CSW Industrials Reports Fiscal Second Quarter 2020 Results

11/5/2019 at 8:00 AM EST

Fiscal Second Quarter 2020 Highlights

Second quarter 2020 revenue from continuing operations of $101.3 million, up 10.6% (6.3% organic) compared to $91.6 million in the prior year period.
Second quarter 2020 GAAP operating income of $20.1 million, up 17.0% compared to $17.2 million in the prior year period.
Second quarter 2020 adjusted operating income of $19.3 million, up 12.5% compared to $17.2 million in the prior year period.
Second quarter 2020 GAAP net income from continuing operations of $8.8 million, or $0.58 per diluted share compared to $12.4 million, or $0.79 per diluted share in the prior year period, decreased primarily due to a one-time charge to terminate the Company’s U.S. qualified pension plan of $5.4 million after-tax, or $0.35 per diluted share.
Second quarter 2020 adjusted net income from continuing operations increased to $14.0 million or $0.92 per diluted share, compared to $12.4 million or $0.79 per diluted share.
Following quarter end, CSWI declared its third consecutive quarterly regular cash dividend of $0.135 per share, payable on November 14, 2019, to shareholders of record as of the close of business on October 31, 2019.

DALLAS, Nov. 05, 2019 (GLOBE NEWSWIRE) -- CSW Industrials, Inc. (NASDAQ: CSWI) today reported results for the fiscal second quarter ended September 30, 2019.

During the fiscal second quarter of 2020, CSWI reported revenue of $101.3 million, representing 10.6% growth as compared to $91.6 million in the prior year period. Higher revenue was driven by increased sales in both the Industrial Products and Specialty Chemicals segments, with 6.3% resulting from organic growth and the remainder due to acquisition related revenue. By end market, organic sales were predominantly driven by heating, ventilation, air conditioning, and refrigeration (HVAC/R), architecturally-specified building products, plumbing, and energy, partially offset by the general industrial end market.

GAAP operating income from continuing operations in the fiscal second quarter of 2020 increased 17.0% to $20.1 million, compared to $17.2 million in the prior year period, primarily driven by growth in sales volumes and changes in product mix. Adjusted operating income from continuing operations, which excludes the gain on the sale of a facility in the fiscal second quarter of 2020, increased 12.5% to $19.3 million compared to $17.2 million in the prior year period.

GAAP net income from continuing operations in the fiscal second quarter of 2020 was $8.8 million, or $0.58 per diluted share, compared to $12.4 million, or $0.79 per diluted share, in the prior year period. The reduction in GAAP net income and earnings per share was primarily due to a one-time charge to terminate the U.S. qualified pension plan, which was $7.0 million pre-tax (of which only $0.5 million was cash) and $5.4 million after-tax and is reflected in other expense. Adjusted to exclude one-time items and applying a normalized tax rate to both years, adjusted net income from continuing operations in the fiscal second quarter of 2020 was $14.0 million, or $0.92 per diluted share, compared to $12.4 million, or $0.79 per diluted share, in the prior year period.

Joseph B. Armes, CSW Industrials’ Chairman and Chief Executive Officer, commented, “Our momentum continued in the fiscal second quarter as our team executed well across our businesses. Our impressive 6.3% organic growth was driven by contributions from both segments, despite a mixed macroeconomic backdrop.”

Armes continued, “As we look to the balance of the year, we are encouraged by the continued strength in our largest end markets and our ability to execute despite macro uncertainties. Our team continues to drive our strategic growth initiatives and new product introductions. We expect this combination of factors to enable us to continue to deliver a total growth rate in excess of the end markets we serve.”

Fiscal Second Quarter Results of Operations
Consolidated revenue from continuing operations increased 10.6% to $101.3 million, compared to $91.6 million in the prior year period.

Industrial Products segment revenue increased 14.7% (7.5% organic) to $62.8 million, compared to $54.7 million in the prior year period. Sales volumes drove most of the strong organic revenue growth in the HVAC/R, plumbing, and architecturally-specified building products end markets. GAAP segment operating income increased 15.5% to $16.4 million, compared to $14.2 million in the prior year period. There were no adjustments to GAAP results in the current or prior year period.

Specialty Chemicals segment revenue improved 4.5% to $38.6 million, compared to $36.9 million in the prior year period. Growth was primarily driven by increased sales volumes into the energy and architecturally specified building products end markets, partially offset by the general industrial end market. GAAP segment operating income rose to $7.1 million, compared to $6.2 million in the prior year period. Adjusted to exclude non-recurring items in the current year quarter, solely related to the sale of a facility, segment operating income was $6.4 million, compared to $6.2 million in the prior year period or an increase of 3.4%.

Consolidated gross profit increased 12.3% to $47.4 million, compared to $42.2 million in the prior year period, primarily as a result of the positive impact of leverage from increased sales and a non-recurring $0.8 million gain on the sale of a facility in the current year quarter. Gross margin as a percentage of sales improved 70 basis points to 46.8%, compared to 46.1% in the prior year period.

Consolidated operating expenses in the current quarter were $27.3 million, or 26.9% of sales, and as a percent of sales improved 40 basis points over the prior year level of 27.3%, or $25.0 million. As a percent of sales, the improvement was driven by sales leverage, partially offset by additional personnel related expenses and costs associated with acquisitions.

Reported net income from continuing operations of $8.8 million, or $0.58 per diluted share compared to $12.4 million, or $0.79 per diluted share in the prior year period. The decrease was primarily due to a one-time, after-tax charge of $5.4 million or $0.35 per diluted share to terminate the Company’s U.S. qualified pension plan. Adjusted to exclude one-time items and applying a normalized tax rate in both years, adjusted net income from continuing operations in the fiscal second quarter of 2019 improved 12.9% to $14.0 million, or $0.92 per diluted share (16.5% increase), compared to adjusted net income from continuing operations of $12.4 million, or $0.79 per diluted share, in the prior year period.

Following quarter end, CSWI declared its third consecutive quarterly regular cash dividend of $0.135 per share, payable on November 14, 2019, to shareholders of record as of the close of business on October 31, 2019.

All percentages are calculated based upon the attached financial statements and reconciliations of non-GAAP financial measures.

Conference Call Information
The Company will host a conference call today at 10:00 a.m. Eastern Time to discuss the results. A live webcast of the call will also be available at https://cswindustrials.gcs-web.com/. Participants may access the call at 1-877-407-0784, international callers may use 1-201-689-8560, and request to join the CSW Industrials earnings call.

A telephonic replay will be available shortly after the conclusion of the call and until November 19, 2019. Participants may access the replay at 1-844-512-2921, international callers may use 1-412-317-6671, and enter access code 13694895. An archived replay of the call will also be available on the Investors portion of the CSWI website at www.cswindustrials.com.

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, air conditioning, and refrigeration applications, sealants, and high-performance specialty lubricants. Markets that CSWI serves include: HVAC/R, architecturally-specified building products, general industrial, plumbing, rail, energy, and mining. For more information, please visit www.cswindustrials.com.

Investor Relations
Adrianne D. Griffin
Vice President, Investor Relations, & Treasurer
214-489-7113
adrianne.griffin@cswi.com


Consolidated Statements of Income	(Unaudited)
	Three Months Ended September 30,						Six Months Ended September 30,
(in thousands, except per share amounts)	2019			2018			2019			2018
Revenues, net	$	101,324		$	91,612		$	203,657		$	181,190
Cost of revenues		(53,920	)		(49,403	)		(109,018	)		(96,892	)
Gross profit		47,404			42,209			94,639			84,298
Selling, general and administrative expenses		(27,282	)		(25,005	)		(54,195	)		(49,349	)
Operating income		20,122			17,204			40,444			34,949
Interest expense, net		(299	)		(420	)		(800	)		(805	)
Other (expense) income, net		(7,367	)		82			(7,454	)		820
Income before income taxes		12,456			16,866			32,190			34,964
Provision for income taxes		(3,638	)		(4,442	)		(8,027	)		(8,534	)
Income from continuing operations		8,818			12,424			24,163			26,430
(Loss) income from discontinued operations, net of tax		(35	)		2,732			(174	)		400
Net income	$	8,783		$	15,156		$	23,989		$	26,830


Basic earnings (loss) per common share:
Continuing operations	$	0.59		$	0.80		$	1.61		$	1.69
Discontinued operations		(0.01	)		0.18			(0.01	)		0.02
Net income	$	0.58		$	0.98		$	1.60		$	1.71

Diluted earnings (loss) per common share:
Continuing operations	$	0.58		$	0.79		$	1.59		$	1.67
Discontinued operations		-			0.18			(0.01	)		0.03
Net income	$	0.58		$	0.97		$	1.58		$	1.70

Consolidated Balance Sheets
	(Unaudited)
(Amounts in thousands, except per share amounts)	September 30, 2019			March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	23,677		$	26,651
Accounts receivable, net of allowance for doubtful accounts of $946 and $591, respectively		68,711			66,136
Inventories, net		52,851			51,429
Prepaid expenses and other current assets		4,038			7,030
Current assets, discontinued operations		-			21
Total current assets		149,277			151,267
Property, plant and equipment, net of accumulated depreciation of $68,440 and $65,548, respectively		54,864			53,639
Goodwill		92,252			86,295
Intangible assets, net		50,472			50,466
Other assets		22,451			10,965
Noncurrent assets, discontinued operations		2,061			-
Total assets	$	371,377		$	352,632

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	14,813		$	19,024
Accrued and other current liabilities		34,966			29,426
Current portion of long-term debt		561			561
Current liabilities, discontinued operations		368			161
Total current liabilities		50,708			49,172
Long-term debt		10,618			30,898
Retirement benefits payable		2,038			1,978
Other long-term liabilities		18,897			6,114
Noncurrent liabilities, discontinued operations		2,677			784
Total liabilities		84,938			88,946
Equity:
Common shares, $0.01 par value		159			158
Shares authorized – 50,000
Shares issued – 16,000 and 16,001, respectively
Additional paid-in capital		49,067			46,633
Treasury shares, at cost (975 and 962 shares, respectively)		(50,757	)		(49,964	)
Retained earnings		297,094			277,588
Accumulated other comprehensive loss		(9,124	)		(10,729	)
Total equity		286,439			263,686
Total liabilities and equity	$	371,377		$	352,632

Consolidated Statements of Cash Flows	(Unaudited)
	Six Months Ended September 30,
(Amounts in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	23,989		$	26,830
Less: (Loss) income from discontinued operations		(174	)		400
Income from continuing operations		24,163			26,430
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,162			3,750
Amortization of intangible and other assets		3,503			3,236
Provision for inventory reserves		229			700
Provision for doubtful accounts		547			-
Share-based compensation		2,434			1,794
Net gain on disposals of property, plant and equipment		(744	)		(2,539	)
Pension plan termination expense		6,559			-
Net pension benefit		(198	)		(211	)
Net deferred taxes		(875	)		8,647
Changes in operating assets and liabilities:
Accounts receivable, net		(1,101	)		1,473
Inventories		(899	)		(5,749	)
Prepaid expenses and other current assets		3,021			(4,163	)
Other assets		20			190
Accounts payable and other current liabilities		(3,110	)		(1,153	)
Retirement benefits payable and other liabilities		(215	)		109
Net cash provided by operating activities, continuing operations		37,496			32,514
Net cash used in operating activities, discontinued operations		(389	)		(7,574	)
Net cash provided by operating activities		37,107			24,940
Cash flows from investing activities:
Capital expenditures		(4,571	)		(2,742	)
Proceeds from sale of assets		1,089			3,547
Cash paid for acquisitions		(11,837	)		-
Net cash (used in) provided by investing activities, continuing operations		(15,319	)		805
Net cash provided by investing activities, discontinued operations		-			7,151
Net cash (used in) provided by investing activities		(15,319	)		7,956
Cash flows from financing activities:
Borrowings on lines of credit		7,500			8,000
Repayments of lines of credit		(27,781	)		(10,281	)
Purchase of treasury shares		(793	)		(30,997	)
Dividends paid to shareholders		(4,081	)		-
Net cash used in financing activities		(25,155	)		(33,278	)
Effect of exchange rate changes on cash and equivalents		393			(111	)
Net change in cash and cash equivalents		(2,974	)		(493	)
Cash and cash equivalents, beginning of period		26,651			11,706
Cash and cash equivalents, end of period	$	23,677		$	11,213

Reconciliation of Non-GAAP Measures

CSW Industrials, Inc.
Reconciliation of Operating Income to Adjusted Operating Income---Continuing Operations



		(Unaudited)
	(in thousands)	Quarter Ended September 30,					Six Months Ended September 30,
		2019			2018		2019			2018

GAAP Operating Income- Continuing Operations		$	20,122		$	17,204	$	40,444		$	34,949

Adjusting items:
	Gain on sale of property & other		(776	)		-		(776	)		(1,839	)

Adjusted Operating Income--Continuing Operations		$	19,346		$	17,204	$	39,668		$	33,110

CSW Industrials, Inc.
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,
		2019			2018		2019			2018

GAAP Net Income---Continuing Operations		$	8,818		$	12,424	$	24,163		$	26,430

Adjusting items, net of tax:
	Gain on sale of property & other		(582	)		-		(582	)		(1,361	)
	Pension Termination		5,377			-		5,377			-
	Discrete Tax Provisions & Other		411			-		(133	)		(557	)

Adjusted Net Income---Continuing Operations		$	14,024		$	12,424	$	28,825		$	24,512

GAAP Diluted income per common share, Continuing operations		$	0.58		$	0.79	$	1.59		$	1.67

Adjusting items, per diluted common share:
	Gain on sale of property & other		(0.04	)		-		(0.04	)		(0.08	)
	Pension Termination		0.35			-		0.35			-
	Discrete Tax Provisions & Other		0.03			-		(0.01	)		(0.03	)

Adjusted earnings per diluted common share		$	0.92		$	0.79	$	1.89		$	1.56

CSW Industrials, Inc.
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income


		(Unaudited)
	(in thousands, except percentages)	For the Three Months Ended September 30, 2019												For the Three Months Ended September 30, 2018
		Industrial Products			Specialty Chemicals			Corporate and Other			Consolidated Continuing Operations			Industrial Products			Specialty Chemicals			Corporate and Other			Consolidated Continuing Operations

Revenue		$	62,769		$	38,555		$	-		$	101,324		$	54,727		$	36,884		$	1		$	91,612

Operating Income		$	16,413		$	7,142		$	(3,433	)	$	20,122		$	14,212		$	6,158		$	(3,166	)	$	17,204

Adjusting items:
	Gain on sale of property & other		-			(776	)		-			(776	)		-			-			-			-

Adjusted Operating Income		$	16,413		$	6,366		$	(3,433	)	$	19,346		$	14,212		$	6,158		$	(3,166	)	$	17,204
% of revenue			26.1	%		16.5	%					19.1	%		26.0	%		16.7	%					18.8	%


		(Unaudited)
	(in thousands, except percentages)	Year to date September 30, 2019												Year to date September 30, 2018
		Industrial Products			Specialty Chemicals			Corporate and Other			Consolidated Continuing Operations			Industrial Products			Specialty Chemicals			Corporate and Other			Consolidated Continuing Operations

Revenue		$	126,121		$	77,536		$	-		$	203,657		$	108,587		$	72,602		$	1		$	181,190

Operating Income		$	33,456		$	13,765		$	(6,777	)	$	40,444		$	28,105		$	12,631		$	(5,787	)	$	34,949

Adjusting items:
	Gain on sale of property & other		-			(776	)		-			(776	)		(253	)		(1,586	)		-			(1,839	)

Adjusted Operating Income		$	33,456		$	12,989		$	(6,777	)	$	39,668		$	27,852		$	11,045		$	(5,787	)	$	33,110
% of revenue			26.5	%		16.8	%					19.5	%		25.6	%		15.2	%					18.3	%

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.

Source: CSW Industrials, Inc.

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