IDEX Reports Record Second Quarter Orders
IDEX Corporation announced record financial results for the three months ended June 30, 2005. Orders were up 18 percent, sales increased 16 percent and net income rose 27 percent to an all-time high of $28.9 million. Diluted earnings per share were 55 cents versus 44 cents in the year-ago period.
Second Quarter 2005 Highlights
- Orders were a record $272.0 million, 18 percent higher than a year ago; base business orders, excluding acquisitions and foreign currency translation, were up 13 percent.
- Sales of $271.8 million also set a new record and rose 16 percent; base business sales, excluding acquisitions and foreign currency translation, were up 11 percent.
- Gross margins improved 90 basis points to 41.1 percent of sales, while operating margins at 17.7 percent were 70 basis points higher than a year ago.
- Net income increased 27 percent to a record $28.9 million.
- Diluted EPS at 55 cents was 11 cents ahead of the second quarter of 2004.
- EBITDA of $56.2 million was 20.7 percent of sales and covered interest expense by more than 14 times.
- Debt-to-total capitalization was 20 percent.
- Free cash flow was strong at $30.7 million and 1.1 times net income.
- Operational excellence initiatives continue to fuel product innovation to drive growth.
"We are delighted with our results for the second quarter and first six months of 2005. Our business units continue to deliver profitable sales growth as a result of new product and technology initiatives and our never-ending commitment to operational excellence. During the second quarter, we achieved record orders, sales, and net income, as well as our 14th consecutive quarter of year-over-year gross margin improvement. The quarter also marked our 12th consecutive quarter of year-over-year earnings growth and our 11th consecutive quarter of year-over-year base sales growth. This is now the third straight quarter that we have generated double-digit base sales improvement. During the quarter, all three business segments experienced double-digit organic sales growth. As we move forward, we remain focused on the voice of our customer, while using the powerful combination of continuous process improvement and new product innovation to drive our future performance."
Q2 Orders, Sales, Net Income and EPS Up Year-over-Year and Sequentially
New orders in the quarter totaled a record $272.0 million, 18 percent higher than the same period in 2004 and up 2 percent sequentially. Excluding the impact of foreign currency translation and acquisitions, orders were 13 percent higher than the second quarter of 2004. As of June 30, 2005, the company had an unfilled order backlog of just over one month's sales.
Record sales in the 2005 second quarter of $271.8 million rose 16 percent from the prior year period and were up 8 percent sequentially. Compared with last year, base business shipments grew 11 percent, acquisitions accounted for a 3 percent improvement, and foreign currency translation added 2 percent. Base business sales grew 16 percent domestically and 6 percent internationally during the quarter. Sales to international customers from base businesses represented approximately 44 percent of total sales for the second quarter of 2005 versus 46 percent in the year-ago quarter.
Second quarter 2005 gross margin of 41.1 percent of sales was 90 basis points higher than last year's second quarter and 70 basis points higher than the first quarter of 2005. 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 increased slightly from the second quarter of 2004 to 23.4 percent. Total SG&A expenses increased due to acquisitions, higher volume, and reinvestment in the business to drive organic growth. Second quarter 2005 operating margin of 17.7 percent of sales was 70 basis points higher than the second quarter of 2004 and 160 basis points ahead of the first quarter of 2005.
Net income of $28.9 million was a new record and increased 27 percent over the second quarter of 2004 and 22 percent sequentially. Diluted earnings per share of 55 cents improved 11 cents from the second quarter of 2004 and were up 10 cents from the first quarter of 2005.
New orders for the first six months totaled $538.6 million, 15 percent higher than the first six months of last year. Excluding the impact of foreign currency translation and acquisitions, orders were 9 percent higher in the first six months of 2005 than in 2004.
Sales for the first six months of 2005 increased 17 percent to $523.8 million from $448.2 million a year earlier. Base business sales rose 11 percent, acquisitions accounted for a 4 percent improvement, and foreign currency translation added 2 percent. Base business sales grew 13 percent domestically and were up 8 percent internationally during the first six months of 2005. Sales to international customers from base businesses represented approximately 45 percent of total sales for the first six months of 2005 versus 46 percent for the same period last year.
First half operating margins were 17.0 percent, 110 basis points higher than the 15.9 percent reported in the prior-year period. This improvement reflects volume leverage, along with a 70-basis point improvement in gross margin to 40.8 percent, resulting mainly from the company's global sourcing, Six Sigma and Lean Manufacturing initiatives. Selling, general and administrative expenses as a percent of sales decreased by 40 basis points from the first half 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 $52.6 million increased 30 percent compared to 2004. Diluted earnings per share of $1.00 rose 21 cents, or 27 percent, from the 79 cents recorded for the first half of 2004.
For the second quarter of 2005, Pump Product sales of $158.3 million rose 18 percent, reflecting 12 percent base business growth, a 1 percent favorable impact from foreign currency translation, and a 5 percent increase due to acquisitions. Operating margin of 17.9 percent represented a 60-basis point operating margin improvement compared with the second quarter of 2004.
Dispensing Equipment sales of $53.1 million rose 16 percent, reflecting a 12 percent increase in base business growth and 4 percent favorable foreign currency translation. Operating margin of 24.9 percent represented a 20-basis point operating margin improvement compared to the year-ago quarter.
Sales of Other Engineered Products during the second quarter totaled $61.2 million, an increase of 12 percent, reflecting 10 percent base business growth, 1 percent favorable foreign currency translation, and a 1 percent increase due to acquisitions. Operating margin of 22.9 percent represented a 290-basis point operating margin improvement compared with the year-ago quarter.
Year-to-date, the Pump Products Group contributed 58 percent of sales and 51 percent of operating income; the Dispensing Equipment Group accounted for 20 percent of sales and 24 percent of operating income; and Other Engineered Products represented 22 percent of sales and 25 percent of operating income.
Strong Financial Position
IDEX ended the second quarter with total assets of $1.2 billion and working capital of $134.5 million. Total debt decreased $35.3 million during the first six months of 2005 to $190.1 million. Free cash flow (cash flow from operating activities less capital expenditures) for the first half of 2005 was $41.3 million. Year-to-date, EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $104.9 million (20.0 percent of sales) and covered interest expense by more than 13 times. Debt-to-total capitalization at June 30, 2005, was 20 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. Our ability to improve efficiency also allows our business units to spend more time developing new products and new markets, which will result in sustainable growth opportunities. We have embraced the innovation and growth concepts of stretch thinking, voice of the customer and the Six Sigma- based design principles.
"We're pleased with our progress during the quarter," Kingsley continued. "Our margin expansion is evidence that our operational excellence strategy is working. Second quarter gross margins of 41.1 percent improved 90 basis points versus last year's second quarter and 70 basis points sequentially. Year-to-date savings from our operational excellence tools of Lean and Six Sigma totaled $5.4 million. Through the first six months of 2005, the net savings from our global sourcing initiatives totaled $6.6 million, a reduction of 25 percent over prior sources. Year-to-date, the percentage of sales derived from new products introduced over the last three years was 20 percent."
"We are encouraged by our recent performance and working very hard to build on our business momentum as we move into the second half of 2005," Kingsley said. "Our emphasis on new product innovation and continuous process improvement is clearly delivering top- and bottom-line growth. We are most excited about the number of new business opportunities generated during the quarter. 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. We are well positioned to meet our customers' emerging needs for applied engineering solutions anywhere in the world."
IDEX Corporation is the world leader in fluid-handling technologies for positive displacement pumps and metering products, dispensing equipment for color formulation, and other highly engineered products including fire suppression equipment, rescue tools and engineered band clamping systems. Its products are sold in niche markets 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".
Source: IDEX Corporation