PORTLAND, Ore., Oct. 31 /PRNewswire-FirstCall/ -- Blount International, Inc. ("Blount" or the "Company") today announced results for the third quarter ended September 30, 2006. Sales from continuing operations for the quarter were $164.1 million compared to $175.2 million in last year's third quarter.
Operating income from continuing operations for the third quarter was $18.7 million as compared to $29.6 million in last year's third quarter. This year's operating income includes $4.8 million in non-recurring charges related to the redesign of the Company's retirement plans and the write-down and closure of a manufacturing facility. Income from continuing operations in this year's third quarter was $10.1 million ($0.21 per diluted share), compared to $15.6 million ($0.33 per diluted share) in the comparable period last year. A summary of the estimated impact of key variances in results of continuing operations for the third quarter compared to last year's in terms of sales, operating income and diluted earnings per share is illustrated below:
Operating Diluted
Sales Income EPS
$ In millions except per share data
Variance 2006 vs. 2005:
Retirement Plan Redesign/Facility Closure $-- $(4.8) $(0.08)
Timber Harvesting Equipment Volume (15.6) (3.8) (0.06)
Foreign Exchange 1.4 (0.7) (0.01)
Share-Based Compensation 0.0 (0.7) (0.01)
Income Tax Rate 0.0 0.0 0.05
All Other 3.1 (1.0) (0.01)
Total Variance 2006 vs. 2005 $(11.1) $(11.0) $(0.12)
Commenting on the third quarter, James S. Osterman, Chairman and Chief Executive Officer, stated: "Worldwide demand for saw chain and guide bars was good in the third quarter, enabling our Outdoor Products segment to achieve sales growth over 2005. Compared to last year's third quarter, unit volume for saw chain increased by 7% and guide bars by 17%. However, weak North American market conditions within both the timber and lawn care industries negatively impacted the third quarter sales performance of the outdoor care line of the Outdoor Products segment, as well as the Industrial and Power Equipment segment. We estimate that industry-wide retail unit sales of timber-harvesting equipment in North America declined by 22% in this year's third quarter from last year's as customers reduced or delayed purchases in response to declining demand for wood products.
"In the fourth quarter, we expect sales for the Company to range between $155 million and $160 million as challenging market conditions for the sale of timber-harvesting equipment are anticipated to continue into 2007. Sales of the Company's Outdoor Products segment should remain stable through the fourth quarter with year-over-year fourth quarter segment sales estimated to be up slightly from last year. Operating income from continuing operations is estimated to range between $22 million and $24 million in the fourth quarter. We will aggressively manage costs in the coming periods to offset some of the market softness. During the third quarter, we initiated actions to lower our cost structure through the consolidation of manufacturing capacity in the Industrial and Power Equipment segment and the redesign of the Company's retirement plans."
Segment Results
The Outdoor Products segment reported third quarter sales of $111.5 million compared to $108.9 million in last year's third quarter, an increase of 2.4%. Sales increases in saw chain, guide bars and concrete cutting equipment were partially offset by a reduction in outdoor care product sales and an increase in marketing programs. Sales order backlog in this year's third quarter was $64.8 million compared to $70.0 million last year. Segment operating margin improved to 21.1% of sales in the third quarter from 20.1% in this year's second quarter. Segment contribution to operating income was $23.5 million in this year's third quarter compared to $25.2 million in last year's third quarter. The year-over-year decrease in segment contribution included an unfavorable foreign exchange currency rate impact of approximately $0.7 million and lower average selling prices of approximately $2.6 million, primarily due to stronger sales to original equipment manufacturers relative to last year's third quarter.
The Industrial and Power Equipment segment's third quarter sales were $52.7 million, compared to $66.7 million in last year's third quarter. Segment contribution to operating income was $3.9 million compared to $8.2 million in last year's third quarter. Unit shipments of the Company's timber-harvesting equipment declined by 25.8% from the third quarter of last year as industry weakness within the North American market continued. Backlog for this segment as of September 30th declined to $28.7 million compared to $37.0 million at June 30th of this year. North American equipment dealers have initiated actions to reduce their inventory levels in response to the softer market conditions caused by declining trends in housing starts and lumber prices.
Discontinued Operations
Net income from discontinued operations was $5.0 million ($0.11 per diluted share), reflecting the gain on sale of the Company's lawnmower segment on July 27th, third quarter operating results prior to the sale, activities related to the shut down of a retained facility and income taxes. Net cash flow generated from discontinued operations in the third quarter was $29.5 million and was utilized to reduce outstanding debt.
Other Items
The Company previously announced a retirement plan redesign for existing employees effective January 1, 2007. Upon implementation, the redesign will freeze benefits earned under the Company's defined benefit plan and increase contributions paid by the Company to its 401(k) defined contribution plan. The Company recorded a non-recurring expense of $3.7 million in conjunction with the redesign. In the third quarter, the Company closed its Menominee, Michigan timber-harvesting equipment factory and recognized a $1.1 million charge, of which $0.8 million represented non-cash charges.
The Company recorded an income tax benefit of $0.6 million in this year's third quarter. The benefit reflected the full-year impact of implemented tax planning initiatives. Management estimates that the Company's full year effective income tax rate will approximate 29%.
Blount International, Inc. is a diversified international company operating in two principal business segments: Outdoor Products and Industrial and Power Equipment. Blount sells its products in more than 100 countries around the world. For more information about Blount, please visit our website at http://www.blount.com/.
Forward-looking statements in this release, including without limitation the Company's "expectations," "beliefs," "plans," "indications," "estimates," "anticipations," and their variants, as defined by the Private Securities Litigation Reform Act of 1995, involve certain risks and uncertainties, including those set forth in Item 1A, "Risk Factors," of Blount's Annual Report on Form 10-K for the year ended December 31, 2005. The outcome resulting from these risks and uncertainties may cause actual results subsequent to the date of this announcement to differ materially from those projected in forward-looking statements. Forward-looking statements in this press release include, without limitation, Blount's expectations regarding fourth quarter and 2007 market conditions, Outdoor Products segment sales, Industrial and Power Equipment segment sales, operating income and an estimated reduction in the Company's pension expense. Additionally, guidance given in this release is expressly based upon certain assumptions concerning market conditions, foreign currency exchange rates, raw material costs, especially with respect to the price of steel, and the presumed relationship between backlog and future sales trends.
Blount International, Inc. Financial Data (Unaudited)
Condensed Consolidated Statements of Income
(In thousands, except per share data)
Three mos. ended Nine mos. ended
Sep. 30 Sep. 30
2006 2005 2006 2005
Sales $164,097 $175,182 $492,993 $525,312
Cost of sales 114,910 118,453 339,982 354,259
Gross profit 49,187 56,729 153,011 171,053
Selling, general
and administrative expenses 25,728 27,122 83,253 83,072
Retirement plan freeze 3,747 -- 3,747 --
Plant closure costs 1,055 -- 1,055 --
Operating income 18,657 29,607 64,956 87,981
Net interest expense (8,861) (9,234) (26,985) (27,476)
Other income (expense), net (302) (1,343) 797 (1,826)
Income from continuing operations
before income taxes 9,494 19,030 38,768 58,679
Provision (benefit)
for income taxes (640) 3,408 9,901 10,334
Income from
continuing operations $10,134 $15,622 28,867 48,345
Discontinued operations:
Income from discontinued
Lawnmower Segment 12,799 407 12,238 2,106
Income tax provision 7,809 5 7,597 25
Income from
discontinued operations 4,990 402 4,641 2,081
Net income $15,124 $16,024 $33,508 $50,426
Basic earnings per share:
Continuing operations $0.21 $0.33 $0.61 $1.06
Discontinued operations 0.11 0.01 0.10 0.04
Basic earnings per share: $0.32 $0.34 $0.71 $1.10
Diluted earnings per share:
Continuing operations $0.21 $0.33 $0.60 $1.02
Discontinued operations 0.11 0.01 0.10 0.04
Diluted earnings per share: $0.32 $0.34 $0.70 $1.06
Shares used for per share computations (in 000's):
Basic 47,161 46,610 47,121 45,801
Diluted 47,841 47,602 47,889 47,445
Condensed Consolidated Balance Sheets Sep. 30, Dec. 31,
(In thousands) 2006 2005
Assets:
Cash and cash equivalents $11,794 $12,937
Accounts receivable 102,300 93,593
Inventory 84,569 85,274
Other current assets 24,961 34,801
Property, plant and equipment, net 96,936 101,538
Other assets 120,485 127,049
Total assets $441,045 $455,192
Liabilities:
Current maturities of long-term debt $1,500 $2,360
Other current liabilities 100,844 112,031
Long-term debt, net of current maturities 375,750 405,363
Other liabilities 69,603 80,625
Total liabilities 547,697 600,379
Stockholders' deficit (106,652) (145,187)
Total liabilities and stockholders' deficit $441,045 $455,192
Three mos. ended Nine mos. ended
Segment Information Sep. 30 Sep. 30
(In thousands) 2006 2005 2006 2005
Sales:
Outdoor products $111,481 $108,855 $340,400 $339,748
Industrial and
power equipment 52,747 66,659 153,226 186,362
Elimination (131) (332) (633) (798)
Total sales $164,097 $175,182 $492,993 $525,312
Operating income (loss):
Outdoor products $23,532 $25,244 $71,437 $80,527
Industrial and
power equipment 3,949 8,187 11,980 19,373
Elimination 56 10 29 (20)
Retirement plan freeze
and plant closure costs (4,802) -- (4,802) --
Corporate office expense (4,078) (3,834) (13,688) (11,899)
Operating income $18,657 $29,607 $64,956 $87,981
