| News Release | | EnPro Industries, Inc. |
| | | 5605 Carnegie Boulevard |
| | | Charlotte, North Carolina 28209-4674 |
| Investor Contact: | Chris O’Neal | Phone: 704-731-1500 |
| | Senior Vice President - Strategy, Corporate | Fax: 704-731-1511 |
| | Development and Investor Relations | www.enproindustries.com |
| | | |
| Phone: | 704-731-1527 | |
| | | |
| Email: | investor.relations@enproindustries.com | |
EnPro Industries Reports Results for the Third Quarter of 2019
Financial Highlights
(Amounts in millions except per share data and percentages)
| Results for the Quarter Ended September 30 | | 2019 | | | 2018 | | | | % ∆ | |
| Net Sales | | $ | 373.0 | | | $ | 388.2 | | | | (3.9 | %) |
| Segment Profit | | $ | 37.3 | | | $ | 53.0 | | | | (29.6 | %) |
| Segment Margin | | | 10.0 | % | | | 13.7 | % | | | | |
| Net Income (Loss) | | $ | (1.5 | ) | | $ | 24.2 | | | | n/a | |
| Diluted Earnings (Loss) Per Share | | $ | (0.08 | ) | | $ | 1.16 | | | | n/a | |
Adjusted Net Income 1 | | $ | 23.4 | | | $ | 28.7 | | | | (18.5 | %) |
Adjusted Diluted Earnings Per Share 1 | | $ | 1.13 | | | $ | 1.37 | | | | (17.5 | %) |
Adjusted EBITDA 1 | | $ | 54.8 | | | $ | 64.3 | | | | (14.8 | %) |
Adjusted EBITDA Margin 1 | | | 14.7 | % | | | 16.6 | % | | | | |
| Results for the Nine Months Ended September 30 | | 2019 | | | 2018 | | | | % ∆ | |
| Net Sales | | $ | 1,120.3 | | | $ | 1,150.6 | | | | (2.6 | %) |
| Segment Profit | | $ | 119.5 | | | $ | 126.3 | | | | (5.4 | %) |
| Segment Margin | | | 10.7 | % | | | 11.0 | % | | | | |
| Net Income | | $ | 35.5 | | | $ | 46.7 | | | | (24.0 | %) |
| Diluted Earnings Per Share | | $ | 1.71 | | | $ | 2.20 | | | | (22.3 | %) |
Adjusted Net Income 1 | | $ | 65.9 | | | $ | 62.1 | | | | 6.1 | % |
Adjusted Diluted Earnings Per Share 1 | | $ | 3.16 | | | $ | 2.93 | | | | 7.8 | % |
Adjusted EBITDA 1 | | $ | 158.9 | | | $ | 162.9 | | | | (2.5 | %) |
Adjusted EBITDA Margin 1 | | | 14.2 | % | | | 14.2 | % | | | | |
1 See the attached schedules for adjustments and reconciliations to GAAP numbers.
CHARLOTTE, N.C., November 5, 2019 -- EnPro Industries, Inc. (NYSE: NPO) today announced its financial results for the three-month and nine-month periods ended September 30, 2019.
CEO Comment
“Overall, results in the heavy-duty trucking portion of our Sealing Products segment overshadowed a strong year-over-year third quarter operating performance in the rest of our company. Third quarter sales were down 3.9%, segment profit was down 29.6%, and adjusted EBITDA was down 14.8%, all versus the prior year, as a result of challenges in heavy-duty trucking. Excluding the heavy-duty trucking business, third quarter sales were up 0.9% and adjusted EBITDA was up 7.4%, both versus the prior year,” said Marvin Riley, Chief Executive Officer.
Mr. Riley continued, “The decline in our heavy-duty trucking business was driven by market-related lower volumes, warranty expenses related to a product quality problem identified and fixed last year, and a 2018 third quarter legal settlement favorably impacting the prior-year period. In response to challenges in this business, we completed the sale of the brake shoe business located in Rome, GA during the quarter, as announced previously, and are moving aggressively on several fronts to improve the performance of this business.”
“Our year-over-year operating results, excluding heavy-duty trucking, were favorable. Most notably, our Power Systems results were strong in the third quarter, as they have been throughout the year. Adjusted segment EBITDA in Engineered Products and Sealing Products, excluding the heavy-duty trucking business, were up year-over-year despite challenging conditions in a number of our served markets. In addition, we were pleased to announce the completion of the LeanTeq acquisition on September 25, which is a significant step in our growth strategy for our semiconductor business,” said Mr. Riley.
2019 Outlook and Guidance
“Given our performance in the third quarter and our outlook for the remainder of the year, we are lowering our full-year adjusted EBITDA guidance to a range of $210 to $214 million and our full-year adjusted diluted earnings per share guidance to a range of $3.90 to $4.04. Our guidance includes the anticipated fourth quarter impact of the LeanTeq transaction,” said Mr. Riley.
Full-year guidance excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs, restructuring costs, incremental impacts of tariffs and trade tensions on market demand and costs subsequent to the end of the third quarter, the impact of foreign exchange rate changes subsequent to the end of the third quarter, and environmental and legacy litigation charges.
Sales and Segment Profit
During the third quarter, sales decreased 3.9% compared to the same period of 2018. Growth in engine aftermarket parts, military marine engine sales, aerospace, and mid-stream oil and gas was more than offset by weakness principally in heavy-duty trucking as well as weakness in general industrial, automotive, and semiconductor capital equipment. In addition, results were impacted by the stronger dollar and the company’s exit from the industrial gas turbine market in 2018. Excluding the impact of foreign exchange translation and acquisitions and divestitures, sales for the quarter declined by 2.4% compared to the third quarter of 2018.
Segment profit in the third quarter was down 29.6% year-over-year primarily due to the net impact of market conditions described above, warranty charges and a 2018 third quarter legal settlement of $4.2 million favorably impacting the prior-year period in our heavy-duty trucking business, restructuring charges, and acquisition expenses incurred in connection with the LeanTeq and Aseptic Group acquisitions. Excluding the impact of acquisition-related costs, foreign exchange translation, acquisitions and divestitures, the change in the loss reserve due to foreign exchange on the EDF contract in the Power Systems segment, and restructuring charges, total segment profit decreased 13.1% compared to the third quarter of last year.
Other Non-Operating Expenses
Contributing to our GAAP net loss for the quarter, other non-operating expense totaled $24.6 million in the third quarter of 2019. The expense is largely the result of a $15.3 million non-cash loss on the sale of the brake shoe business located in Rome, GA, and a $7.9 million increase in environmental reserve adjustments.
Capital Allocation
The company completed the acquisitions of The Aseptic Group and LeanTeq in the quarter. The combined cash investment in the two businesses was approximately $310 million.
The company announced the closing of The Aseptic Group acquisition on July 2. The Aseptic Group distributes, designs and manufactures aseptic fluid transfer products for the pharmaceutical and biopharmaceutical industries. The Aseptic Group has joined EnPro’s Sealing Products segment.
The company announced the closing of the LeanTeq acquisition on September 25. LeanTeq provides refurbishment services for critical components and assemblies used in state-of-the-art semiconductor equipment. This equipment is used to produce the latest and most technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless connectivity (5G), artificial intelligence, and other leading-edge applications. LeanTeq has joined EnPro’s Sealing Products segment.
During the third quarter, the company invested $6.8 million in purchases of property, plant, and equipment, compared to $17.6 million during the same period of 2018.
The company paid a $0.25 per share quarterly dividend with a total value of $5.1 million.
Segment Highlights
Sealing Products
| ● | Sales decreased 9.1% in the third quarter versus the prior-year period due to declines principally in the heavy-duty trucking market, as well as the semiconductor capital equipment market, the company’s exit from the industrial gas turbine market in 2018, and foreign exchange translation. This decline was partially offset by strength in the mid-stream oil and gas market and the acquisition of The Aseptic Group, which closed on July 2, 2019. Excluding the impact of foreign exchange translation and acquisitions and divestitures, sales decreased 7.6% compared to the prior-year period. |
| ● | Segment profit decreased 46.0% in the third quarter versus the prior-year period, driven primarily by the impact of volume changes, warranty charges, a 2018 third quarter legal settlement favorably impacting the prior-year period, and restructuring charges in the heavy-duty trucking business, as well as acquisition expenses incurred in connection with the LeanTeq and Aseptic Group acquisitions and the impact of the company’s exit last year from the industrial gas turbine market. Excluding the impact of restructuring costs, acquisition-related costs, acquisitions and divestitures, and unfavorable foreign exchange translation, segment profit decreased 28.6% compared to the prior-year period. |
Engineered Products
| ● | Sales decreased 6.7% in the third quarter versus the prior-year period, primarily due to weakness in the automotive and general industrial markets as well as foreign exchange translation, partially offset by strength in aerospace. Excluding the impact of foreign exchange translation, sales decreased 4.2% compared to the prior-year period. |
| ● | Segment profit increased 7.1% in the third quarter versus the prior-year period, primarily due to cost reduction initiatives in the first half of the year in response to market challenges. Excluding the impact of restructuring costs and unfavorable foreign exchange translation, segment profit increased 13.3% compared to the prior-year period. |
Power Systems
| ● | Sales increased 20.5% in the third quarter versus the prior-year period due to strong aftermarket parts and military marine engine sales, partially offset by lower sales to the power generation market. |
| ● | Segment profit increased in the third quarter versus the prior-year period primarily due to the increase in higher-margin aftermarket parts sales. Excluding the impact of restructuring costs and foreign exchange on the EDF contract, segment profit increased 24.0%. |
Conference Call and Webcast Information
EnPro will hold a conference call today, November 5, at 8:00 a.m. Eastern Time to discuss third quarter 2019 results. Investors who wish to participate in the call should dial 1-877-407-0832 approximately 10 minutes before the call begins and provide conference ID number 13686473. A live audio webcast of the call and accompanying slide presentation will be accessible from the company’s website, https://www.enproindustries.com. To access the presentation, log on to the webcast by clicking the link on the company’s home page.
Non-GAAP Financial Information
This press release contains financial measures that have not been prepared in conformity with GAAP. They include adjusted net income, adjusted diluted earnings per share, adjusted EBITDA, adjusted EBITDA margin, as well as segment adjusted EBITDA and segment adjusted EBITDA margin. Tables showing the reconciliation of these historical non-GAAP financial measures to the comparable GAAP measures are attached to the release. Adjusted EBITDA and adjusted diluted earnings per share anticipated for full year 2019 are calculated in a manner consistent with the historical presentation of these measures in the attached tables. Because of the forward-looking nature of these estimates, it is impractical to present quantitative reconciliations of such measures to comparable GAAP measures, and accordingly no such GAAP measures are being presented. These estimates exclude changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs, restructuring costs, incremental impacts of tariffs and trade tensions on market demand and costs subsequent to the end of the third quarter, the impact of foreign exchange rate changes subsequent to the end of the third quarter, and any litigation or environmental charges. Management believes these non-GAAP metrics are commonly used financial measures for investors to evaluate the company’s operating performance, and when read in conjunction with the company’s consolidated financial statements, present a useful tool to evaluate the company’s ongoing operations and performance from period to period. In addition, these are some of the factors the company uses in internal evaluations of the overall performance of its businesses. Management acknowledges that there are many items that impact a company’s reported results and the adjustments reflected in these non-GAAP measures are not intended to present all items that may have impacted these results. In addition, these non-GAAP measures are not necessarily comparable to similarly titled measures used by other companies.
Forward-Looking Statements
Statements in this press release that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to: general economic conditions in the markets served by EnPro’s businesses, some of which are cyclical and experience periodic downturns; prices and availability of its raw materials; the impact of fluctuations in relevant foreign currency exchange rates; unanticipated delays or problems in introducing new products; the incurrence of contractual penalties for the late delivery of long lead-time products; announcements by competitors of new products, services or technological innovations; changes in pricing policies or the pricing policies of competitors; the impact of the acquisition of LeanTeq on its existing customer relationships; and the amount of any payments required to satisfy contingent liabilities related to discontinued operations of its predecessors, including liabilities for certain products, environmental matters, employee benefit obligations and other matters. EnPro’s filings with the Securities and Exchange Commission, including its most recent Form 10-K and Form 10-Q, describe these and other risks and uncertainties in more detail. EnPro does not undertake to update any forward-looking statements made in this press release to reflect any change in management's expectations or any change in the assumptions or circumstances on which such statements are based.
About EnPro Industries
EnPro Industries, Inc. is a leader in sealing products, metal polymer and filament wound bearings, components and service for reciprocating compressors, diesel and dual-fuel engines, and other engineered products for use in critical applications by industries worldwide. For more information about EnPro, visit the company’s website at https://www.enproindustries.com.
APPENDICES
Consolidated Financial Information and Reconciliations
EnPro Industries, Inc.
EnPro Industries, Inc.
EnPro Industries, Inc.
In January 2019, we adopted a new accounting standard that requires us to recognize an asset and liability for operating leases that were previously not recorded on the balance sheet. We had approximately $37.8 million of assets recorded in other assets, and liabilities of $10.0 million reflected in accrued expenses and $28.1 million in other liabilities at September 30, 2019 that were not required to be recorded at December 31, 2018.
Additionally, in January 2019 we adopted a new accounting standard that allowed for the reclassification of disproportionate income tax effects ("stranded tax effects") resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings. We made an adjustment reclassifying a net tax benefit of $11.5 million from accumulated other comprehensive loss to retained earnings.
Income tax receivable, other assets, accrued expenses, other liabilities, and retained earnings at December 31, 2018 reflect revisions to correct immaterial errors related to certain items affecting the provision for income taxes for the year ended December 31, 2018.
EnPro Industries, Inc.
Segment profit is total segment revenue reduced by operating expenses and restructuring and other costs identifiable with the segment. Corporate expenses include general corporate administrative costs. Expenses not directly attributable to the segments, corporate expenses, net interest expense, gains/losses related to the sale of assets and income taxes are not included in the computation of segment profit. The accounting policies of the reportable segments are the same as those for the Company.
EnPro Industries, Inc.
Reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Diluted Earnings Per Share (Unaudited)
EnPro Industries, Inc.
EnPro Industries, Inc.
