IDEX Corporation Reports First Quarter Results; 2002 Performance Depends On Speed Of Economic Recovery
IDEX Corporation reported that orders, sales and earnings for the three months ended March 31, 2002, were improved from fourth quarter levels but lower than the comparable quarter of last year.
First Quarter Highlights
- Sales of $174.9 million were up 4 percent from the fourth quarter but 7 percent lower than a year ago.
- Compared with last year's first quarter, sales saw 2 percent growth from acquisitions, offset by 8 percent lower base business activity and a negative 1 percent currency translation.
- Operating margins (before restructuring charge and goodwill amortization) were improved from the fourth quarter but were below last year's first quarter.
- Diluted EPS (on a comparable accounting basis) was 6 percent higher than the fourth quarter but 16 percent lower than the 2001 first quarter.
- Orders written of $184.1 million exceeded fourth quarter by 14 percent and were within 3 percent of last year's first quarter.
- Cash flow remained strong.
- Six Sigma, global sourcing, and eBusiness initiatives remain on track.
- 2002 performance will depend on pace of new orders and the speed of the economic recovery.
Dennis K. Williams, Chairman, President and CEO said: "We are encouraged by our first quarter performance compared to the third and fourth quarters of last year. While the economic conditions in our served markets have not recovered to the year ago levels, the company was able to post sequential improvement. The company-wide initiatives of Six Sigma, global sourcing and eBusiness continue to build momentum. These initiatives plus the 2001 restructuring have positioned us well for the recovery, regardless of its timing and speed.''
Sales in the first quarter were $174.9 million, which represented a 4 percent improvement from the fourth quarter of 2001. This was 7 percent lower than first quarter 2001 performance, when stronger business conditions prevailed throughout the manufacturing sector.
Compared with the first quarter last year, acquisitions accounted for a 2 percent sales improvement, which was offset by an 8 percent decline in base business shipments and a 1 percent unfavorable currency translation effect. International sales declined by 8 percent and domestic sales were 6 percent lower. Sales to international customers were 40 percent of the total, down slightly from 41 percent last year.
First quarter 2002 operating margins were 12.9 percent of sales. Compared on the same accounting basis (excluding goodwill amortization in accordance with new accounting rules effective January 1, 2002), margins, before restructuring charges, showed a .5 percentage point improvement from the fourth quarter but were 1.0 percentage point below last year's first quarter. These differences were largely attributable to changes in sales volume versus the two prior-year quarters.
Net income for the current quarter was $11.5 million. After adjusting prior-year results to exclude restructuring charges and goodwill amortization, this represents a 6 percent improvement from last year's fourth quarter but a 15 percent decline from the first. Comparing diluted earnings per share on this same basis shows the current quarter's 37 cents exceeded the fourth quarter by 2 cents but was lower than last year by 7 cents. IDEX's first quarter diluted earnings per share on an ``as reported'' basis was significantly better than last year's first quarter of 23 cents and fourth quarter of 14 cents due to the restructuring and goodwill expenses recorded in 2001.
New orders for the latest three months totaled $184.1 million, 14 percent stronger than the fourth quarter of 2001 but 3 percent lower than the first quarter of last year. Excluding the impact of foreign currency and the June 2001 Versa-Matic acquisition, orders were 4 percent lower than in the first quarter of 2001. During the first quarter of this year, IDEX built $9.2 million of backlog. At March 31, the company had a typical unfilled order backlog of slightly over one month's sales.
For the quarter, the Pump Products Group contributed 58 percent of sales and 62 percent of operating income, the Dispensing Equipment Group accounted for 19 percent of sales and 16 percent of operating income, and the Other Engineered Products Group represented 23 percent of sales and 22 percent of operating income.
Performance Improves From Fourth Quarter Levels
Chairman, President and Chief Executive Officer Dennis K. Williams said, ``While not up to performance levels of a year ago, we are very encouraged by the orders, sales and earnings improvements achieved in the first quarter 2002 versus last year's fourth quarter. The 14 percent increase in order activity -- from $161 million to $184 million -- reflects a long overdue strengthening of activity levels in the manufacturing sector. This improvement allowed us to increase our backlog entering the second quarter, which should enhance our performance this year. IDEX operates with a very small backlog of unfilled orders, so changes in order activity very quickly have an impact on sales and profitability.''
Strong Financial Position
IDEX ended the quarter with total assets of $839 million and working capital of $131 million. Total debt decreased $16 million during the period. First quarter free cash flow (cash flow from operations activities less capital expenditures) was $19 million and 1.7 times net income. For the last 12 months, free cash flow totaled $90 million and was nearly 1.8 times net income excluding restructuring charges and goodwill amortization. Trailing 12-month EBITDA (earnings before interest, taxes, depreciation and amortization) before the 2001 restructuring charge totaled $126 million and covered interest expense by more than 6 times. Debt to total capitalization at the end of the first quarter was 40 percent.
Progress Continues on Six Sigma, Global Sourcing and eBusiness Initiatives
"We continue to drive our long-term initiatives aimed at creating top- and bottom-line growth at IDEX,'' Williams said. "Three of the major efforts to reach these goals are Six Sigma, global sourcing and eBusiness.
"Six Sigma is leading our businesses through process and product improvements that benefit customers while enhancing IDEX's sales and profits,'' Williams continued. "Our initial focus has been on improving on-time delivery and product reliability. We are identifying the causes of defects, which create the gaps between actual performance and what our customers want. Our businesses and customers are seeing improvements in performance, and we are experiencing operational and financial benefits from this important initiative. We expect this effort will yield substantial improvements in 2002.
"Global sourcing also is a very high priority. It allows us to improve the bottom line while offering products with the same or higher quality,'' Williams added. "This program consolidates the buying power of all business units to globally source aluminum, iron, steel and stainless steel castings, various machined components, motors, printed circuit boards, and injection molded plastic and elastomer components. Cross-functional business unit teams - with expertise in purchasing, quality and engineering - are working with four commodity leaders to coordinate technical requirements with our global suppliers. We are seeing the benefits from these efforts, with savings of $1.9 million in the first quarter compared with $3.6 million for all of 2001. On average, we are realizing material cost reductions of 40 percent for globally sourced items. We believe these savings will continue to grow.
"eBusiness offers another important opportunity for substantial improvement at IDEX. We are Web-enabling the functions our customers and channel partners want most, which is helping to create a more efficient system that better serves our end-user customers. Selected IDEX pump distributors went live on IDEXconnect.com last September. Throughout 2002, we will continue to add functionality and distributors. In addition, we will roll out the eBusiness platform for other IDEX products to our OEMs, large end-users, and distributors,'' Williams explained.
2002 Results Depend on Pace of New Orders, Speed of Recovery
Looking ahead, Williams said, "While it's clear that economic conditions have improved from the second half of 2001, we must wait to see if the recovery continues. As a short-cycle business, our financial performance depends on the current pace of incoming orders, and we have very limited visibility of future business conditions. We believe IDEX is well positioned for earnings improvement as the economy strengthens. This is based on our lower cost structures resulting from the 2001 restructuring; our margin improvement initiatives of Six Sigma, global sourcing and eBusiness; and using our strong cash flow to cut debt and interest expense. In addition, we continue to pursue acquisitions to drive the company's longer-term profitable growth,'' Williams concluded.
IDEX Corporation is a manufacturer of proprietary pumps and metering products, dispensing equipment, and other engineered products. Its products are sold to a wide range of industries throughout the world. IDEX shares are traded on the New York Stock Exchange and Chicago Stock Exchange under the symbol "IEX.''
For further information on IDEX Corporation and its business units, visit the company's Web site at www.idexcorp.com
Source: IDEX Corporation