Twin Disc, Inc., Announces Fiscal 2008 Second-Quarter Financial Results
Quarterly Sales Were A Second Quarter Record
Second Best Second-Quarter Earnings in Company’s History
Six-Month Backlog Up 7.9 Percent Over Last Year
Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the fiscal 2008 second quarter.
Sales for the quarter ended December 28, 2007 improved 10.3 percent to $81,894,000 from $74,239,000 in the same period a year ago. Year-to-date, sales increased 11.1 percent to $155,507,000 from $140,013,000 in the fiscal 2007 first half. For the fiscal 2008 second quarter, favorable foreign currency translation represented $5,137,000 of the $7,655,000 increase in sales. For the fiscal 2008 first half, favorable foreign currency translation represented $7,494,000 of the $15,494,000 increase in sales. The remainder of the increase for both the fiscal 2008 second quarter and first half was mainly the result of strong sales of marine and propulsion products to the commercial marine and mega yacht markets, as well as continued demand for land based transmission products for the Airport Rescue and Fire Fighting (ARFF) and military markets.
Gross profit, as a percentage of fiscal 2008 second-quarter sales, decreased 2.0 percentage points to 30.9 percent from 32.9 percent in the fiscal 2007 second quarter. Year-to-date, gross profit, as a percentage of sales, decreased modestly, 0.3 percentage points to 31.6 percent from 31.9 percent for the fiscal 2007 first half. Profitability for the fiscal 2008 second quarter was negatively impacted by reduced sales of higher margin products, higher sales of lower margin products and higher material costs, partially offset by higher pricing, expanded outsourcing and lower pension expense. The fiscal 2007 second quarter and first six months included the impact of an unfavorable purchase accounting adjustment to inventory related to the BCS acquisition in the amount of $489,000 and $1,223,000 before tax, respectively. These adjustments were non-cash and no further adjustments were made.
For the 2008 second quarter, marketing, engineering and administrative (ME&A) expenses, as a percentage of sales, were 21.2 percent, compared to 19.6 percent in the fiscal 2007 second quarter. The higher ME&A expenses were due to an approximate $1,000,000 increase in stock-based compensation primarily due to the increase in the Company’s stock price as of the end of the second fiscal quarter, the impact of foreign currency translation from overseas operations and expenditures related to a new global ERP system.
Year-to-date, ME&A expenses, as a percentage of sales, were 20.6 percent, compared to 20.1 percent in the fiscal 2007 first half. Year-to-date, the impact of foreign currency translation on foreign operations increased ME&A by roughly $1,100,000. In addition, the increase in ME&A expenses related to the global ERP implementation approximated $1,000,000, compared to the fiscal 2007 first half.
Net earnings for the fiscal 2008 second quarter declined to $4,209,000, or $0.37 per diluted share, compared with $5,670,000, or $0.48 per diluted share, for the fiscal 2007 second quarter. (All earnings per share figures have been adjusted for the December, 2007 two-for-one stock split). Year-to-date, earnings of $9,314,000 were relatively equal to the same period last year, although earnings per diluted share improved to $0.81, compared to $0.79 primarily due to the repurchase of shares in the 2008 fiscal first quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA)a decreased to $9,568,000 for the fiscal 2008 second quarter from $11,991,000 for the fiscal 2007 second quarter. For the fiscal 2008 first half, EBITDA increased to $20,409,000, compared to $20,127,000 for the fiscal 2007 comparable period.
Commenting on the results, Michael E. Batten, Chairman, President and Chief Executive Officer, said, “Demand for our products across most of our product lines continues to be historically high; however, we have begun to experience a shift in our sales mix. Most noticeably, we have begun to experience a slow down in demand for our oil and gas transmissions, which has affected profitability. In addition, our industrial markets continue to experience a cyclical softening. However, despite a slowdown in these sectors, our commercial and mega yacht segments of the marine market and our Airport Rescue and Fire Fighting and military markets continue to grow. We continue to focus our efforts on expanding into new geographic markets, lowering our manufacturing costs through productivity improvements and global outsourcing initiatives in order to offset some of the margin pressures caused by an unfavorable change in sales mix and higher materials costs.
“Looking ahead, we continue to expect that fiscal 2008 will be another good year for Twin Disc. Our backlog of orders to be shipped over the next six months, which reflects this changing business mix, was $121,281,000, an increase of 7.9 percent from $112,426,000 in the same period a year ago and up 9.9 percent from $110,357,000 at fiscal 2007 year end.”
Christopher J. Eperjesy, Vice President – Finance, Chief Financial Officer and Treasurer, stated, “During the quarter, our capital investments included $4,318,000 for upgrading our manufacturing processes and the implementation of a global ERP system. We expect capital expenditures to be between $15,000,000 and $17,000,000 in fiscal 2008. These expenditures reflect the Company’s plans to continue investing in modern equipment and facilities, our global ERP system, and new products.
“At December 28, 2007, total debt was $55,546,000, compared to $43,920,000 at June 30, 2007 and $55,156,000 at the end of the 2008 first quarter. The increase from the prior fiscal year end can be primarily attributed to the stock repurchases made in fiscal 2008’s first quarter. Our total debt to total capitalization now stands at 32.0 percent compared to 27.6 percent at June 30, 2007. We continue to be comfortable with our capital structure and have the financial flexibility to continue to look at ways to further expand our businesses, including acquisitions. Working capital at December 28, 2007 increased 9.0 percent to $101,721,000, compared to $93,322,000 at June 30, 2007.”
Twin Disc will be hosting a conference call today (January 22, 2008) to discuss these results and to answer questions at 2:00 p.m. EST. To participate in the conference call, please dial 800-762-9441 five to 10 minutes before the call is scheduled to begin. A replay will be available from 5:00 p.m. EST January 22, 2008 until midnight on January 29, 2008. The number to hear the teleconference replay is 800-406-7325. The access code for the replay is 3829987.
The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, access Twin Disc's website at http://www.twindisc.com/companyinvestor.aspx and follow the instructions at the web cast link. The archived web cast will be available shortly after the call on the Company's website.