IDEX Increases Net Income

27.10.2005

IDEX Corporation announced its financial results for the three months ended September 30, 2005. Orders were up 10 percent, sales increased 8 percent and net income rose 23 percent to $28.5 million. Diluted earnings per share were 54 cents versus 44 cents in the year-ago period.

Q3 Orders, Sales, Net Income and EPS Up Year-over-Year

New orders in the quarter totaled $258.9 million, 10 percent higher than the same period in 2004 and down 5 percent sequentially due to seasonal order patterns. Base business orders also were up 10 percent as European currency rates contributed little to orders. As of September 30, 2005, the company had an unfilled order backlog of just over one month's sales.

Sales in the third quarter of $257.9 million rose 8 percent from the prior year period and were down 5 percent from the second quarter of 2005 due to seasonal order patterns. Base business shipments also grew 8 percent as European currency rates contributed little to sales. Base business sales grew 10 percent domestically and 6 percent internationally during the quarter. Sales to international customers from base businesses represented approximately 42 percent of total sales for the third quarter of 2005 versus 43 percent in the year-ago quarter.

Third quarter 2005 operating margin of 18.1 percent of sales was 130 basis points higher than the third quarter of 2004 and 40 basis points ahead of the second quarter of 2005. Third quarter 2005 gross margin of 40.3 percent of sales was 30 basis points higher than last year's third quarter. This improvement reflects volume leverage and savings realized from the company's Six Sigma, Lean Manufacturing and global sourcing initiatives. Selling, general and administrative (SG&A) expense as a percent of sales decreased 100 basis points from the third quarter of 2004 to 22.2 percent. Total SG&A expenses increased due primarily to higher volume.

Net income of $28.5 million increased 23 percent over the third quarter of 2004. Diluted earnings per share of 54 cents improved 10 cents from the third quarter of 2004.

Year-to-Date Orders, Sales, Net Income and EPS Ahead of Last Year

New orders for the first nine months totaled $797.5 million, 13 percent higher than the first nine months of last year. Excluding the impact of foreign currency translation and acquisitions, orders were 9 percent higher in the first nine months of 2005 than in 2004.

Sales for the first nine months of 2005 increased 14 percent to $781.7 million. Base business sales rose 10 percent, acquisitions accounted for a 3 percent improvement, and foreign currency translation added 1 percent. Base business sales grew 12 percent domestically and were up 7 percent internationally during the first nine months of 2005. Sales to international customers from base businesses represented approximately 44 percent of total sales for the first nine months of 2005 versus 45 percent in the same period last year.

Year-to-date operating margins were 17.3 percent, 110 basis points higher than the 16.2 percent reported in the prior-year period. This improvement reflects a 50 basis point improvement in gross margin to 40.6 percent, resulting mainly from volume leverage and the company's global sourcing, Six Sigma and Lean Manufacturing initiatives. Selling, general and administrative expenses as a percent of sales of 23.3 percent decreased by 60 basis points from the first nine months of 2004. Higher total SG&A expenses reflect acquisitions, volume-related expenses, and reinvestment in the business to drive organic growth.

Year-to-date net income of $81.1 million increased 27 percent compared to 2004. Diluted earnings per share of $1.54 rose 31 cents, or 25 percent, from the $1.23 per share recorded for the first nine months of 2004.

Segment Results

Pump Products sales of $158.6 million reflect an 11 percent base business increase. Operating margin of 19.5 percent represented a 100 basis point improvement compared with the third quarter of 2004.

Dispensing Equipment sales of $40.9 million rose 2 percent, reflecting a 1 percent increase in base business growth and 1 percent favorable foreign currency translation. Operating margin of 19.3 percent represented a 90 basis point improvement compared to the year-ago quarter.

Sales of Other Engineered Products during the third quarter of $59.4 million reflect 6 percent base business growth. Operating margin of 25.2 percent represented a 290 basis point improvement compared with the year-ago quarter.

Year-to-date, the Pump Products Group contributed 59 percent of sales and 53 percent of operating income; the Dispensing Equipment Group accounted for 19 percent of sales and 21 percent of operating income; and Other Engineered Products represented 22 percent of sales and 26 percent of operating income.

Strong Financial Position

IDEX ended the third quarter with total assets of $1.2 billion and working capital of $156.1 million. Total debt decreased $64.5 million during the first nine months of 2005 to $160.8 million. Free cash flow (cash flow from operating activities less capital expenditures) for the first nine months of 2005 was $84.7 million. Year-to-date, EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $158.9 million (20 percent of sales) and covered interest expense by more than 14 times. Debt-to-total capitalization at September 30, 2005, was 17 percent.

Progress Continues on Operational Excellence and Innovation Initiatives

"We're driving operational excellence to reduce cost, improve efficiency and leverage our plant investment," Kingsley said. "Our ongoing commitment to operational excellence enables us to better serve the needs of our customers and expand margins, while focusing on product innovation to drive future growth. To date, 22 IDEX business units have completed training in the use of our new mixed model manufacturing and business process tools.

"We're pleased with our progress applying these more advanced tools," Kingsley continued. "Our margin expansion is evidence that our operational excellence strategy is working. Third quarter operating margin improved to 18.1 percent, 130 basis points ahead of last year's third quarter. Year-to-date savings from our operational excellence tools of Lean and Six Sigma totaled $7.9 million. Through the first nine months of 2005, the net savings from our global sourcing initiatives totaled $9.9 million, a reduction of 25 percent over prior sources."

2005 Outlook

"We are encouraged by our recent performance and focused on delivering consistent, sustainable sales and earnings growth," Kingsley said. "Our emphasis on new product innovation and continuous process improvement is clearly delivering top- and bottom-line growth. Our growth capability, coupled with our developing know-how for applying the most advanced mixed model operational excellence tools, will continue to enhance our ability to drive operating performance. As we move into the final quarter of 2005, we remain well positioned to meet our customers' emerging needs for applied engineering solutions anywhere in the world."

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