PITTSBURGH, July 25, 2018 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the second quarter of 2018.

Quarterly Highlights

  • Revenue was $339 million, increasing 18 percent from a year ago on a reported basis and 16 percent on a constant currency basis. Excluding the acquisition of Globe, organic revenue was up 5 percent on a constant currency basis.
  • GAAP operating income increased 247 percent to $47 million or 13.8 percent of sales, compared to $13 million or 4.7 percent of sales(1) in the same period a year ago. Adjusted operating income increased 19 percent to $58 million or 17.1 percent of sales, compared to $49 million or 16.8 percent of sales in the same period a year ago.
  • GAAP earnings increased 165 percent to $33 million or $0.85 per diluted share, compared to $13 million or $0.32 per diluted share(1)  in the same period a year ago. Adjusted earnings increased 25 percent to $41 million or $1.07 per diluted share, compared to$33 million or $0.85 per diluted share in the same period a year ago.
  • Free cash flow exceeded 100 percent of net income, driven by a 240 basis point reduction in working capital as a percent of sales compared to the first quarter of 2018.
  • The company reached a settlement on the disputed portion of its insurance receivable. The settlement ensures collection of the portion of the insurance receivable that was previously subject to litigation. Payment is expected to be received in the third quarter of 2018.

Comments from Management

"Our second quarter results reflect strong execution of the Growth-in-Focus initiative we highlighted at our New York City investor day conference back in March," said Nish Vartanian, MSA President and CEO.  "Despite incurring $3 million of quarter-specific unfavorable expenses, healthy conditions across our key end markets - coupled with our previous investments in R&D and strategic acquisitions - drove 18 percent revenue growth and 25 percent adjusted earnings growth in the quarter," he said. Mr. Vartanian noted that the company is entering the third quarter with a backlog pipeline that is trending substantially higher than this time a year ago, reflecting increased levels of demand across its core product areas.

"Beyond the strong operating performance in the quarter, the successful resolution of litigation with a major insurance carrier is a significant milestone for us," Mr. Vartanian said. "Through this settlement, we secured collection of a significant portion of the insurance receivable, resolving coverage litigation that has been ongoing for nearly a decade."  Mr. Vartanian added that the settlement represents a major step in a multi-year effort to collect insurance monies owed to the company. 

"Our Growth-in-Focus initiative is based on achieving market leadership positions in our core product areas and market segments, while driving profitable growth and cash flow for our shareholders. The sustained momentum in our incoming order book, double-digit earnings growth and meaningful improvements in free cash flow were encouraging to see in the quarter. In the second half of 2018, we will continue to make focused investments to capitalize on this strong growth cycle, while diligently managing our administrative costs to drive operating leverage," Mr. Vartanian concluded.

 

(1) GAAP operating income growth of 247 percent and GAAP earnings growth of 165 percent is impacted by a $29.6 million charge taken in Q2 2017 related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims.

 

 

MSA Safety Incorporated

Condensed Consolidated Statement of Income (Unaudited)

(In thousands, except per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017






Net sales

$

339,331

$

288,775

$

665,225

$

554,540

Cost of products sold

185,495

155,812

364,050

301,855

Gross profit

153,836

132,963

301,175

252,685








Selling, general and administrative

81,962

74,104

162,213

150,890

Research and development

13,909

11,933

26,456

22,931

Restructuring charges

2,335

967

7,609

13,706

Currency exchange losses, net

815

2,851

2,823

3,431

Other operating expense

8,018

29,610

10,842

29,610

Operating income

46,797

13,498

91,232

32,117








Interest expense

5,181

3,014

9,962

6,605

Other income, net

(1,701)

(1,228)

(4,041)

(2,686)

Total other expense, net

3,480

1,786

5,921

3,919








Income before income taxes

43,317

11,712

85,311

28,198

Provision (benefit) for income taxes

9,896

(902)

19,401

894

Net income

33,421

12,614

65,910

27,304

Net income attributable to noncontrolling interests

(242)

(82)

(360)

(359)

Net income attributable to MSA Safety Incorporated

$

33,179

$

12,532

65,550

26,945








Earnings per share attributable to MSA Safety
Incorporated common shareholders:






Basic

$

0.86

$

0.33

$

1.71

$

0.71

Diluted

$

0.85

$

0.32

$

1.69

$

0.70








Basic shares outstanding

38,327

38,065

38,272

37,914

Diluted shares outstanding

38,903

38,780

38,841

38,685

 

 

MSA Safety Incorporated

Condensed Consolidated Balance Sheet (Unaudited)

(In thousands)

June 30, 2018

December 31, 2017

Assets


Cash and cash equivalents

$

116,650

$

134,244

Trade receivables, net

239,406

244,198

Inventories

177,256

153,739

Notes receivable, insurance companies

3,494

17,333

Other current assets

72,705

72,783

    Total current assets

609,511

622,297




Property, net

148,780

157,014

Prepaid pension cost

88,237

83,060

Goodwill

418,384

422,185

Notes receivable, insurance companies, noncurrent

60,340

59,567

Insurance receivable, noncurrent

115,143

123,089

Other noncurrent assets

210,164

217,614

   Total assets

$

1,650,559

$

1,684,826




Liabilities and shareholders' equity


Notes payable and current portion of long-term debt, net

$

26,895

$

26,680

Accounts payable

76,331

87,061

Other current liabilities

180,046

175,538

   Total current liabilities

283,272

289,279




Long-term debt, net

403,712

447,832

Pensions and other employee benefits

167,906

170,773

Deferred tax liabilities

8,589

9,341

Other noncurrent liabilities

148,010

165,023

Total shareholders' equity

639,070

602,578

   Total liabilities and shareholders' equity

$

1,650,559

$

1,684,826

 

 

MSA Safety Incorporated

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017






Net income

$

33,421

$

12,614

$

65,910

$

27,304

Depreciation and amortization

9,536

8,984

19,207

17,736

Change in working capital and other operating

5,072

28,294

(19,735)

101,242

  Cash flow from operating activities

48,029

49,892

65,382

146,282








Capital expenditures

(5,571)

(4,685)

(8,812)

(6,127)

Property disposals

3,001

512

3,059

677

  Cash flow used in investing activities

(2,570)

(4,173)

(5,753)

(5,450)








Change in debt

(32,884)

(28,203)

(42,285)

(124,640)

Cash dividends paid

(14,591)

(13,369)

(27,981)

(25,824)

Other financing

2,563

5,099

738

7,555

  Cash flow used in financing activities

(44,912)

(36,473)

(69,528)

(142,909)








Effect of exchange rate changes on cash,

cash equivalents and restricted cash

(9,493)

1,702

(8,130)

3,327








(Decrease) / Increase in cash, cash equivalents and
restricted cash

(8,946)

10,948

(18,029)

1,250

 

 

MSA Safety Incorporated

Segment Information (Unaudited)

(In thousands)

Americas

International

Corporate

Consolidated

Three Months Ended June 30, 2018






Sales to external customers

$

215,339

$

123,992

$

—

$

339,331

Operating income





46,797

Operating margin %

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