MSA Announces Second Quarter Results

Adjusted EPS of $0.60 reflects ongoing challenges

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Jul 23, 2014, 06:57 ET

PITTSBURGH, July 23, 2014 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Inc. (NYSE: MSA) today reported results for the second quarter of 2014.

Quarterly Highlights

Revenue was $282 million, down 1 percent from the second quarter of 2013. Income from continuing operations was $22 million or $0.59 per basic share.
Products developed within the last five years drove 32 percent of quarterly core product revenue compared to 22 percent in the same period a year ago.
Gross profit was 45.9 percent of sales, up 50 basis points from a year ago on strong core product margins.
Excluding foreign exchange gains and restructuring charges, adjusted earnings were $23 million, or $0.60 per basic share.

"The quarterly comparison reflects various challenges in the second quarter associated with North American self-contained breathing apparatus (SCBA) sales and the related delay in securing government approval for a new product platform, as well as non-recurring large shipments of fixed gas and flame detection (FGFD) systems. Despite these challenges, I am pleased by the performance of our base business in MSA's core product lines, and the advancements we are making in developing and introducing exciting new products," said William M. Lambert, MSA President and CEO.

Excluding sales of SCBA and FGFD systems, local currency sales of MSA core products increased 4 percent, while margins across all core product areas saw meaningful improvement.

"Our business in the second quarter of last year reflected strong growth in North American SCBA revenue, as the market purchased breathing apparatus in anticipation of the adoption of a new performance standard issued by the National Fire Protection Association (NFPA). Our 2013 second quarter results also reflected strong shipments of several large FGFD systems in multiple geographic regions," Mr. Lambert explained.

Quarterly Reporting Segment Analysis:

Second quarter sales in MSA's North American segment decreased $4 million, compared to the same period of 2013. The lower level of revenue was driven by a $4 million decline in SCBA sales associated with ongoing product approval delays and a $2 million decline in fixed gas and flame detection sales. These declines were partially offset by improvements in sales of head protection and portable gas detection products. Net income increased by $2 million compared to a year ago on improved product margins and a lower level of selling, general and administrative expense.

Sales in MSA's European segment increased by $11 million, or 16 percent, compared to the same period last year. Excluding favorable currency effects from a strengthening euro, sales increased by $8 million or 11 percent, primarily on the strength of ballistic helmet shipments to a military customer in Western Europe and improved sales of fixed gas and flame detection systems in the Middle East. Local currency net income increased by $3 million, as higher gross profit and lower restructuring charges were partially offset by increased selling, general and administrative expenses.

Continuing sales in MSA's International segment decreased $10 million, or 14 percent, due to weakening business conditions in South Africa, China and Latin America. Excluding unfavorable currency effects, local currency sales were down $6 million on lower large SCBA shipments in China and a lower level of fixed gas and flame detection shipments in Asia and Latin America. Local currency net income decreased by $5 million on the lower level of sales and higher research and development costs.

"While I expect some of our current challenges to persist into the third quarter, we remain committed to executing our strategy," Mr. Lambert said. "As we turn the page on MSA's 100th anniversary, we will continue to focus on the key areas that have consistently enhanced shareholder value over the past several years and positioned MSA as a market leader within the safety industry," Mr. Lambert concluded.

MSA Safety Incorporated Condensed Consolidated Statement of Income (Unaudited) (In thousands, except earnings per share)

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Net sales	$	282,493	$	285,859	$	547,538	$	555,745
Other income, net	45		514		401		377
	282,538		286,373		547,939		556,122

Cost of products sold	152,823		156,195		296,053		304,377
Selling, general and administrative	82,835		79,099		168,076		160,707
Research and development	11,943		11,398		23,184		21,982
Restructuring and other charges	857		2,427		2,757		2,427
Interest expense	2,594		2,750		5,124		5,410
Currency exchange (gains) losses, net	(309)		1,060		43		2,312
	250,743		252,929		495,237		497,215

Income before income taxes	31,795		33,444		52,702		58,907
Provision for income taxes	9,753		10,005		17,357		16,925
Income from continuing operations	22,042		23,439		35,345		41,982
Income from discontinued operations	453		952		1,067		1,804
Net income	22,495		24,391		36,412		43,786
Net (income) loss attributable to noncontrolling interests	(7)		(342)		102		(451)
Net income attributable to MSA Safety Incorporated	22,488		24,049		36,514		43,335


Income from continuing operations	22,132		23,315		35,654		41,942
Income from discontinued operations	356		734		860		1,393
Net income attributable to MSA Safety Incorporated	22,488		24,049		36,514		43,335

Earnings Per Share Attributable to MSA Safety Incorporated
Basic
Income from continuing operations	$0.59		$0.63		$0.96		$1.13
Income from discontinued operations	$0.01		$0.02		$0.02		$0.04
Net income	$0.60		$0.65		$0.98		$1.17

Diluted
Income from continuing operations	$0.58		$0.62		$0.94		$1.11
Income from discontinued operations	$0.01		$0.02		$0.02		$0.04
Net income	$0.59		$0.64		$0.96		$1.15

Basic shares outstanding	37,128		36,880		37,072		36,807
Diluted shares outstanding	37,719		37,431		37,669		37,400

MSA Safety Incorporated Condensed Consolidated Balance Sheet (Unaudited) (In thousands)

	June 30, 2014		December 31, 2013
Current assets
Cash and cash equivalents	$	96,183	$	96,265
Trade receivables, net	209,064		200,364
Inventories	151,792		136,837
Other current assets	67,040		67,500
Total current assets	524,079		500,966

Property, net	153,095		152,755
Prepaid pension cost	128,089		121,054
Goodwill	259,688		260,134
Other noncurrent assets	221,416		199,361
Total	1,286,367		1,234,270

Current liabilities
Notes payable and current portion of long-term debt	$	6,682	$	7,500
Accounts payable	70,376		66,902
Other current liabilities	117,320		117,162
Total current liabilities	194,378		191,564

Long-term debt	281,667		260,667
Pensions and other employee benefits	153,192		152,084
Deferred tax liabilities	47,872		49,621
Other noncurrent liabilities	11,156		7,987
Equity	598,102		572,347
Total	1,286,367		1,234,270

MSA Safety Incorporated Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Net income	$	22,495	$	24,391	$	36,412	$	43,786
Depreciation and amortization	7,656		7,932		15,115		15,777
Change in working capital	(25,433)		(20,650)		(20,845)		(28,503)
Other operating	1,195		4,048		(15,372)		(9,283)
Cash from operations	5,913		15,721		15,310		21,777

Capital expenditures	(7,324)		(9,504)		(14,528)		(16,956)
Property disposals	—		39		—		86
Cash from investing	(7,324)		(9,465)		(14,528)		(16,870)

Change in debt	4,886		14,023		20,183		21,205
Cash dividends paid	(11,320)		(11,161)		(22,501)		(21,533)
Other financing	1,621		(928)		2,075		(1,670)
Cash from financing	(4,813)		1,934		(243)		(1,998)

Exchange rate changes	195		(2,570)		(621)		(3,214)

(Decrease) increase in cash	(6,029)		5,620		(82)		(305)

MSA Safety Incorporated Segment Information (Unaudited) (In thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Net sales
North America	$	138,782	$	142,684	$	268,303	$	271,620
Europe	78,883		67,997		153,821		141,120
International	64,828		75,178		125,414		143,005
Total	282,493		285,859		547,538		555,745

Net income (loss)
North America	$	19,196	$	17,032	$	31,676	$	29,637
Europe	6,199		3,210		10,316		8,593
International	2,544		7,770		6,403		15,566
Reconciling Items	(5,807)		(4,697)		(12,741)		(11,854)
Income from continuing operations	22,132		23,315		35,654		41,942
Discontinued operations	356		734		860		1,393
Total	22,488		24,049		36,514		43,335

MSA's sales are allocated to each country based primarily on the destination of the end-customer. Effective January 1, 2014, the General Monitors business has been fully integrated into MSA. As such, sales made by General Monitors companies now follow a similar allocation methodology by which sales are allocated to each country based on the destination of the end-customer and the value added to that order. In prior years, sales made by General Monitors companies were reported as domestic sales based on the country from which the product was shipped. The 2013 results presented above have been restated to reflect this change in allocation methodology.

MSA Safety Incorporated Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Adjusted Earnings / Earnings per Share (Unaudited) (In thousands, except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013		% Change	2014		2013		% Change

Net income attributable to MSA Safety Incorporated	$	22,488	$	24,049	(6.5)%	$	36,514	$	43,335	(15.7)%
Less: Income from discontinued operations	356		734			860		1,393

Income from continuing operations	22,132		23,315		(5.1)%	35,654		41,942		(15.0)%
Foreign currency (gain) / loss	(309)		1,060			43		2,312
Restructuring charges	857		2,427			2,757		2,427
Income tax (expense)	(168)		(1,043)			(921)		(1,360)

Adjusted earnings	22,512		25,759		(12.6)%	37,533		45,321		(17.2)%

Adjusted earnings per basic share	$	0.60	$	0.69	(13.0)%	$	1.01	$	1.22	(17.2)%

Management believes that adjusted earnings and adjusted earnings per share are useful measures for investors when analyzing ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.

About MSA:
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations. The company's comprehensive line of products is used by workers around the world in a broad range of industries, including the fire service, the oil, gas and petrochemical industry, construction, mining and utilities, as well as the military. Principal products include self-contained breathing apparatus, fixed gas and flame detection systems, handheld gas detection instruments, head protection products, fall protection devices and thermal imaging cameras. The company also provides a broad range of consumer and contractor safety products through a joint venture with MCR Safety. These products are marketed and sold under the Safety Works® brand. MSA, based north of Pittsburgh in Cranberry Township, Pa., has annual sales of approximately $1.1 billion, manufacturing operations in the United States, Europe, Asia and Latin America, and more than 40 international locations. Additional information is available on the company's Web site at www.MSAsafety.com. Information on Safety Works products can be found at www.SafetyWorks.com.

Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including without limitation all projections and anticipated levels of future performance, involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Actual results can be affected by any number of factors, many of which are outside of management's control. Among the factors that could cause such differences are global economic conditions, spending patterns of government agencies, competitive pressures, product liability claims, the success of new product introductions, currency exchange rate fluctuations, the identification and successful integration of acquisitions and the risks of doing business in foreign countries. These risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"). You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. MSA's SEC filings are readily obtainable at no charge at sec.gov, as well as on a number of other commercial websites.

Non-GAAP Financial Measures
This earnings release includes certain non-GAAP financial measures. These financial measures include adjusted earnings and adjusted earnings per basic share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.

SOURCE MSA