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Oct 25, 2018

Colfax Reports Third Quarter 2018 Results

 

ANNAPOLIS JUNCTION, MD, Oct. 25, 2018 (GLOBE NEWSWIRE) --

  • Reported net income from continuing operations per diluted share of $0.29 versus $0.35 in the prior year quarter, and achieved adjusted net income per share of $0.54 versus $0.46
  • Posted 10% organic growth in Fabrication Technology business
  • Sequentially strengthened adjusted operating margins by 250 bps in Air & Gas Handling business
  • Recently completed three complementary acquisitions

Colfax Corporation (NYSE: CFX), a leading diversified industrial technology company, today announced its financial results for the third quarter of 2018.

The Company reported net income from continuing operations of $38 million or $0.29 per diluted share, compared to $0.35 in the prior year quarter. Colfax also reported third quarter 2018 adjusted net income of $63 million or $0.54 per share compared to $0.46 per share for the same prior year period.

Third quarter 2018 net sales of $875 million were 4% higher than the comparable period of 2017. Excluding acquisitions and foreign currency translation effects (FX), Fabrication Technology segment sales grew 10%, and Air & Gas Handling segment sales decreased 12%. Third quarter 2018 Air & Gas Handling orders increased 29% to $338 million compared to the prior year period. Excluding acquisitions and FX, orders increased 16%.

Third quarter operating income was $60 million versus $75 million in the prior year comparable quarter. Excluding restructuring, adjusted operating income was $76 million as compared with $82 million. Fabrication Technology segment adjusted operating income of $56 million and margins of 10.6% were affected this quarter by the short-term impact of inflation, currency, and tariffs beyond in-quarter pricing. Air & Gas Handling adjusted operating income was $34.4 million, and margins increased sequentially to 9.8% as a result of restructuring actions and improved project margins.

“Third quarter financial performance was in-line with our expectations,” said Matt Trerotola, Colfax President and CEO. “Fabrication Technology organic sales growth accelerated for the seventh quarter in a row, and we are driving additional price actions to cover inflation. Air & Gas Handling orders returned to organic growth in the quarter, and its operating margins expanded sequentially from the second quarter as expected due to cost actions and improved project pricing.”

During the third quarter the Company acquired Advanced Combustion Inc. (ACI), a leading global provider of heaters for cold-weather mines and ACH Equipos Ltda. (ACH) the leading servicer of ventilation systems in the Chilean mining industry. These businesses are included within the Company’s Air & Gas Handling segment. The ACI and ACH acquisitions are expected to contribute annual revenues in excess of $30 million. In early October, the Company completed its previously-announced acquisition of Gas Control Equipment (GCE) for its Fabrication Technology business.

“The ACI and ACH acquisitions expand our technology and service offering for mining ventilation where we have a clearly differentiated offering for customers,” said Mr. Trerotola. “GCE expands our presence in specialty gas applications and combining GCE with Fabrication Technology’s global presence and continuous improvement culture will drive both businesses to achieve new heights of success.  We welcome the new associates to the Colfax team and look forward to their contributions to our growth.”

Following its third quarter performance, Colfax revised its adjusted earnings per share outlook for the year from $2.15-$2.30 to $2.20-$2.30.

“Colfax is expected to end the year with adjusted earnings per share growth of 26% or more,” said Mr. Trerotola. “We expect a strong performance in the fourth quarter, led by continued Fabrication Technology business growth and sequential margin improvement, expanded Air & Gas Handling margins, and further benefits from our restructuring actions.”

Conference Call and Webcast

Colfax will host a conference call to provide details about its results today at 8:30 a.m. EDT. The call will be open to the public through +1-877-303-7908 (U.S. callers) or +1-678-373-0875 (international callers) and referencing the conference ID number 2599568 or through webcast via Colfax’s website at www.colfaxcorp.com under the “Investors” section. Access to a supplemental slide presentation can also be found at the Colfax website under the same heading. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call.

About Colfax Corporation

Colfax Corporation is a leading diversified industrial technology company that provides air & gas handling and fabrication technology products and services to customers around the world principally under the Howden and ESAB brands. Colfax believes that its brands are among the most highly recognized in each of the markets that it serves. The Company uses its Colfax Business System (CBS), a comprehensive set of tools, processes and values, to create superior value for customers, shareholders and associates. Colfax is traded on the NYSE under the ticker “CFX.” Additional information about Colfax is available at www.colfaxcorp.com.

Non-GAAP Financial Measures and Other Adjustments

Colfax has provided in this press release financial information that has not been prepared in accordance with GAAP. These non-GAAP financial measures are adjusted net income, adjusted net income per share, projected adjusted net income per share, adjusted operating income, organic sales growth, and organic order growth(decline). Adjusted operating income excludes Restructuring and other related items, gain or loss on short term investments, Goodwill and intangible asset impairment charge and Pension settlement loss. Adjusted net income, adjusted net income per share and projected adjusted net income per share exclude Restructuring and other related charges, gain or loss on short term investments, Goodwill and intangible asset impairment charge, Pension settlement loss, acquisition-related intangibles amortization, and other non-cash acquisition related charges. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 20.6% and 18.8% for the third quarter and nine months ended September 28, 2018, respectively. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 26.6% and 27.5% for the third quarter and nine months ended September 29, 2017, respectively. Organic sales growth and organic order growth (decline) exclude the impact of acquisitions and foreign exchange rate fluctuations. These non-GAAP financial measures assist Colfax management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans that are fundamentally different from the ongoing productivity improvements of the Company. Colfax management also believes that presenting these measures allows investors to view its performance using the same measures that the Company uses in evaluating its financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of non-GAAP financial measures presented above to GAAP results has been provided in the financial tables included in this press release.

CAUTIONARY NOTE CONCERNING FORWARD LOOKING STATEMENTS

This press release may contain forward-looking statements, including forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Colfax’s plans, objectives, expectations and intentions and other statements that are not historical or current fact. Forward-looking statements are based on Colfax’s current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause Colfax’s results to differ materially from current expectations include, but are not limited to, factors detailed in Colfax’s reports filed with the U.S. Securities and Exchange Commission including its 2017 Annual Report on Form 10-K under the caption “Risk Factors.” In addition, these statements are based on assumptions that are subject to change. This press release speaks only as of the date hereof. Colfax disclaims any duty to update the information herein.

The term “Colfax” in reference to the activities described in this press release may mean one or more of Colfax’s global operating subsidiaries and/or their internal business divisions and does not necessarily indicate activities engaged in by Colfax Corporation.

 

 

Colfax Corporation
Condensed Consolidated Statements of Income
Dollars in thousands, except per share data
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 28, 2018   September 29, 2017   September 28, 2018   September 29, 2017
               
Net sales $ 875,373     $ 844,509     $ 2,681,586     $ 2,426,101  
Cost of sales 604,444     580,610     1,852,603     1,664,309  
Gross profit 270,929     263,899     828,983     761,792  
Selling, general and administrative expense 194,833     181,835     600,136     533,550  
Restructuring and other related charges 15,916     7,298     40,791     23,131  
Operating income 60,180     74,766     188,056     205,111  
Interest expense, net 9,885     11,328     29,153     29,106  
Loss on short term investments         10,128      
Income from continuing operations before income taxes 50,295     63,438     148,775     176,005  
Provision for income taxes 12,397     13,816     11,490     46,128  
Net income from continuing operations 37,898     49,622     137,285     129,877  
(Loss) income from discontinued operations, net of taxes (2,696)     2,082     (31,262 )   21,790  
Net income 35,202     51,704     106,023     151,667  
Less: income attributable to noncontrolling interest, net of taxes 3,892     5,841     11,721     13,867  
Net income attributable to Colfax Corporation 31,310     45,863     94,302     137,800  
Net income (loss) per share - basic              
Continuing operations $ 0.29     $ 0.36     $ 1.04     $ 0.94  
Discontinued operations $ (0.02)     $ 0.01     $ (0.26)     $ 0.18  
Consolidated operations $ 0.27     $ 0.37     $ 0.78     $ 1.12  
Net income (loss) per share - diluted              
Continuing operations $ 0.29     $ 0.35     $ 1.03     $ 0.94  
Discontinued operations $ (0.03)     $ 0.02     $ (0.26)     $ 0.17  
Consolidated operations $ 0.26     $ 0.37     $ 0.77     $ 1.11  

 

Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Amounts in thousands, except per share data
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 28, 2018   September 29, 2017   September 28, 2018   September 29, 2017
Adjusted Net Income and Adjusted Net Income Per Share  
Net income from continuing operations attributable to Colfax Corporation (1) $ 34,006     $ 43,781     $ 125,564     $ 116,010  
Restructuring and other related charges- pretax 15,916     7,298     40,791     23,131  
Acquisition-related amortization and other non-cash charges- pretax (2) 18,661     14,286     58,723     41,364  
Loss on short term investments-pretax         10,128      
Tax adjustment (3) (5,113)     (8,788)     (37,010)     (20,010)  
Adjusted net income from continuing operations $ 63,470     $ 56,577     $ 198,196     $ 160,495  
Adjusted net income margin from continuing operations 7.3%     6.7%     7.4%     6.6%  
Weighted-average shares outstanding - diluted 118,457     124,081     121,802     123,948  
               
Adjusted net income per share continuing operations $ 0.54     $ 0.46     $ 1.63     $ 1.29  
               
Net income per share- diluted from continuing operations (GAAP) $ 0.29     $ 0.35     $ 1.03     $ 0.94  

 

  Updated Guidance   Previous Guidance
  Low   High   Low   High
2018 Earnings Per Share              
Projected net income per share from continuing operations (GAAP)- diluted $ 1.28     $ 1.39     $ 1.19     $ 1.35  
Restructuring and other related charges- pretax 0.56     0.56     0.58     0.58  
Acquisition-related amortization and other non-cash charges- pretax(2) 0.68     0.68     0.61     0.61  
Loss on short term investments- pretax 0.08     0.08     0.08     0.08  
Tax adjustment (3) (0.40)     (0.41)     (0.31)     (0.32)  
Projected adjusted net income per share $ 2.20     $ 2.30     $ 2.15     $ 2.30  

__________
(1) Net income from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes.
(2) Includes amortization of acquired intangibles and fair value charges on acquired inventory.

(3) The effective tax rates used to calculate adjusted net income and adjusted net income per share for the third quarter and nine months ended September 28, 2018 are 20.6% and 18.8%, respectively. These rates exclude the benefit of a $12.5 million deferred tax asset valuation allowance reversal. The effective tax rates used to calculate adjusted net income and adjusted net income per share for the third quarter and nine months ended September 29, 2017 are 26.6% and 27.5%, respectively. The estimated effective tax rate for adjusted net income and adjusted net income per share for the year ended December 31, 2018 is 20-21%.

Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Dollars in thousands
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 28, 2018   September 29, 2017   September 28, 2018   September 29, 2017
Continuing Operations              
Operating income $ 60,180     $ 74,766     $ 188,056     $ 205,111  
Operating income margin 6.9%     8.9%     7.0%     8.5%  
Restructuring and other related charges 15,916     7,298     40,791     23,131  
Adjusted operating income $ 76,096     $ 82,064     $ 228,847     $ 228,242  
Adjusted operating income margin 8.7%     9.7%     8.5%     9.4%  

 

Colfax Corporation
Change in Sales, Orders and Backlog
Dollars in millions
(Unaudited)

          Air and Gas Handling
  Net Sales   Orders
  $   %   $   %
   
For the three months ended September 29, 2017 $ 844.5         $ 262.6      
Components of Change:              
Existing businesses(1) 4.8     0.6%     41.0     15.6%  
Acquisitions(2) 61.4     7.3%     40.5     15.4%  
Foreign currency translation (35.3)     (4.2)%     (6.2)     (2.3)%  
  30.9     3.7%     75.3     28.7%  
For the three months ended September 28, 2018 $ 875.4         $ 337.9      

 

          Air and Gas Handling
  Net Sales   Orders   Backlog at Period End
  $   %   $   %   $   %
                       
As of and for the nine months ended September 29, 2017 $ 2,426.1         $ 938.0         $ 782.8      
Components of Change:                      
Existing businesses(1) 34.7     1.4%     (78.9)     (8.4)%     (30.5)     (3.9)%  
Acquisitions(2) 200.3     8.3%     130.7     13.9%        108.4     13.8%  
Foreign currency translation 20.5     0.8%     34.8     3.7%     (25.1)       (3.2)%  
  255.5     10.5%     86.6     9.2%     52.8     6.7%  
As of and for the nine months ended September 28, 2018 $ 2,681.6         $ 1,024.6         $ 835.6      

__________

(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price, product mix and volume.
(2) Represents the incremental sales, orders and order backlog from the acquisition completed in our Air and Gas Handling segment, and incremental sales for acquisitions completed in our Fabrication Technology segment.

 

Colfax Corporation
Condensed Consolidated Balance Sheets
Dollars in thousands, except share amounts
(Unaudited)

  September 28, 2018   December 31, 2017
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 285,900     $ 262,019  
Short term investments     149,608  
Trade receivables, less allowance for doubtful accounts of $28,805 and $31,488 953,881     970,199  
Inventories, net 484,242     429,627  
Other current assets 227,249     258,379  
Total current assets 1,951,272     2,069,832  
Property, plant and equipment, net 494,377     552,802  
Goodwill 2,524,134     2,538,544  
Intangible assets, net 941,246     1,017,203  
Other assets 535,200     531,316  
Total assets $ 6,446,229     $ 6,709,697  
       
LIABILITIES AND EQUITY      
CURRENT LIABILITIES:      
Current portion of long-term debt $ 6,385     $ 5,766  
Accounts payable 563,730     587,129  
Customer advances and billings in excess of costs incurred 148,635     145,853  
Accrued liabilities 350,130     358,632  
Total current liabilities 1,068,880     1,097,380  
Long-term debt, less current portion 1,135,624     1,055,305  
Other liabilities 763,403     829,748  
Total liabilities 2,967,907     2,982,433  
Equity:      
Common stock, $0.001 par value; 400,000,000 shares authorized; 117,199,449 and 123,245,827 issued and outstanding 117     123  
Additional paid-in capital 3,051,695     3,228,174  
Retained earnings 945,944     846,490  
Accumulated other comprehensive loss (735,894)     (574,372)  
Total Colfax Corporation equity 3,261,862     3,500,415  
Noncontrolling interest 216,460     226,849  
Total equity 3,478,322     3,727,264  
Total liabilities and equity $ 6,446,229     $ 6,709,697  

 

Colfax Corporation
Condensed Consolidated Statements of Cashflows
Dollars in thousands
(Unaudited)

  Nine Months Ended
  September 28, 2018   September 29, 2017
       
Cash flows from operating activities:      
Net income $ 106,023     $ 151,667  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation, amortization and impairment charges 110,597     101,843  
Stock-based compensation expense 18,867     15,633  
Non-cash interest expense 3,332     3,340  
Loss on short term investments 10,128      
Deferred income tax benefit (21,730)     (6,046)  
Gain on sale of property, plant and equipment (8,211)     (10,557)  
Loss on sale of business 4,337      
Changes in operating assets and liabilities:      
Trade receivables, net (51,722)     (96,472)  
Inventories, net (56,951)     (38,493)  
Accounts payable 6,486     (3,308)  
Customer advances and billings in excess of costs incurred 18,970     (18,405)  
Changes in other operating assets and liabilities (39,318)     15,489  
Net cash provided by operating activities 100,808     114,691  
Cash flows from investing activities:      
Purchases of property, plant and equipment (40,247)     (36,756)  
Proceeds from sale of property, plant and equipment 17,758     16,106  
Acquisitions, net of cash received (83,846)     (56,931)  
Sale of business, net 18,626      
Sale of short term investments, net 139,480      
Net cash provided by (used in) investing activities 51,771     (77,581)  
Cash flows from financing activities:      
Payments under term credit facility (93,750)     (46,878)  
Proceeds from borrowings on revolving credit facilities and other 911,772     594,159  
Repayments of borrowings on revolving credit facilities and other (722,573)     (911,462)  
Proceeds from borrowings on senior unsecured notes     374,450  
Proceeds from issuance of common stock, net 4,648     4,758  
Common stock repurchases (200,000)      
Other (1,038)     (8,851)  
Net cash (used in) provided by financing activities (100,941)     6,176  
Effect of foreign exchange rates on Cash and cash equivalents (27,757)     7,434  
Increase in Cash and cash equivalents 23,881     50,720  
Cash and cash equivalents, beginning of period 262,019     221,730  
Cash and cash equivalents, end of period $ 285,900     $ 272,450  
       

 

Contact:

Kevin Johnson, Vice President
Colfax Corporation
+1-301-323-9090
investorrelations@colfaxcorp.com

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Source: Colfax Corporation