ESCO Announces Third Quarter Results

Aug 02, 2011, 16:01 ET from ESCO Technologies Inc.

ST. LOUIS, Aug. 2, 2011 /PRNewswire/ -- ESCO Technologies Inc. (NYSE: ESE) today reported its operating results for the third quarter ended June 30, 2011.

Third Quarter Summary

  • Net sales were $176 million, an increase of $18 million, or 12 percent, over Q3 2010 net sales of $158 million;
  • Filtration net sales increased $12 million, or 39 percent over Q3 2010, with Crissair contributing $7 million of the increase;
  • Test net sales increased $11 million, or 33 percent over Q3 2010;
  • Utility Solutions Group (USG) net sales were $87 million, a decrease of $5 million, or five percent compared to Q3 2010 net sales of $92 million. Aclara sales decreased $8 million (lower sales at PG&E gas and New York City water), partially offset by $3 million of increased sales at Doble;
  • EPS was $0.49 per share, compared to Q3 2010 EPS of $0.55 per share;
  • Net cash provided by operating activities was $12 million;
  • Entered orders were $177 million resulting in a book-to-bill ratio of 1.0x and firm order backlog of $387 million at June 30, 2011; and
  • Entered orders included $15 million of initial AMI software and services for Southern California Gas Co. (SoCalGas).

Nine Months Year-to-Date (YTD) Summary

  • Net sales were $503 million, an increase of $103 million, or 26 percent, over 2010 YTD net sales of $400 million;
  • Filtration net sales increased $38 million, or 46 percent, with Crissair contributing $20 million of the increase;
  • Test net sales increased $27 million, or 29 percent;
  • USG net sales increased $39 million, or 17 percent. Aclara sales increased $27 million, and Doble sales increased $12 million in 2011;
  • EPS was $1.38 per share compared to $0.79 per share;
  • Net cash provided by operating activities was $48 million versus $16 million in 2010; and
  • Entered orders were $530 million compared to $507 million.

Chairman's Commentary – Third Quarter

Vic Richey, Chairman and Chief Executive Officer, commented, "I'm pleased with our third quarter results as we exceeded our internal sales and EBIT projections that resulted in higher-than-expected EPS. As noted in our previous earnings release, we had expected third quarter EPS to be lower than the second quarter. EPS came in above expectations and was driven by Filtration and Test generating significantly higher sales and EBIT, along with USG coming in generally on its EBIT plan.

"With the PG&E gas and New York City water projects winding-down in the second half of fiscal 2011, coupled with the additional Smart Grid investments we're making, we fully expected USG's third quarter sales and EBIT to be lower than the prior year. I'm pleased to report that notwithstanding a $19 million decrease in sales to PG&E and New York, Aclara's sales decreased only $8 million, driven by an $11 million increase in sales to COOP and international customers. Additionally, Doble continues to exceed expectations as it increased third quarter sales $3 million over the prior year. The third quarter incremental investment in our Smart Grid initiatives was consistent with our revised plan, and I remain excited about our current and future prospects in this growth area.

"Entered orders in the third quarter were $177 million resulting in $387 million of backlog at June 30. SoCalGas orders in the third quarter were $15 million which should allow the customer to begin its design and build-out of the network architecture, along with the initial installation of the meter data management software. I'm also pleased to see the Test business continuing to strengthen its global market leadership position, which was supported by an additional $63 million of entered orders in the third quarter.

"I'm very satisfied with the first nine months of fiscal 2011, and I expect we will continue this solid performance. We remain committed to making ongoing investments in new products and advanced technologies to further solidify our market leadership positions across the Company. In USG, we are fully committed to expanding our product offering and related solutions and being recognized as a leading provider of next generation technologies for the Smart Grid."

Business Outlook

Statements contained in the preceding and following paragraphs are based on current expectations. Statements that are not strictly historical are considered forward-looking, and actual results may differ materially.

Dividend Payment

The next quarterly cash dividend of $0.08 per share will be paid on October 20 to stockholders of record on October 6.

Fiscal Year 2011

Management's current expectations for 2011 remain consistent with the Outlook communicated in the November 11, 2010 and May 3, 2011 earnings releases, which assumed sales and EPS increases of 10 to 15 percent over prior year.

Chairman's Commentary – Longer-Term

Mr. Richey concluded, "I continue to remain positive about our near-term outlook, as well as our significant growth prospects over the next three to five years. I am excited about the size and number of specific, identifiable growth opportunities across the Company that should manifest themselves into orders and sales over the next several years.

"We expect our mid-term growth projections will be led by the largest AMI gas project in North America, supplemented by our international AMI opportunities, and complemented by our expected domestic growth across all three operating segments.

"Our commitment remains the same − to achieve our long-term goal of increasing shareholder value."

Conference Call

The Company will host a conference call today, August 2, at 4 p.m. Central Time, to discuss the Company's third quarter and year-to-date fiscal 2011 operating results. A live audio webcast will be available on the Company's website at www.escotechnologies.com. Please access the website at least 15 minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available for seven days on the Company's website noted above or by phone (dial 1-888-203-1112 and enter the pass code 1732938).

Forward-Looking Statements

Statements in this press release regarding the amount and timing of the Company's expected 2011 and beyond revenues, EPS, sales, orders, investments, the size and success of the SoCalGas AMI project, the size, number and timing of growth opportunities in the future, success in capturing international and domestic opportunities, development and success of new products and technologies, the long-term success of the Company, and any other statements which are not strictly historical are "forward-looking" statements within the meaning of the safe harbor provisions of the federal securities laws. Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update. The Company's actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment including, but not limited to: the risk factors described in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2010; changes in requirements of SoCalGas; SoCalGas' ability to successfully negotiate appropriate terms and conditions with other subcontractors and project participants; the performance of SoCalGas employees, vendors and other participants in connection with project responsibilities; the Company's successful performance of the SoCalGas agreement; financial constraints impacting SoCalGas; the receipt of necessary regulatory approvals pertaining to the SoCalGas project; the impact of the Japan earthquake; the success of the Company's competitors; changes in federal or state energy laws; the Company's successful performance of its AMI contracts; site readiness issues with Test segment customers; weakening of economic conditions in served markets; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; unforeseen charges impacting corporate operating expenses; the performance of the Company's international operations; material changes in the costs and availability of certain raw materials including steel and copper; worldwide availability of electronic components; termination for convenience of customer contracts; timing and magnitude of future contract awards; containment of engineering and development costs; performance issues with key customers, suppliers and subcontractors; labor disputes; changes in laws and regulations, including but not limited to changes in accounting standards and taxation requirements; costs relating to environmental matters; uncertainty of disputes in litigation or arbitration; and the Company's successful execution of internal operating plans.

ESCO, headquartered in St. Louis, is a proven supplier of special purpose utility solutions for electric, gas, and water utilities, including hardware and software to support advanced metering applications and fully automated intelligent instrumentation. In addition, the Company provides engineered filtration products to the aviation, space, and process markets worldwide and is the industry leader in RF shielding and EMC test products. Further information regarding ESCO and its subsidiaries is available on the Company's website at www.escotechnologies.com.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

Three Months ended June 30, 2011

Three Months ended June 30, 2010

Net  Sales

$

176,326

157,582

Cost and Expenses:

Cost of sales

105,522

91,994

Selling, general and administrative expenses

47,520

38,144

Amortization of intangible assets

3,055

2,891

Interest expense

534

791

Other (income) expenses, net

(522)

551

Total costs and expenses

156,109

134,371

Earnings before income taxes

20,217

23,211

Income taxes

7,139

8,664

Net earnings

$

13,078

14,547

Earnings per share:

Basic

Net earnings

$

0.49

0.55

Diluted

Net earnings

$

0.49

0.55

Average common shares O/S:

Basic

26,605

26,448

Diluted

26,899

26,679

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

Nine Months ended June 30, 2011

Nine Months ended June 30, 2010

Net Sales

$

503,010

399,568

Cost and Expenses:

Cost of sales

301,599

238,829

Selling, general and administrative expenses

134,574

114,161

Amortization of intangible assets

8,943

8,662

Interest expense

1,846

3,028

Other (income) expenses, net

(1,015)

1,862

Total costs and expenses

445,947

366,542

Earnings before income taxes

57,063

33,026

Income taxes

19,945

12,076

Net earnings

$

37,118

20,950

Earnings per share:

Basic

Net earnings

$

1.40

0.79

Diluted

Net earnings

$

1.38

0.79

Average common shares O/S:

Basic

26,576

26,437

Diluted

26,864

26,697

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Business Segment Information

(Unaudited)

(Dollars in thousands)

Three Months Ended June 30,

Nine Months Ended June 30,

2011

2010

2011

2010

Net Sales

Utility Solutions Group

$

86,837

91,718

264,018

224,950

Test

45,848

34,575

119,955

93,143

Filtration

43,641

31,289

119,037

81,475

Totals

$

176,326

157,582

503,010

399,568

EBIT

Utility Solutions Group

$

12,428

20,424

43,597

35,615

Test

4,616

3,397

11,739

6,193

Filtration

9,595

6,072

21,604

11,419

Corporate

(5,888)

(1)

(5,891)

(1)

(18,031)

(2)

(17,173)

(2)

Consolidated EBIT

20,751

24,002

58,909

36,054

Less: Interest expense

(534)

(791)

(1,846)

(3,028)

Earnings before income taxes

$

20,217

23,211

57,063

33,026

 Note: Depreciation and amortization expense was $6.1 million and $5.4 million for the quarters  

 ended June 30, 2011 and 2010, respectively, and $17.4 million and $16.6 million for the nine-month  

 periods ended June 30, 2011 and 2010, respectively.  

 (1) Includes $1.2 million of amortization of acquired intangible assets.  

 (2) Includes $3.5 million of amortization of acquired intangible assets.  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

June 30, 2011

September 30, 2010

Assets

Cash and cash equivalents

$

31,798

26,508

Accounts receivable, net

144,966

141,098

Costs and estimated earnings on

long-term contracts

9,693

12,743

Inventories

102,240

83,034

Current portion of deferred tax assets

18,632

15,809

Other current assets

11,923

17,169

Total current assets

319,252

296,361

Property, plant and equipment, net

73,664

72,563

Goodwill

362,694

355,656

Intangible assets, net

231,524

229,736

Other assets

19,042

19,975

$

1,006,176

974,291

Liabilities and Shareholders' Equity

Short-term borrowings and current maturities

of long-term debt

$

50,370

50,000

Accounts payable

47,402

59,088

Current portion of deferred revenue

24,902

21,907

Other current liabilities

77,360

55,985

Total current liabilities

200,034

186,980

Deferred tax liabilities

79,588

79,388

Other liabilities

44,453

47,941

Long-term debt

89,000

104,000

Shareholders' equity

593,101

555,982

$

1,006,176

974,291

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Nine Months ended June 30, 2011

Cash flows from operating activities:

  Net earnings

$

37,118

  Adjustments to reconcile net earnings

    to net cash provided by operating activities:

        Depreciation and amortization

17,387

        Stock compensation expense

3,742

        Changes in current assets and liabilities

(4,760)

        Effect of deferred taxes

(2,677)

        Change in deferred revenue and costs, net

3,104

        Pension contributions

(4,620)

        Other

(1,690)

          Net cash provided by operating activities

47,604

Cash flows from investing activities:

  Acquisition of businesses

(4,982)

  Additions to capitalized software

(10,369)

  Capital expenditures

(9,292)

      Net cash used by investing activities

(24,643)

Cash flows from financing activities:

  Proceeds from long-term debt

33,370

  Principal payments on long-term debt

(48,000)

  Dividends paid

(6,367)

  Proceeds from exercise of stock options

690

  Other

357

    Net cash used by financing activities

(19,950)

Effect of exchange rate changes on cash and cash equivalents

2,279

Net increase in cash and cash equivalents

5,290

Cash and cash equivalents, beginning of period

26,508

Cash and cash equivalents, end of period

$

31,798

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Other Selected Financial Data

(Unaudited)

(Dollars in thousands)

Backlog And Entered Orders - Q3 FY 2011

Utility Solutions

Test

Filtration

Total

Beginning Backlog - 3/31/11

$

159,812

90,377

136,649

386,838

Entered Orders

72,662

63,945

40,021

176,628

Sales

(86,837)

(45,848)

(43,641)

(176,326)

Ending Backlog - 6/30/11

$

145,637

108,474

133,029

387,140

Backlog And Entered Orders - YTD Q3 FY 2011

Utility Solutions

Test

Filtration

Total

Beginning Backlog - 10/1/10

$

153,478

74,333

132,835

360,646

Entered Orders

256,177

154,096

119,231

529,504

Sales

(264,018)

(119,955)

(119,037)

(503,010)

Ending Backlog - 6/30/11

$

145,637

108,474

133,029

387,140

SOURCE ESCO Technologies Inc.



RELATED LINKS

http://www.escotechnologies.com