IDEX Reports Record 2004 Orders, Sales, Net Income and Free Cash Flow
IDEX Corporation reported record orders, sales, net income and free cash flow for the 12-month period ended December 31, 2004. For the latest quarter, the company's financial results were also significantly improved versus the prior-year period.
Orders in the fourth quarter of 2004 increased 23 percent, sales were up 23 percent, and diluted earnings per share rose 34 percent to 43 cents. For the full year 2004, orders increased 18 percent, sales grew 16 percent, and diluted earnings per share were $1.68, up 34 percent versus 2003.
- Orders were a record $942.4 million, 18 percent higher than a year ago; base business orders -- excluding acquisitions and foreign currency translation -- were up 9 percent.
- Sales of $928.3 million set a new record and were up 16 percent from last year; base business sales -- excluding acquisitions and foreign currency -- were up 7 percent.
- Gross margins improved 120 basis points to 40.0 percent of sales, while operating margins at 16.1 percent were 230 basis points higher than 2003.
- Net income rose 39 percent to $86.4 million.
- Diluted EPS of $1.68 was 43 cents ahead of last year.
- Record EBITDA of $179.6 million was 19 percent of sales and covered interest expense by 12 times.
- Debt-to-total capitalization at December 31 was 24 percent.
- Free cash flow was strong at $121.2 million, a new record, and 1.4 times net income.
- Four strategic acquisitions were completed in 2004 -- Vetter, Systec, Scivex and Dinglee.
- Operational excellence disciplines continue, fueling new product innovation to drive growth.
2004 Orders, Sales, and Net Income Set New Records
Orders for the year totaled a record $942.4 million and were 18 percent higher than last year. Excluding the impact of foreign currency translation and acquisitions since the beginning of 2003, orders were 9 percent higher in 2004 than in 2003.
Sales for 2004 increased 16 percent to a record $928.3 million, from $797.9 million a year earlier. Acquisitions accounted for a 6 percent improvement, foreign currency translation added 3 percent, and base business sales rose 7 percent. Base business sales grew 10 percent domestically and 2 percent internationally during the year. Base business sales to international customers were 43 percent of total 2004 sales, compared with 45 percent in 2003.
For the year, operating margins were 16.1 percent, 230 basis points higher than the 13.8 percent reported in the prior year. This improvement reflects volume leverage, along with a 120 basis point improvement in gross margin to 40.0 percent, resulting mainly from the company's Global Sourcing, Six Sigma and Lean Manufacturing initiatives. Higher total SG&A expenses year-over-year reflect acquisitions, volume-related expenses, and reinvestment in the businesses to drive organic growth. SG&A expenses as a percent of sales declined to 23.9 percent in 2004 versus 25.0 percent last year.
Full year 2004 net income of $86.4 million increased 39 percent over the prior year. Diluted earnings per share of $1.68 rose 43 cents, or 34 percent, from the $1.25 reported in 2003.
For the year, the Pump Products Group contributed 58 percent of sales and 54 percent of operating income; the Dispensing Equipment Group accounted for 18 percent of sales and 19 percent of operating income; and Other Engineered Products represented 24 percent of sales and 27 percent of operating income.
Fourth Quarter Orders, Sales, and Net Income Improve Significantly Year-Over-Year
New orders in the fourth quarter totaled a record $238.8 million, 23 percent higher than the same period of 2003. Excluding the impact of foreign currency translation and acquisitions, orders were 13 percent higher than the fourth quarter of 2003. At December 31, 2004, IDEX had an unfilled order backlog of just over one month's sales.
Sales in the fourth quarter were $242.6 million, an all-time quarterly high, reflecting a 23 percent increase over the same period of 2003. Compared with last year, base business shipments grew 12 percent, foreign currency translation provided a 3 percent improvement, and acquisitions accounted for an 8 percent increase. Base business sales grew 17 percent domestically and were up 5 percent internationally during the recent quarter. Sales to international customers from base business represented 42 percent of the total, compared with 45 percent last year.
Fourth quarter gross margin of 39.6 percent of sales was 90 basis points higher than the fourth quarter of 2003. The fourth quarter 2004 operating margin was 15.8 percent of sales, 170 basis points higher than last year. The increase in operating margin is attributable to increased sales volume across all three segments and the continuing favorable impact of savings realized from the company's Global Sourcing, Six Sigma and Lean Manufacturing initiatives. Total SG&A expense for the fourth quarter of $57.8 million increased from $48.8 million a year earlier primarily due to acquisitions and volume, while SG&A as a percent of sales declined 80 basis points to 23.8 percent of sales from 24.6 percent in the fourth quarter of 2003.
Net income of $22.7 million increased 40 percent over last year's fourth quarter. Diluted earnings per share of 43 cents improved 11 cents from last year.
Fourth Quarter Segment Results
For the fourth quarter, Pump Product sales of $144.8 million rose 23 percent compared to 2003, reflecting 12 percent base business growth, a 2 percent favorable impact from foreign currency translation, and a 9 percent increase due to acquisitions. Operating profit of $25.1 million increased 26 percent and represented a 30 basis point operating margin improvement compared with the fourth quarter of 2003, attributable to volume leverage and the impact of operational excellence initiatives.
Dispensing Equipment sales in the fourth quarter of $42.7 million increased 20 percent, reflecting a 5 percent increase due to foreign currency translation and a 15 percent increase in base business. Operating profit of $6.9 million increased 34 percent and represented a 180 basis point operating margin improvement compared with a year ago, due primarily to volume leverage and the company's operational excellence initiatives.
Sales of Other Engineered Products during the fourth quarter totaled $56.1 million, an increase of 23 percent, reflecting 8 percent base business growth, 3 percent favorable foreign currency translation, and a 12 percent improvement due to acquisitions. Operating profit of $13.1 million increased 55 percent and represented a 480 basis point operating margin improvement compared with the year-ago quarter, largely attributable to volume and the impact of operational excellence initiatives.
Strong Financial Position and Record Free Cash Flow
IDEX ended the year with total assets of $1.2 billion and working capital of $114.6 million. Total debt increased by $48.8 million during the year. The increase reflects the previously announced acquisitions of Vetter (January 2004); Systec (April 2004); Scivex (May 2004); and Dinglee (July 2004), partially offset by free cash flow generation during the period. In 2004, free cash flow (cash flow from operating activities less capital expenditures) was a record $121.2 million. For the year, EBITDA (earnings before interest, taxes, depreciation and amortization) totaled a record $179.6 million (19 percent of sales) and covered interest expense by 12 times. Debt-to-total capitalization at December 31, 2004, was 24 percent.
Strategic Acquisitions Continue
"In 2004, acquisitions continued to be an important part of our growth strategy," said Williams. "During the year, we completed four transactions -- Vetter in Germany, Dinglee in China, and Systec and Scivex in the United States. Vetter is a leader in pneumatic rescue products that fit well with our hydraulic rescue tools business. Dinglee is the leading rescue tool company in China and an important portal into the Chinese market for both our rescue tools and fire suppression products. Scivex and Systec are an excellent fit with our Rheodyne business, giving us unmatched capability to supply components and sub-systems to the analytical instrumentation, medical device, and clinical diagnostic markets. We are continually evaluating our business development opportunities and believe we will continue to find sensible acquisition candidates that will enable us to deploy our strong cash flow from operations."
Progress Continues on Operational Excellence Initiatives
"We are using our long-term initiatives to create top- and bottom-line growth," Williams said. "Our drive for rapid process improvement is increasing the gross margin. For 2004, the gross margin was 40 percent of sales. Six Sigma, Lean Manufacturing and Global Sourcing continue to contribute to our margin expansion. In 2004, savings from Six Sigma and Lean Manufacturing totaled $11.4 million, while Global Sourcing savings were $13.0 million, representing a savings of 25 percent versus our prior sources."
2005 Outlook: Results Depend on Pace of New Orders, Speed of Recovery
Looking ahead, Williams said, "We are pleased with our financial and operating performance in 2004 and enter 2005 with significant momentum in the business. We expect economic conditions to remain favorable as we continue to leverage rapid process improvement to meet customer needs, drive earnings and fund innovation to support our organic growth. As a short cycle business, we are mindful that our financial performance is reliant on the current pace of incoming orders. Although we have limited visibility on future business conditions, we believe IDEX is well positioned for earnings expansion, based on our lower cost levels resulting from our operational excellence discipline, our investments in new products, applications and global markets, and our pursuit of strategic acquisitions to complement our longer-term profitable growth."
Source: IDEX Corporation