Global safety equipment manufacturer MSA Safety Incorporated has reported results for the 2Q16.
Reported revenue was US$296 million, increasing 3% from a year ago. The recent acquisition of UK-based fall protection company Latchways increased constant currency and reported revenue by 5%, while organic constant currency revenue remained flat.
Net income was US$29 million or US$0.77 per diluted share, compared to US$24 million or US$0.63 per diluted share in the 2Q15. Adjusted earnings were US$0.79 per diluted share, compared to US$0.67 per diluted share a year ago.
Comments from management
"Our quarterly results reflect strong returns on several strategic investments we've made to drive profitable growth," said William M. Lambert, MSA Chairman, President and CEO. "While we continued to see weak conditions in sales of certain products associated with energy and industrial related end markets, our investments in new product development, strategic acquisitions and restructuring programmes allowed us to recognise earnings growth of 21% on 3% revenue growth," he continued.
As examples, Lambert pointed to the continued success of the company's breakthrough G1 self-contained breathing apparatus (SCBA), the recent acquisition of Latchways, and the company's restructuring programme that was executed in late 2015.
"Overall, we continue to gain market share in the US fire service with the G1 SCBA, and we are realising success in a number of international markets as well. On a year-over-year basis, our breathing apparatus sales increased 20% for the quarter and 28% for the first six months of 2016," Lambert said. He also noted that Latchways continues to perform well, providing earnings accretion of US$0.01 per diluted share for the quarter and US$0.04 per diluted share for the first six months of 2016. Lambert added that MSA's 2015 restructuring programme has been successful in helping drive reductions in selling, general and administrative expense, down US$2 million in the quarter and US$4 million year-to-date on a reported basis, and down US$4 million in the quarter and US$8 million year-to-date in constant currency, excluding Latchways.
"In addition to making investments that drive profitable core product revenue growth, managing our cost structure continues to be a top priority in light of the headwinds we are seeing in key end markets and geographies. Despite these challenges, we remain committed to making strategic investments that help us capture market share, expand operating margins, and enhance the value we deliver to shareholders," Lambert concluded.
The Americas and International segments were established on 1 January 2016. The Americas segment is comprised of operations in the US, Canada, Mexico and Latin America. The International segment is comprised of operations in all other parts of the world including Europe, Africa, the Middle East, India, China, South East Asia and Australia. Certain global expenses are now allocated to each segment in a manner consistent with where the benefits from the expenses are derived. The 2015 segment results have been recast to conform with current period presentation.
Adjusted operating income (loss) and adjusted operating margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss) and adjusted operating margin are useful metrics for investors. Adjusted operating income (loss) is defined as income from continuing operations before taxes excluding restructuring charges, interest expense, currency exchange gains (losses), and other income (expense). Adjusted operating margin is defined as adjusted operating income divided by segment net sales. Adjusted operating income (loss) and adjusted operating margin are not recognised terms under GAAP, and the company's definition of adjusted operating income (loss) and adjusted operating margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP financial measures.
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control.
Organic constant currency revenue is defined as constant currency revenue excluding Latchways revenue results. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results excluding the acquisition.
There can be no assurances that MSA's definition of constant currency revenue growth or organic constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to these non-GAAP financial measures.
Management believes that constant currency SG&A expense and organic constant currency SG&A expense are useful metrics for investors to measure the effectiveness of the company's cost reduction programme announced in 2015.
Constant currency SG&A expense highlights spending patterns excluding fluctuating foreign currencies. Organic constant currency SG&A expense highlights the impact of the Latchways acquisition. These metrics provide investors with a greater level of clarity into spending levels on a year-over-year basis. MSA's definition of this metric may not be comparable to metrics used by other companies. As such, management believes that it is appropriate to consider SG&A expense determined on a GAAP basis in addition to these non-GAAP measures.
Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company's performance and 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.
Adapted from press release by Francesca Brindle
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