the third quarter of 2011 is summarized in the table below.


Change in Net Income





(U.S. Dollars in millions, except per share data;

    amounts may not sum due to rounding)

Pre-tax Income

Income Tax Effect

Net

Income

Diluted Earnings per Share


Third Quarter 2011 Results

$15.7

$4.9

$10.8

$0.22



Change due to:







Decreased operating income excluding acquisition accounting and facility closure

 

(2.6)

 

(0.8)

 

(1.8)

 

(0.04)



Facility closure and restructuring

(0.8)

(0.2)

(0.6)

(0.01)



Acquisition accounting impact

2.0

0.6

1.4

0.03



Decreased net interest expense

0.1

0.0

0.1

0.00



Change in other expense

3.9

1.2

2.7

0.05



Change in income tax rate

n/a

0.9

(0.9)

(0.02)


Third Quarter 2012 Results

$18.3

$6.7

$11.6

$0.23



Cash Flow and Debt

As of September 30, 2012, the Company had net debt of $467.9 million, a decrease of $5.8 million from June 30, 2012 and a decrease of $0.4 million compared to December 31, 2011. The decrease in net debt since the end of the second quarter 2012 was the result of free cash generation of $6.1 million, partially offset by financing costs related to the amendment of the Company's Senior Credit facility on August 3, 2012. The amendment included a change to the leverage limits and a modification of certain other covenants. There was no change to the size, rates of interest, or maturity dates of the facility. The amended terms are designed to provide operating flexibility as the Company navigates the decline in demand in key markets.

Free cash flow was $6.1 million in the third quarter of 2012 resulting from cash generated by operations of $18.5 million offset by net capital expenditures of $12.4 million. Free cash generated in the third quarter of 2012 declined by $3.5 million compared to the third quarter of 2011 mostly as a result of $1.8 million of reduced cash from operations and $1.7 million of increased capital equipment spending. Net capital expenditures were larger in the third quarter of 2012 than the third quarter of 2011 with incremental capital spending of $4.0 million on capacity at the Fuzhou, China manufacturing plant partially offset by reduced capital spending at the Curitiba, Brazil and Portland, Oregon locations. The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 3.3x as of September 30, 2012, which increased from 2.8x at December 31, 2011. The increase in leverage from the end of 2011 is primarily the result of reduced year-to-date 2012 profitability and increased use of cash for working capital.

2012 Financial Outlook

As a result of continued soft market conditions, fueled primarily by economic uncertainty in Europe and drought conditions in North America, the Company continues to expect sales of $920 million to $940 million for the full year. The Company expects full year 2012 operating income to range between $80 million and $85 million. The expectation for 2012 assumes that foreign currency exchange rates will improve operating income on a year-over-year basis by between $1 million and $2 million and steel prices will have a neutral full year impact on 2012 operating income compared to 2011. The outlook for 2012 operating income also includes estimated non-cash charges as a result of acquisition accounting of approximately $16 million. Free cash flow for 2012 is expected to range between $12 million and $18 million, after approximately $50 million of capital expenditures. Free cash flow has been negatively impacted by elevated working capital levels and soft market conditions. Net interest expense is expected to be between $17 million and $18 million in 2012, and the effective income tax rate for continuing operations is expected to be between 35% and 38% in 2012.

A comparison of key operating indicators for 2011 actual results, 2011 pro forma results, and the 2012 outlook mid-point, is provided in the table below.    

(U.S. Dollars in millions)

2011
Actual

2011

Pro Forma

2012
Outlook
Mid-Point


Sales

$831.6

$975.5

$930.0


Operating Income

98.0

110.0

82.5


Adjusted EBITDA

146.9

168.7

140.0


Free Cash Flow

38.3

47.9

15.0


Net Capital Expenditures

39.4

41.6

50.0


Net Debt at Period End

468.2

468.2

454.0


Net Debt/Adjusted EBITDA

3.2x

2.8x

3.2x

Adjusted EBITDA and Free Cash Flow are non-GAAP measures and are reconciled to Operating Income and Cash Flow from Operations in the attached financial data table.

Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for consumers and professionals operating primarily in two market segments: Forestry, Lawn, and Garden ("FLAG"); and Farm, Ranch, and Agriculture ("FRAG"). Blount also sells products in the construction markets and is the market leader in manufacturing saw chain and guide bars for chain saws.  Blount has a global manufacturing and distribution footprint and sells its products in more than 115 countries around the world.  Blount markets its products primarily under the OREGON®, OREGON® PowerNow, Carlton®, Woods®, TISCO, SpeeCo®, and ICS® brands. For more information about Blount, please visit our website at http://www.blount.com.

"Forward looking statements" in this release, including without limitation Blount's "outlook," "expectations," "beliefs," "plans," "indications," "estimates," "anticipations," "guidance" and their variants, as defined by the Private Securities Litigation Reform Act of 1995,  are based upon available information and upon assumptions that Blount believes are reasonable; however, these forward looking statements involve certain risks and should not be considered indicative of actual results that Blount may achieve in the future.  In particular, among other things, guidance given in this release is expressly based upon certain assumptions concerning market conditions, foreign currency exchange rates, and raw material costs, especially with respect to the price of steel, the presumed relationship between backlog and future sales trends and certain income tax matters, as well as being subject to the uncertainty of the current global economic situation.  To the extent that these assumptions are not realized going forward, or other unforeseen factors arise, actual results for the periods subsequent to the date of this announcement may differ materially.

 

Blount International, Inc. Financial Data (Unaudited)






Condensed Consolidated Statements of Income

Three Months Ended September 30,

Nine Months Ended September 30,

(Amounts in thousands, except per share data)

2011

2012

2011

2012

Sales

$  212,904

$  232,736

$  595,115

$  698,104

Cost of sales

147,344

169,808

405,319

504,433

Gross profit

65,560

62,928

189,796

193,671

Selling, general, and administrative expenses

41,627

39,662

113,203

127,404

Facility closure & restructuring charges

-

802

-

6,400

Operating income

23,933

22,464

76,593

59,867

Interest expense, net of interest income

(4,421)

(4,278)

(14,071)

(12,937)

Other income (expense), net 

(3,772)

113

(4,067)

210

Income from continuing operations before income taxes

15,740

18,299

58,455

47,140

Provision for income taxes

4,935

6,677

18,275

16,536

Net income

$    10,805

$    11,622

$    40,180

$    30,604






Basic income per share:

$        0.22

$        0.24

$        0.83

$        0.62

Diluted income per share:

$        0.22

$        0.23

$        0.81

$        0.61

Shares used for per share computations:





Basic

48,833

49,236

48,633

49,126

Diluted

49,545

49,913

49,345

49,866











Free Cash Flow

Three Months Ended September 30,

Nine Months Ended September 30,

(Amounts in thousands)

2011

2012

2011

2012

Net cash provided by operating activities

$    20,272

$    18,487

$    60,988

$    38,907

Net purchases of property, plant, and equipment

(10,668)

(12,417)

(24,190)

(38,653)

Free cash flow

$      9,604

$      6,070

$    36,798

$         254






Segment Information

Three Months Ended September 30,

Nine Months Ended September 30,

(Amounts in thousands)

2011

2012

2011

2012

Sales:





FLAG

$  160,336

$  156,728

$  494,299

$  484,626

FRAG

46,565

69,688

81,719

193,634

Other

6,003

6,320

19,097

19,844

Total sales

$  212,904

$  232,736

$  595,115

$  698,104

Operating income:





FLAG

$    26,897

$    24,987

$    89,270

$    82,037

FRAG

3,832

1,059

5,121

(3,620)

Other

(6,796)

(3,582)

(17,798)

(18,550)

Operating income

$    23,933

$    22,464

$    76,593

$    59,867

 





Condensed Consolidated Balance Sheets

December 31,


September 30,

(Amounts in thousands)

2011


2012

Assets:




Cash and cash equivalents

$           62,118


$            45,904

Accounts receivable

133,965


126,620

Inventories

149,825


173,548

Other current assets

37,430


43,784

Property, plant, and equipment, net

155,872


172,335

Other non-current assets

344,997


334,687

Total Assets

$         884,207


$          896,878

Liabilities:




Current maturities of long-term debt

$           20,348


$            15,000

Other current liabilities

127,130


131,608

Long-term debt, net of current maturities

510,014


498,762

Other long-term liabilities

157,250


146,706

Total liabilities

814,742


792,076

Stockholders' equity

69,465


104,802

Total Liabilities and Stockholders' Equity

$         884,207


$          896,878





Net debt (Current maturities plus Long-term debt 




less Cash and cash equivalents)

$         468,244


$          467,858

 











Sales and Adjusted EBITDA

(Amounts may not sum due to rounding)


 Forestry, Lawn and Garden 

 Farm, Ranch, and Agriculture 

 Corporate and Other 

 Total Company 

Three Months Ended September 30,

(Amounts in thousands)


2011
Actual

2012
Actual

2011
Actual

2012
Actual

2011
Actual

2012
Actual

2011
Actual

2012
Actual

Total sales


$    160,336

$      156,728

$      46,565

$      69,688

$       6,003

$      6,320

$    212,904

$    232,736











Operating income


26,897

24,987

3,832

1,059

(6,796)

(3,582)

$        23,933

$        22,464

Depreciation


5,324

5,877

486

1,227

50

123

5,860

7,227

Amortization / purchase accounting


1,216

757

2,973

2,928

-

-

4,189

3,685

Stock compensation






1,021

1,644

1,021

1,644

Facility closure and restructuring charges






-

802

-

802

Inventory and asset impairment charges








-

-

Expense associated with business acquisitions




2,569


2,569

-

Other






116


116

-

Adjusted EBITDA


$      33,437

$        31,621

$        7,291

$        5,214

$      (3,040)

$    (1,013)

$      37,688

$      35,822













 Forestry, Lawn and Garden 

 Farm, Ranch, and Agriculture 

 Corporate and Other 

 Total Company 

Nine Months Ended September 30,

(Amounts in thousands)


2011
Actual

2012
Actual

2011
Actual

2012
Actual

2011
Actual

2012
Actual

2011
Actual

2012
Actual

Total sales


$    494,299

$      484,626

$      81,719

$    193,634

$     19,097

$   19,844

$    595,115

$    698,104











Operating income


89,270

82,037

5,121

(3,620)

(17,798)

(18,550)

$        76,593

$        59,867

Depreciation


15,342

17,207

772

3,437

190

762

16,304

21,406

Amortization / purchase accounting


3,169

2,777

5,751

9,567

-

-

8,920

12,344

Stock compensation






3,021

4,225

3,021

4,225

Facility closure and restructuring charges






-

6,989

-

6,989

Inventory and asset impairment charges


491






491

-

Expense associated with business acquisitions





3,950


3,950

-

Other






423


423

-

Adjusted EBITDA


$    108,272

$      102,021

$      11,644

$        9,384

$   (10,214)

$    (6,574)

$    109,702

$    104,831













 Total Company 






Twelve Months Ended December 31,


2011
Actual

2011
Pro Forma1

2012
Full Year Estimate






Total sales


$    831,630

$      975,500

$    930,000
















Operating income


$        97,953

$        109,964

$        82,500






Depreciation


23,482

26,898

29,000






Amortization / purchase accounting


15,642

22,016

16,000






Stock compensation


4,442

4,442

5,500






Facility closure and restructuring charges


-

-

7,000






Inventory and asset impairment charges


491

491

-






Expense associated with business acquisitions

4,383

4,383

-






Other


535

535

-






Adjusted EBITDA


$    146,928

$      168,729

$    140,000


























1) 2011 Pro Forma information includes KOX, PBL and Woods results as if acquired January 1, 2011. 

SOURCE Blount International, Inc.



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