Twin Disc has reported financial results for the fiscal 2019 third quarter ended March 29, 2019.
Sales for the fiscal 2019 third quarter increased to $77,420,000, from $65,349,000 for the same period last year. The 18.5% increase in 2019 third quarter sales was primarily due to the contribution from the Veth Propulsion acquisition, stable demand for the Company’s oil and gas transmission systems and aftermarket components from North American fracking customers, and improved activity in the global industrial and commercial marine markets. Year-to-date, sales were $230,216,000, compared to $166,960,000 for the fiscal 2018 nine months.
Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “Financial results continue to improve from the prior fiscal year period as a result of the contribution of the Veth acquisition and stable demand across most of our global markets. Significant supply chain challenges contributed to reduced efficiencies and impacted shipments during the third quarter. We are focused on implementing operational improvements, which include investments in equipment, people, and suppliers.”
“During the third quarter we sold Mill Log, our distributor in the Pacific Northwest and Western Canada, to further focus our efforts on product development, engineering and customer support. We also broke ground on a new 50,000 square foot operations facility in Lufkin, Texas, which is expected to open in January 2020 and will expand our production capacity and capabilities. It will take a couple of quarters for these investments to be implemented, but once fully operational we believe efficiencies will expand as we improve our manufacturing, supply chain, and distribution / logistics infrastructure,” continued Mr. Batten.
Gross profit for the fiscal 2019 third quarter was 29.9%, compared to 31.9% in the fiscal 2018 third quarter. The 200-basis point decrease in gross profit percent for the fiscal 2019 third quarter compared to the fiscal 2018 third quarter was primarily due to a less profitable mix of revenues and reduced operating efficiencies. Year-to-date, gross profit was 31.8%, compared to 31.8% for the fiscal 2018 nine months.
For the fiscal 2019 third quarter, marketing, engineering and administrative (ME&A) expenses grew $2,826,000 to $17,375,000. The 19.4% increase in ME&A expenses in the quarter was primarily due to the addition of Veth Propulsion, including the amortization of purchase accounting intangibles of $708,000. Other changes included increased professional fees, salaries, travel and marketing expenses related to the Veth Propulsion acquisition. These increases were offset by reduced global bonus expense and a foreign exchange impact. As a percent of revenues, ME&A expenses were 22.4% for the fiscal 2019 third quarter, compared to 22.3% for the same period last fiscal year. Year-to-date, ME&A expenses were $55,269,000, compared to $43,013,000 for the fiscal 2018 nine-month period. As a percent of revenues, year-to-date ME&A expenses declined 180 basis points to 24.0%, compared to 25.8% for the same period last fiscal year.
Twin Disc recorded restructuring charges of $131,000 in the fiscal 2019 third quarter, compared to restructuring charges of $452,000 in the same period last fiscal year. Restructuring activities during the fiscal 2019 third quarter related primarily to ongoing cost reduction and productivity actions at the Company’s European operations. Year-to-date, the Company recorded restructuring charges of $738,000, compared to $2,501,000 for the same period last fiscal year.
The Company reported $1,357,000 in other operating income during the fiscal 2019 third quarter, which was associated with a gain on the sale of Mill Log and the reversal of certain accruals associated with the Veth Propulsion acquisition.
The fiscal 2019 third quarter tax rate of 23.9%, compared to 20.7% for the fiscal 2018 third quarter, is reflective of the jurisdictional mix of earnings. There were no material discrete tax adjustments in the quarter for fiscal 2019 or 2018.
Net income attributable to Twin Disc for the fiscal 2019 third quarter was $4,560,000, or $0.34 per diluted share, compared to net income attributable to Twin Disc of $4,308,000, or $0.37 per diluted share, for the fiscal 2018 third quarter. Year-to-date, net income attributable to Twin Disc was $11,494,000, or $0.90 per diluted share, compared to net income attributable to Twin Disc of $3,586,000, or $0.31 per diluted share, for the fiscal 2018 nine months.
Earnings before interest, taxes, depreciation and amortization (EBITDA)* were $9,965,000 for the fiscal 2019 third quarter, compared to $7,166,000 for the fiscal 2018 third quarter. For the fiscal 2019 nine-month period, EBITDA was $27,054,000 compared to $11,122,000 for the fiscal 2018 comparable period.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary stated, “While our balance sheet remains strong, we did not experience the meaningful reductions in inventory and working capital levels we expected as a result of the third quarter’s execution issues. As our operational improvements progress, we expect reduced inventory and working capital levels in the fourth quarter and on a year-over-year basis next fiscal year. As part of our strategies to improve our operations, we are making additional investments to upgrade our manufacturing capabilities and improve both quality and efficiencies. Year-to-date, we have invested $8,911,000 in capital expenditures and expect to invest approximately $14,000,000 in capital expenditures in total during fiscal 2019.”
Mr. Batten concluded, “Our six-month backlog at March 29, 2019, was $113,703,000, which includes the contribution of the Veth Propulsion acquisition, compared to $114,979,000 at June 30, 2018, and $116,292,000 at March 30, 2018. Our strategies to expand and diversify our end markets, product categories, and geographies are taking hold and have created a more stable business platform. However, further investments are needed to support current and future demand. Improving our operations is a key component to our strategy over the next 12 months. As part of this effort, in May we will be moving into a new leased aftermarket warehouse, allowing for more capacity and improved efficiencies in our Racine manufacturing facility. Veth Propulsion continues to meet expectations and benefit our financial and operating results. We look forward to ending the year on a strong note and I am encouraged with the positive trends in our business and end markets.”