CSWI - CSW Industrials Reports Fiscal Second Quarter 2020 Results
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.