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November 7, 2018 at 8:00 AM EST

CSW Industrials Reports Fiscal Second Quarter 2019 Results

Highlights

  • Second quarter 2019 revenue from continuing operations of $91.6 million, compared to $84.4 million in the prior year period.
  • Second quarter 2019 GAAP operating income from continuing operations of $17.2 million or 18.8% of sales, compared to $14.6 million or 17.2% of sales in the prior year period.  
  • Second quarter 2019 GAAP net earnings from continuing operations of $12.4 million, or $0.79 per diluted share, compared to $9.2 million or $0.57 per diluted share in the prior year period; Non-GAAP net earnings from continuing operations of $12.4 million, or $0.79 per diluted share, compared to $9.6 million or $0.60 per diluted share in the prior year period.
  • In a separate press release, the Company announced a new, $75 million share repurchase program reauthorization and a more formalized capital allocation policy.

DALLAS, Nov. 07, 2018 (GLOBE NEWSWIRE) -- CSW Industrials, Inc. (NASDAQ:CSWI), a diversified industrial growth company with well-established, scalable platforms and domain expertise across two segments: Industrial Products and Specialty Chemicals, today reported results for the fiscal second quarter ended September 30, 2018.

Net revenue during the fiscal second quarter of 2019 was $91.6 million, compared to $84.4 million in the prior year period. Higher revenue was driven by increased sales in both Industrial Products and Specialty Chemicals segments.

GAAP operating income from continuing operations increased 17.8% to $17.2 million, compared to $14.6 million in the prior year period. The increase was driven by increased sales volumes and decreased operating expenses, partially offset by negative product mix and increased manufacturing costs. 

Net income from continuing operations in the fiscal second quarter of 2019 was $12.4 million, or $0.79 per diluted share, compared to $9.2 million, or $0.57 per diluted share, in the prior year period. Adjusted to exclude one-time items and applying a normalized tax rate, adjusted net income from continuing operations in the fiscal second quarter of 2019 was $12.4 million, or $0.79 per diluted share, compared to $9.6 million, or $0.60 per diluted share, in the prior year period.

Joseph B. Armes, CSW Industrials’ Chief Executive Officer, commented, “We are pleased to report very strong fiscal second quarter results, highlighted by 8.5% organic growth and a 32% year-over-year increase in adjusted earnings per share. Halfway through our fiscal year we are right on track with our full-year plan, as in the second fiscal quarter, we saw volume recover in our HVAC business during the peak summer months that helped offset the effect of a cooler spring we saw in the first quarter. We believe we are well positioned for the second half of the year, which is supported by continued underlying strength in our Industrial Products segment and expected benefits from our efficiency programs coming online in our Specialty Chemicals segment.”

Armes added, “We are also pleased to announce this morning that our Board authorized an additional $75 million in share repurchase capacity, as we completed our previous authorization and in the process returned $35 million to shareholders through share repurchases over the last two years.”

Further details of the share repurchase program and disclosures of the Company’s long-term capital allocation plan can be found in a separate release issued this morning at ir.cswindustrials.com.

Second Quarter Results of Operations
Consolidated revenue from continuing operations increased to $91.6 million, compared to $84.4 million in the prior year period.

Industrial Products segment revenue was $54.7 million, compared to $48.5 million in the prior year period. Higher revenue was mainly the result of increased sales volume in HVAC and higher volumes in the general industrial end markets. GAAP segment operating income increased 15.4% to $14.2 million, compared to $12.3 million in the prior year period. Adjusted to exclude non-recurring items in the prior year period, segment operating income was $14.2 million, compared to $12.5 million in the prior year.

Specialty Chemicals segment revenue was $36.9 million, compared to $35.9 million in the prior year period. Increased sales were driven by higher volumes in the HVAC and plumbing end markets. GAAP segment operating income increased 17.0% to $6.2 million, compared to $5.3 million in the prior year period.

Consolidated gross profit increased to $42.2 million, compared to $39.7 million in the prior year period. Gross margin as a percentage of sales decreased to 46.1%, compared to 47.0% in the prior year period, driven by negative product mix, increased freight and other manufacturing costs, more than offsetting sales leverage.

Consolidated operating expenses in the current quarter were $25.0 million or 27.3% of sales and improved 240 basis points over the prior year level of $25.1 million, or 29.7% of sales. The lower percent of sales was attributable to sales leverage.

Reported income from continuing operations was $12.4 million, or $0.79 per diluted share, compared to $9.2 million, or $0.57 per diluted share in the prior year period. Adjusted to exclude one-time items and applying a normalized tax rate, adjusted income from continuing operations in the fiscal second quarter of 2019 was $12.4 million, or $0.79 per diluted share, compared to adjusted income from continuing operations of $9.6 million, or $0.60 per diluted share, in the prior year period.

Conference Call Information
The company will host a conference call today at 10:00 a.m. ET to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.cswindustrials.com. To access the call, participants may dial toll-free at 1-877-407-0784 or 1-201-689-8560 (international) and request to join the CSW Industrials earnings call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or 1-412-317-6671 (international) and enter confirmation code 13684452. The telephonic replay will be available beginning at 1:00 p.m. ET on Wednesday, November 7, 2018, and will last through 11:59 p.m. ET on Wednesday, November 21, 2018. The call will also be available for replay via the webcast link on CSW Industrials’ Investor Relations website.

Safe Harbor Statement
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, effective tax rate, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this press release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K.

All forward-looking statements included in this press release are based on information currently available to us, and we assume no obligation to update any forward-looking statement except as may be required by law.

Non-GAAP Financial Measures
This press release includes an analysis of adjusted earnings per share, adjusted net income, and adjusted operating income, which are non-GAAP financial measures of performance. For a reconciliation of these measures to the most directly comparable GAAP measures and for a discussion of why we consider these non-GAAP measures useful, see the “Reconciliation of Non-GAAP Measures” section of this release.                                

About CSW Industrials
CSWI is a diversified industrial growth company with well-established, scalable platforms and domain expertise across two segments: Industrial Products and Specialty Chemicals. CSWI's broad portfolio of leading products provides performance optimizing solutions to its customers. CSWI's products include mechanical products for heating, ventilation and air conditioning ("HVAC") and refrigeration applications, sealants and high performance specialty lubricants. Markets that CSWI serves include: HVAC, industrial, rail, plumbing, architecturally-specified building products, energy, mining and general industrial markets.

                 
                 
Consolidated Income Statements                
    (unaudited)   (unaudited)
    Three Months Ended September 30,   Six Months Ended September 30,
                                 
                                 
(Amounts in thousands, except per share amounts)     2018       2017       2018       2017  
Revenues, net   $ 91,612     $ 84,422     $ 181,190     $ 173,721  
Cost of revenues     (49,403 )     (44,761 )     (96,892 )     (92,187 )
Gross profit     42,209       39,661       84,298       81,534  
Selling, general and administrative expenses     (25,005 )     (25,109 )     (49,349 )     (50,311 )
Operating income     17,204       14,552       34,949       31,223  
Interest expense, net     (420 )     (671 )     (805 )     (1,302 )
Other income, net     82       600       820       619  
Income before income taxes     16,866       14,481       34,964       30,540  
Provision for income taxes     (4,442 )     (5,331 )     (8,534 )     (11,103 )
Income from continuing operations     12,424       9,150       26,430       19,437  
Income (loss) from discontinued operations, net of tax     2,732       (1,848 )     400       (3,621 )
Net income   $ 15,156     $ 7,302     $ 26,830     $ 15,816  
                 
                 
Basic earnings (loss) earnings per common share:                
Continuing operations   $ 0.80     $ 0.58     $ 1.69     $ 1.23  
Discontinued operations     0.18       (0.12 )     0.02       (0.23 )
Net income   $ 0.98     $ 0.46     $ 1.71     $ 1.00  
                 
Diluted earnings (loss) earnings per common share:                
Continuing operations   $ 0.79     $ 0.57     $ 1.67     $ 1.22  
Discontinued operations     0.18       (0.11 )     0.03       (0.23 )
Net income   $ 0.97     $ 0.46     $ 1.70     $ 0.99  
                 


         
Consolidated Balance Sheets        
         
    (unaudited)
(Amounts in thousands, except per share amounts)   September 30, 2018   March 31, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $   11,213     $   11,706  
Accounts receivable, net of allowance for doubtful accounts of $1,059 and $1,015, respectively       61,617         63,383  
Inventories, net       48,769         42,974  
Prepaid expenses and other current assets       11,232         7,077  
Current assets, discontinued operations       666         2,427  
Total current assets       133,497         127,567  
Property, plant and equipment, net of accumulated depreciation of $63,315 and $61,967, respectively       52,368         54,473  
Goodwill       81,340         81,764  
Intangible assets, net       49,266         53,054  
Other assets       14,453         23,958  
Total assets   $   330,924     $   340,816  
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable   $   14,766     $   16,826  
Accrued and other current liabilities       26,265         23,501  
Current portion of long-term debt       561         561  
Current liabilities, discontinued operations       404         3,966  
Total current liabilities       41,996         44,854  
Long-term debt       21,179         23,459  
Retirement benefits payable       1,892         2,017  
Other long-term liabilities       4,577         4,721  
Noncurrent liabilities, discontinued operations       979         -   
Total liabilities       70,623         75,051  
Equity:        
Common shares, $0.01 par value       158         158  
Shares authorized – 50,000        
Shares issued – 15,942 and 15,957, respectively        
Additional paid-in capital       44,478         42,684  
Treasury shares, at cost (656 and 80 shares, respectively)       (34,249 )       (3,252 )
Retained earnings       258,557         233,650  
Accumulated other comprehensive loss       (8,643 )       (7,475 )
Total equity       260,301         265,765  
Total liabilities and equity   $   330,924     $   340,816  
         


         
Consolidated Statements of Cash Flow        
    (unaudited)
    Six Months Ended September 30,
(Amounts in thousands)     2018       2017  
Cash flows from operating activities:        
Net income   $ 26,830     $ 15,816  
Less:  Income (loss) from discontinued operations     400       (3,621 )
Income from continuing operations     26,430       19,437  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation     3,750       3,730  
Amortization of intangible and other assets     3,236       3,633  
Provision for inventory reserves     700       -  
Share-based and other executive compensation     1,794       2,036  
Net gain on disposals of property, plant and equipment     (2,539 )     (79 )
Net pension benefit     (211 )     (650 )
Net deferred taxes     8,647       1,229  
Changes in operating assets and liabilities:        
Accounts receivable, net     1,473       (2,663 )
Inventories     (5,749 )     260  
Prepaid expenses and other current assets     (4,163 )     703  
Other assets     190       26  
Accounts payable and other current liabilities     (1,153 )     11,022  
Retirement benefits payable and other liabilities     109       (6,801 )
Net cash provided by operating activities, continuing operations     32,514       31,883  
Net cash used in operating activities, discontinued operations     (7,574 )     (6,427 )
Net cash provided by operating activities     24,940       25,456  
Cash flows from investing activities:        
Capital expenditures     (2,742 )     (2,964 )
Proceeds from sale of assets held for investment     278       466  
Proceeds from sale of assets     3,269       11  
Net cash provided by (used in) investing activities, continuing operations     805       (2,487 )
Net cash provided by (used  in) investing activities, discontinued operations     7,151       (883 )
Net cash provided by  (used in)  investing activities     7,956       (3,370 )
Cash flows from financing activities:        
Borrowings on lines of credit     8,000       -  
Repayments of lines of credit     (10,281 )     (20,031 )
Payments of deferred loan costs     -       (401 )
Purchase of treasury shares     (30,997 )     (26 )
Proceeds from stock option activity     -       329  
Net cash used in financing activities     (33,278 )     (20,129 )
Effect of exchange rate changes on cash and equivalents     (111 )     1,380  
Net change in cash and cash equivalents     (493 )     3,337  
Cash and cash equivalents, beginning of period     11,706       23,146  
Cash and cash equivalents, end of period   $ 11,213     $ 26,483  
                 
                 

Reconciliation of Non-GAAP Measures

               
Reconciliation of Operating Income to Adjusted Operating Income---Continuing Operations      
                 
                 
                 
    (unaudited)
  (in thousands) Quarter Ended September 30,   Six Months Ended September 30,
      2018     2017     2018       2017
                 
GAAP Operating Income- Continuing Operations $ 17,204   $ 14,552   $ 34,949     $ 31,223
                 
Adjusting items:              
  Restructuring & realignment   -     135     -       1,243
  Gain on sale of property & other   -     -     (1,839 )     -
  M&A transaction costs   -     110     -       110
                 
Adjusted Operating Income--Continuing Operations $ 17,204   $ 14,797   $ 33,110     $ 32,576
                 


               
Reconciliation of Net Income to Adjusted Net Income---Continuing Operations            
                 
                 
                 
    (unaudited)
  (in thousands, except share data) Quarter Ended September 30,   Six Months Ended September 30,
      2018     2017     2018       2017
                 
GAAP Net Income---Continuing Operations $   12,424   $   9,150   $   26,430     $   19,437
                 
Adjusting items, net of tax:              
  Restructuring & realignment     -        88       -          808
  Gain on sale of property & other     -        -        (1,361 )       - 
  M&A transaction costs     -        71       -          71
  Discrete Tax Provisions & Other     -        265       (557 )       265
                 
Adjusted Net Income---Continuing Operations $   12,424   $   9,574   $   24,512     $   20,581
                 
GAAP Diluted income per common share, Continuing operations $   0.79   $   0.57   $   1.67     $   1.22
                 
Adjusting items, per diluted common share:              
  Restructuring & realignment     -        0.01       -          0.05
  Gain on sale of property & other     -        -        (0.08 )       - 
  M&A transaction costs     -        -      -         0.01
  Discrete Tax Provisions & Other     -        0.02       (0.04 )       0.01
                 
Adjusted earnings per diluted common share $   0.79   $   0.60   $   1.55     $   1.29
                 


                                   
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income                  
                                     
                                     
                                     
    (unaudited)
  (in thousands, except percentages) For the Three Months Ended September 30, 2018   For the Three Months Ended September 30, 2017
    Industrial
Products
    Specialty
Chemicals
  Corporate
and Other
  Consolidated Continuing Operations   Industrial
Products
    Specialty
Chemicals
  Corporate
and Other
  Consolidated Continuing Operations
                                     
Revenue $   54,727       $   36,884     $   1     $   91,612     $   48,487       $   35,936     $   (1 )   $   84,422  
                                     
Operating Income $   14,212       $   6,158     $   (3,166 )   $   17,204     $   12,299       $   5,281     $   (3,028 )   $   14,552  
                                     
Adjusting items:                                  
  Restructuring & realignment     -            -          -          -          135           -          -          135  
  M&A transaction costs     -            -          -          -          110           -          -          110  
                                     
Adjusted Operating Income $   14,212       $   6,158     $   (3,166 )   $   17,204     $   12,544       $   5,281     $   (3,028 )   $   14,797  
% of revenue   26.0%         16.7%           18.8%       25.9%         14.7%           17.5%  
                                     
                                     
    (unaudited)
  (in thousands, except percentages) Year to date September 30, 2018   Year to date September 30, 2017
    Industrial
Products
    Specialty
Chemicals
  Corporate
and Other
  Consolidated Continuing Operations   Industrial
Products
    Specialty
Chemicals
  Corporate
and Other
  Consolidated Continuing Operations
                                     
Revenue $   108,587       $   72,602     $   1     $   181,190     $   101,748       $   71,972     $   1     $   173,721  
                                     
Operating Income $   28,105       $   12,631     $   (5,787 )   $   34,949     $   25,962       $   10,780     $   (5,519 )   $   31,223  
                                     
Adjusting items:                                  
  Restructuring & realignment     -            -          -          -          367           876         -          1,243  
  Gain on sale of property & other     (253 )         (1,586 )       -          (1,839 )       -            -          -          -   
  M&A transaction costs     -            -          -          -          110           -          -          110  
                                     
Adjusted Operating Income $   27,852       $   11,045     $   (5,787 )   $   33,110     $   26,439       $   11,656     $   (5,519 )   $   32,576  
% of revenue   25.6%         15.2%           18.3%       26.0%         16.2%           18.8%  
                                     

We use adjusted earnings per share, adjusted net income and adjusted operating income, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, operating expense, operating income and net income, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. We also believe these measures are useful for investors to assess the operating performance of our business without the effect of non-operating items.

Investor contact:
Michael Callahan, ICR
(203) 682-8311
Michael.Callahan@icrinc.com 

csw logo.jpg

Source: CSW Industrials, Inc.