IDEX Corporation Reports Second Quarter Results; Second Half 2002 Performance Depends on Pace of Economic Recovery


IDEX Corporation (NYSE: IEX)reported that orders, sales and earnings for the three months ended June 30, 2002, improved from first quarter levels but were lower than the second quarter last year. Diluted earnings per share for the quarter were 48 cents.

Sales in the second quarter were $190.4 million, a 9 percent improvement from the 2002 first quarter. This was 1 percent lower than last year's second quarter, when stronger business conditions prevailed throughout the manufacturing sector.

Compared with the second quarter last year, acquisitions accounted for a 2 percent sales improvement and foreign currency translation added 1 percent. This was offset by a 4 percent decline in base business shipments. Domestic sales increased slightly, while international sales were 3 percent lower. Sales to international customers were 42 percent of the total, down from 43 percent last year.

Second quarter operating margins were 14.8 percent. Compared on the same accounting basis (excluding goodwill amortization in accordance with new accounting rules effective January 1, 2002), margins showed a 1.9 percentage point improvement from the first quarter but were .7 of a percentage point below last year's second quarter. The sequential margin improvement from the first quarter related primarily to higher sales volume. The year-over-year decline resulted from several factors, including the impact of acquisitions and the reinvestment in the business to drive organic growth, which were partially offset by savings from operational excellence initiatives.

Net income for the current quarter was $15.6 million. This represented a 36 percent improvement from the first quarter, and a 1 percent decline from the second quarter of last year (after 2001 results are adjusted to exclude goodwill amortization). Comparing diluted earnings per share on this same basis shows the current quarter's 48 cents exceeded the first quarter by 11 cents, but was lower than last year by 3 cents. On an "as reported" basis, diluted earnings per share for last year's second quarter were 42 cents.

New orders for the latest three months totaled $188.7 million, 2 percent stronger than the first quarter of this year, but 1 percent lower than a year ago. Excluding the impact of the June 2001 Versa-Matic acquisition and foreign currency translation, orders were 5 percent lower than in the second quarter of 2001. During the first half of this year, IDEX built $7.4 million of backlog. At June 30, the company had a typical unfilled order backlog of slightly over one month's sales.

Sales in the first six months decreased 4 percent to $365.4 million from $380.0 million a year ago. Acquisitions accounted for a 2 percent improvement, which was offset by a 6 percent decline in base business sales. Domestic sales were down 3 percent and international sales decreased 5 percent. For the first half, international sales were 41 percent of total versus 42 percent at this time last year.

Compared on the same accounting basis (before restructuring charge and excluding goodwill amortization), first half operating margins were 13.9 percent versus 14.7 percent in the prior-year period. This decline was principally attributable to lower base business sales volumes.

Year-to-date net income was $27.2 million. After adjusting last year's results to exclude restructuring charges and goodwill amortization, this represented a 7 percent decline from $29.3 million for the first half of 2001. Compared on the same basis, diluted earnings per share were 85 cents this year, down from 95 cents a year ago. IDEX's first half 2001 diluted earnings per share were 65 cents on an "as reported" basis.

New orders for the first six months totaled $372.8 million and were 2 percent below the prior year. Excluding the Versa-Matic acquisition (June 2001), orders were 4 percent lower than at this time last year.

In the first half, the Pump Products Group contributed 58 percent of sales and 59 percent of operating income, the Dispensing Equipment Group accounted for 20 percent of both sales and operating income, and the Other Engineered Products Group represented 22 percent of sales and 21 percent of operating income.

IDEX ended June with total assets of $864.2 million and working capital of $129.3 million. Total debt decreased $80.9 million during the first six months. The source of these debt reductions was operating cash flow and the net proceeds from the primary stock offering. Year-to-date free cash flow (cash flow from operating activities less capital expenditures) was $45.5 million and 1.7-times net income. For the last 12 months, free cash flow totaled $91.7 million and was 1.9-times net income excluding restructuring charges and goodwill amortization. Trailing 12-month EBITDA (earnings before interest, income taxes, depreciation and amortization) before restructuring charges totaled $124.6 million and covered interest expense by 6.7 times. Debt to total capitalization at the end of June was 30.2 percent, down from 42.1 percent at December 31, 2001.

Acquisitions of Rheodyne and Halox Technologies

Last Friday, IDEX announced that it will acquire Rheodyne, L.P., based in Rohnert Park, California. This acquisition will be completed today. Rheodyne, with sales of approximately $23 million, is a leading manufacturer of injectors, valves, fittings and accessories for the analytical instrumentation market. Its products are used by manufacturers of high performance liquid chromatography (HPLC) equipment serving the pharmaceutical, biotech, life science, food and beverage, and chemical markets.

During the second quarter IDEX also completed the acquisition of Halox Technologies, Inc., a small Bridgeport, Connecticut-based manufacturer of point-of-use chlorine dioxide equipment. Its proprietary products safely produce chlorine dioxide for use in water treatment and disinfectant applications. Chlorine dioxide is a very effective biocide treatment for legionella and other water-borne pathogens. Halox products can be used in a wide variety of end markets including food and beverage, cooling towers and potable water treatment.

Commenting on the acquisitions, Chairman, President and Chief Executive Officer Dennis K. Williams said, "Both of these companies serve growth markets and will integrate well with our Pump Products Group. Rheodyne becomes IDEX's 12th stand-alone business unit but will be closely coordinated with Ismatec, Micropump and Trebor. Halox will operate as part of our Pulsafeeder business unit."

Progress Continues on Corporate Initiatives

"The business units continue to drive operational excellence by using Kaizen, Lean and Six Sigma techniques," Williams said. "The expanding use of these tools is helping to improve operations across the company and to generate significant savings.

"Global sourcing remains a high priority, with savings totaling $4.7 million for the first half versus $1.6 million a year ago," Williams explained. "On average, we are realizing material cost reductions of 30 percent for globally sourced items. In addition, our business unit teams continue to improve this process and are shortening the order placement cycle.

"The rollout of to our pump distribution customers is underway with 39 distributors online. We expect to have another 18 distributors added by the end of the third quarter," Williams added. "The response to this new capability has been terrific, and we are continuing to add the functionality that the distributors need."

Second Half Results Depend on Pace of New Orders, Speed of Recovery

"While it's clear that economic conditions so far this year have improved from last year's second half, we did not see any meaningful sequential order improvement between the first and second quarters. In addition, our shipments in the second quarter generally tend to be stronger, due to the greater number of workdays and the seasonality of the dispensing equipment business. This means we must wait to see how the demand holds up in the third and fourth quarters. 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 Lean, Kaizen, 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, like Rheodyne and Halox Technologies, to drive the company's longer term profitable growth," Williams concluded.

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