First Quarter 2020 Highlights |
§ Operating as an “essential business” (1) in substantially all locations to serve customers |
§ Implemented best practice hygiene and safety measures to protect employees |
§ Net sales declined 7.5%; Organic sales declined 9.5% |
§ Operating income margin declined 90 basis points to 11.5%; Adjusted operating income margin declined 40 basis points to 12.6% |
§ Q1 EPS decreases 18.8% to $0.91; Adjusted EPS decreases 14.5% to $1.00 |
§ $140 million returned to shareholders through dividends and share repurchases |
§ Solid balance sheet with 1.85 Total debt/EBITDA ratio, $163 million in cash and $314 million in available credit under existing borrowing facilities |
(1) | "Essential business" defined as business that continues to operate within a critical infrastructure sector established by the Cybersecurity & Infrastructure Security Agency of the U.S. Department of Homeland Security, a well as other governments worldwide. |
Three Months Ended March 31, | Fav (Unfav) to Prior Year | ||||||||||||||||||||
2020 | % of Sales | 2019 | % of Sales | $ | % | ||||||||||||||||
Net sales | $ | 701,991 | 100.0 | % | $ | 759,174 | 100.0 | % | $ | (57,183 | ) | (7.5 | %) | ||||||||
Cost of goods sold | 464,669 | 66.2 | % | 500,753 | 66.0 | % | 36,084 | 7.2 | % | ||||||||||||
Gross profit | 237,322 | 33.8 | % | 258,421 | 34.0 | % | (21,099 | ) | (8.2 | %) | |||||||||||
Selling, general & administrative expenses | 149,727 | 21.3 | % | 160,408 | 21.1 | % | 10,681 | 6.7 | % | ||||||||||||
Rationalization and asset impairment charges | 6,521 | 0.9 | % | 3,535 | 0.5 | % | (2,986 | ) | (84.5 | %) | |||||||||||
Operating income | 81,074 | 11.5 | % | 94,478 | 12.4 | % | (13,404 | ) | (14.2 | %) | |||||||||||
Interest expense, net | 5,458 | 0.8 | % | 5,323 | 0.7 | % | (135 | ) | (2.5 | %) | |||||||||||
Other income (expense) | 309 | — | 3,763 | 0.5 | % | (3,454 | ) | (91.8 | %) | ||||||||||||
Income before income taxes | 75,925 | 10.8 | % | 92,918 | 12.2 | % | (16,993 | ) | (18.3 | %) | |||||||||||
Income taxes | 20,370 | 2.9 | % | 21,452 | 2.8 | % | 1,082 | 5.0 | % | ||||||||||||
Effective tax rate | 26.8 | % | 23.1 | % | (3.7 | %) | |||||||||||||||
Net income including non-controlling interests | 55,555 | 7.9 | % | 71,466 | 9.4 | % | (15,911 | ) | (22.3 | %) | |||||||||||
Non-controlling interests in subsidiaries’ loss | (7 | ) | — | (14 | ) | — | 7 | 50.0 | % | ||||||||||||
Net income | $ | 55,562 | 7.9 | % | $ | 71,480 | 9.4 | % | $ | (15,918 | ) | (22.3 | %) | ||||||||
Basic earnings per share | $ | 0.92 | $ | 1.13 | $ | (0.21 | ) | (18.6 | %) | ||||||||||||
Diluted earnings per share | $ | 0.91 | $ | 1.12 | $ | (0.21 | ) | (18.8 | %) | ||||||||||||
Weighted average shares (basic) | 60,184 | 63,160 | |||||||||||||||||||
Weighted average shares (diluted) | 60,799 | 63,899 | |||||||||||||||||||
Selected Consolidated Balance Sheet Data | March 31, 2020 | December 31, 2019 | ||||||
Cash and cash equivalents | $ | 163,375 | $ | 199,563 | ||||
Total current assets | 1,059,344 | 1,075,581 | ||||||
Property, plant and equipment, net | 503,179 | 529,344 | ||||||
Total assets | 2,305,900 | 2,371,213 | ||||||
Total current liabilities | 654,822 | 563,135 | ||||||
Short-term debt (1) | 132,378 | 34,969 | ||||||
Long-term debt, less current portion | 715,950 | 712,302 | ||||||
Total equity | 667,960 | 819,077 | ||||||
Operating Working Capital | March 31, 2020 | December 31, 2019 | ||||||
Accounts receivable, net | $ | 385,673 | $ | 374,649 | ||||
Inventories | 398,248 | 393,748 | ||||||
Trade accounts payable | 248,335 | 273,002 | ||||||
Operating working capital | $ | 535,586 | $ | 495,395 | ||||
Average operating working capital to Net sales (2) | 19.1 | % | 16.8 | % | ||||
Invested Capital | March 31, 2020 | December 31, 2019 | ||||||
Short-term debt (1) | $ | 132,378 | $ | 34,969 | ||||
Long-term debt, less current portion | 715,950 | 712,302 | ||||||
Total debt | 848,328 | 747,271 | ||||||
Total equity | 667,960 | 819,077 | ||||||
Invested capital | $ | 1,516,288 | $ | 1,566,348 | ||||
Total debt / invested capital | 55.9 | % | 47.7 | % | ||||
(1) | Includes current portion of long-term debt. |
(2) | Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales. |
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Operating income as reported | $ | 81,074 | $ | 94,478 | ||||
Special items (pre-tax): | ||||||||
Rationalization and asset impairment charges (2) | 6,521 | 3,535 | ||||||
Acquisition transaction and integration costs (3) | — | 790 | ||||||
Amortization of step up in value of acquired inventories (4) | 806 | — | ||||||
Adjusted operating income (1) | $ | 88,401 | $ | 98,803 | ||||
As a percent of total sales | 12.6 | % | 13.0 | % | ||||
Net income as reported | $ | 55,562 | $ | 71,480 | ||||
Special items: | ||||||||
Rationalization and asset impairment charges (2) | 6,521 | 3,535 | ||||||
Acquisition transaction and integration costs (3) | — | 790 | ||||||
Amortization of step up in value of acquired inventories (4) | 806 | — | ||||||
Tax effect of Special items (5) | (1,976 | ) | (813 | ) | ||||
Adjusted net income (1) | 60,913 | 74,992 | ||||||
Non-controlling interests in subsidiaries’ loss | (7 | ) | (14 | ) | ||||
Interest expense, net | 5,458 | 5,323 | ||||||
Income taxes as reported | 20,370 | 21,452 | ||||||
Tax effect of Special items (5) | 1,976 | 813 | ||||||
Adjusted EBIT (1) | $ | 88,710 | $ | 102,566 | ||||
Effective tax rate as reported | 26.8 | % | 23.1 | % | ||||
Net special item tax impact | — | (0.2 | %) | |||||
Adjusted effective tax rate (1) | 26.8 | % | 22.9 | % | ||||
Diluted earnings per share as reported | $ | 0.91 | $ | 1.12 | ||||
Special items per share | 0.09 | 0.05 | ||||||
Adjusted diluted earnings per share (1) | $ | 1.00 | $ | 1.17 | ||||
Weighted average shares (diluted) | 60,799 | 63,899 | ||||||
(1) | Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate and Adjusted diluted earnings per share are non-GAAP financial measures. Refer to Non-GAAP Information section. |
(2) | Primarily related to severance, asset impairments and gains or losses on the disposal of assets. |
(3) | Related to the acquisition of Air Liquide Welding and are included in Selling, general & administrative expenses. |
(4) | Related to an acquisition and are included in Cost of goods sold. |
(5) | Includes the net tax impact of Special items recorded during the respective periods. |
Twelve Months Ended March 31, | ||||||||
Return on Invested Capital | 2020 | 2019 | ||||||
Net income as reported | $ | 277,191 | $ | 297,722 | ||||
Rationalization and asset impairment charges | 18,174 | 18,645 | ||||||
Acquisition transaction and integration costs | 1,014 | 3,381 | ||||||
Pension settlement charges | — | 5,928 | ||||||
Amortization of step up in value of acquired inventories | 3,814 | — | ||||||
Gains on asset disposals | (3,554 | ) | — | |||||
Gain on change in control | (7,601 | ) | — | |||||
Tax effect of Special items (2) | (8,549 | ) | (7,328 | ) | ||||
Adjusted net income (1) | $ | 280,489 | $ | 318,348 | ||||
Plus: Interest expense, net of tax of $6,484 and $6,211 in 2020 and 2019, respectively | 19,489 | 18,666 | ||||||
Less: Interest income, net of tax of $605 and $1,605 in 2020 and 2019, respectively | 1,818 | 4,825 | ||||||
Adjusted net income before tax-effected interest | $ | 298,160 | $ | 332,189 | ||||
Invested Capital | March 31, 2020 | March 31, 2019 | ||||||
Short-term debt | $ | 132,378 | $ | 110 | ||||
Long-term debt, less current portion | 715,950 | 705,725 | ||||||
Total debt | 848,328 | 705,835 | ||||||
Total equity | 667,960 | 864,665 | ||||||
Invested capital | $ | 1,516,288 | $ | 1,570,500 | ||||
Return on invested capital (1) | 19.7 | % | 21.2 | % | ||||
Twelve Months Ended March 31, | ||||||||
Total Debt / EBITDA | 2020 | 2019 | ||||||
Net income as reported | $ | 277,191 | $ | 297,722 | ||||
Income taxes | 74,328 | 79,741 | ||||||
Interest expense, net | 23,550 | 18,447 | ||||||
Depreciation and amortization | 83,614 | 73,113 | ||||||
EBITDA (1) | $ | 458,683 | $ | 469,023 | ||||
March 31, 2020 | March 31, 2019 | |||||||
Total debt | $ | 848,328 | $ | 705,835 | ||||
Total debt / EBITDA | 1.85 | 1.50 | ||||||
(1) | Adjusted net income, Return on invested capital and EBITDA are non-GAAP financial measures. Refer to Non-GAAP Information section. |
(2) | Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the twelve months ended March 31, 2020. |
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 55,562 | $ | 71,480 | ||||
Non-controlling interests in subsidiaries’ loss | (7 | ) | (14 | ) | ||||
Net income including non-controlling interests | 55,555 | 71,466 | ||||||
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: | ||||||||
Rationalization and asset impairment net (gains) charges | (236 | ) | 1,424 | |||||
Depreciation and amortization | 21,028 | 18,901 | ||||||
Equity earnings in affiliates, net | (162 | ) | (448 | ) | ||||
Other non-cash items, net | (4,182 | ) | 4,394 | |||||
Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||
Increase in accounts receivable | (25,698 | ) | (26,900 | ) | ||||
Increase in inventories | (17,401 | ) | (14,638 | ) | ||||
Decrease in trade accounts payable | (16,676 | ) | (15,107 | ) | ||||
Net change in other current assets and liabilities | 11,693 | (14,648 | ) | |||||
Net change in other long-term assets and liabilities | (1,949 | ) | 1,434 | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 21,972 | 25,878 | ||||||
INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (11,828 | ) | (16,251 | ) | ||||
Proceeds from sale of property, plant and equipment | 6,100 | 302 | ||||||
Other investing activities | — | 2,000 | ||||||
NET CASH USED BY INVESTING ACTIVITIES | (5,728 | ) | (13,949 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Net change in borrowings | 97,777 | (3 | ) | |||||
Proceeds from exercise of stock options | 1,047 | 637 | ||||||
Purchase of shares for treasury | (109,762 | ) | (75,584 | ) | ||||
Cash dividends paid to shareholders | (30,675 | ) | (30,560 | ) | ||||
NET CASH USED BY FINANCING ACTIVITIES | (41,613 | ) | (105,510 | ) | ||||
Effect of exchange rate changes on Cash and cash equivalents | (10,819 | ) | 1,866 | |||||
DECREASE IN CASH AND CASH EQUIVALENTS | (36,188 | ) | (91,715 | ) | ||||
Cash and cash equivalents at beginning of period | 199,563 | 358,849 | ||||||
Cash and cash equivalents at end of period | $ | 163,375 | $ | 267,134 | ||||
Cash dividends paid per share | $ | 0.49 | $ | 0.47 | ||||
Americas Welding | International Welding | The Harris Products Group | Corporate / Eliminations | Consolidated | ||||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||
Net sales | $ | 418,535 | $ | 197,923 | $ | 85,533 | $ | — | $ | 701,991 | ||||||||||
Inter-segment sales | 24,783 | 4,483 | 1,725 | (30,991 | ) | — | ||||||||||||||
Total | $ | 443,318 | $ | 202,406 | $ | 87,258 | $ | (30,991 | ) | $ | 701,991 | |||||||||
Net income | $ | 55,562 | ||||||||||||||||||
As a percent of total sales | 7.9 | % | ||||||||||||||||||
EBIT (1) | $ | 69,512 | $ | 478 | $ | 12,492 | $ | (1,099 | ) | $ | 81,383 | |||||||||
As a percent of total sales | 15.7 | % | 0.2 | % | 14.3 | % | 11.6 | % | ||||||||||||
Special items charges (gains) (3) | 1,190 | 6,137 | — | — | 7,327 | |||||||||||||||
Adjusted EBIT (2) | $ | 70,702 | $ | 6,615 | $ | 12,492 | $ | (1,099 | ) | $ | 88,710 | |||||||||
As a percent of total sales | 15.9 | % | 3.3 | % | 14.3 | % | 12.6 | % | ||||||||||||
Three months ended March 31, 2019 | ||||||||||||||||||||
Net sales | $ | 457,719 | $ | 218,086 | $ | 83,369 | $ | — | $ | 759,174 | ||||||||||
Inter-segment sales | 29,388 | 4,209 | 1,867 | (35,464 | ) | — | ||||||||||||||
Total | $ | 487,107 | $ | 222,295 | $ | 85,236 | $ | (35,464 | ) | $ | 759,174 | |||||||||
Net income | $ | 71,480 | ||||||||||||||||||
As a percent of total sales | 9.4 | % | ||||||||||||||||||
EBIT (1) | $ | 80,416 | $ | 11,138 | $ | 10,519 | $ | (3,832 | ) | $ | 98,241 | |||||||||
As a percent of total sales | 16.5 | % | 5.0 | % | 12.3 | % | 12.9 | % | ||||||||||||
Special items charges (gains) (4) | 1,336 | 2,199 | — | 790 | 4,325 | |||||||||||||||
Adjusted EBIT (2) | $ | 81,752 | $ | 13,337 | $ | 10,519 | $ | (3,042 | ) | $ | 102,566 | |||||||||
As a percent of total sales | 16.8 | % | 6.0 | % | 12.3 | % | 13.5 | % | ||||||||||||
(1) | EBIT is defined as Operating income plus Other income (expense). |
(2) | The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT. |
(3) | Special items in 2020 reflect Rationalization and asset impairment charges of $1,190 and $5,331 in Americas Welding and International Welding, respectively, and amortization of step up in value of acquired inventories of $806 in International Welding related to an acquisition. |
(4) | Special items in 2019 reflect Rationalization and asset impairment charges of $1,336 in Americas Welding and $2,199 in International Welding and acquisition transaction and integration costs of $790 in Corporate/Eliminations related to the acquisition of Air Liquide Welding. |
Three Months Ended March 31st Change in Net Sales by Segment | ||||||||||||||||||||||||
Change in Net Sales due to: | ||||||||||||||||||||||||
Net Sales 2019 | Volume | Acquisitions | Price | Foreign Exchange | Net Sales 2020 | |||||||||||||||||||
Operating Segments | ||||||||||||||||||||||||
Americas Welding | $ | 457,719 | $ | (37,692 | ) | $ | 6,190 | $ | (5,392 | ) | $ | (2,290 | ) | $ | 418,535 | |||||||||
International Welding | 218,086 | (30,507 | ) | 18,302 | (1,691 | ) | (6,267 | ) | 197,923 | |||||||||||||||
The Harris Products Group | 83,369 | 2,800 | — | 323 | (959 | ) | 85,533 | |||||||||||||||||
Consolidated | $ | 759,174 | $ | (65,399 | ) | $ | 24,492 | $ | (6,760 | ) | $ | (9,516 | ) | $ | 701,991 | |||||||||
% Change | ||||||||||||||||||||||||
Americas Welding | — | % | (8.2 | %) | 1.4 | % | (1.2 | %) | (0.5 | %) | (8.6 | %) | ||||||||||||
International Welding | (14.0 | %) | 8.4 | % | (0.8 | %) | (2.9 | %) | (9.2 | %) | ||||||||||||||
The Harris Products Group | 3.4 | % | — | 0.4 | % | (1.2 | %) | 2.6 | % | |||||||||||||||
Consolidated | (8.6 | %) | 3.2 | % | (0.9 | %) | (1.3 | %) | (7.5 | %) | ||||||||||||||