Net sales for the fiscal 2019 first quarter were $74,689,000, compared to $45,064,000 for the same period last year. The 65.7% increase in fiscal 2019 first quarter net sales was primarily due to the contribution from the Veth Propulsion acquisition, improved demand for the Company’s 8500 series transmission systems and aftermarket components from North American fracking customers, and improved activity in the global commercial marine market.
Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “We are encouraged with the start of the new fiscal year as a result of the favorable contribution of Veth Propulsion and improving global demand across many of our end markets. Throughout the year, we are focused on fully integrating Veth into our organization and supporting their growth plans by accelerating sales and marketing opportunities. Twin Disc’s size and global support and service capabilities have improved Veth’s competitiveness and helped Veth achieve significant orders during the first quarter. Overall, Veth is performing in line with our expectations and providing the product and market diversification we anticipated. We are excited by the long-term potential this acquisition has for our business, customers, and shareholders.”
Gross profit for the fiscal 2019 first quarter was 32.1%, compared to 31.0% for the same period last year. The 110-basis point increase in gross profit percent for the fiscal 2019 first quarter was primarily due to higher volumes, a more profitable mix of revenues and improved operating efficiencies. Gross profit for the first quarter includes the amortization of a purchase accounting item related to the write-up of inventory ($1,171,000).
For the fiscal 2019 first quarter, marketing, engineering and administrative (ME&A) expenses increased $5,592,000 to $18,986,000, compared to $13,394,000 for the fiscal 2018 first quarter. The 41.8% increase in ME&A expenses in the quarter was primarily due to the addition of Veth, including the amortization of purchase accounting intangibles of $621,000. Other changes included increased stock compensation expense, professional fees, salaries, travel and marketing expenses related to the Veth acquisition and the Company’s centennial celebration. As a percent of revenues, ME&A expenses fell to 25.4% for the fiscal 2019 first quarter, compared to 29.7% for the same period last year.
Twin Disc recorded restructuring charges of $173,000 in the fiscal 2019 first quarter, compared to restructuring charges of $1,218,000 in the same period last fiscal year. Restructuring activities during the fiscal 2019 first quarter related primarily to ongoing cost reduction and productivity actions at the Company’s European operations.
The fiscal 2019 first quarter tax rate of 23.4% reflects the impact of the U.S. Tax Cuts and Jobs Act signed in December 2017. The fiscal 2018 first quarter tax benefit was primarily the result of the reversal of the valuation allowance ($3.8 million) in a certain foreign jurisdiction that had been subject to a full valuation allowance. Improvement in operating results, along with tax planning opportunities, allowed for the reversal of this valuation allowance during the fiscal 2018 first quarter.
Net income attributable to Twin Disc for the fiscal 2019 first quarter was $2,862,000, or $0.24 per diluted share, compared to a net income attributable to Twin Disc of $3,392,000, or $0.29 per diluted share (which includes the favorable impact of the valuation allowance reversal), for the fiscal 2018 first quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA)* were $7,986,000 for the fiscal 2019 first quarter, compared to $442,000 for the fiscal 2018 first quarter.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “I am pleased with the success of the previously announced follow-on stock offering that was completed on September 25, 2018. Twin Disc received net proceeds of $32,210,000, which was used to pay down debt associated with the Veth acquisition. Our healthy capital position provides us with the flexibility to continue investing in growth producing and cost saving initiatives. In addition, we expect to generate cash from operating activities during fiscal 2019 as we focus on improving our working capital requirements, primarily through reductions in inventory. For the first quarter of fiscal 2019, we invested $3,556,000 in capital expenditures and expect to invest approximately $14,000,000 to $16,000,000 in capital expenditures in total during fiscal 2019. Capital expenditures are primarily focused on additional investments to upgrade our manufacturing capabilities and improve both quality and efficiencies.”
Mr. Batten concluded: “Our six-month backlog at September 28, 2018 was $146,336,000, compared to $114,979,000 at June 30, 2018 and $62,665,000 at September 29, 2017. The 133.5% year-over-year improvement in our six-month backlog is primarily due to positive trends within our North American oil and gas markets, the contribution of the Veth acquisition and improving demand across many of our other markets. Backing out Veth’s orders, our six-month backlog was up over 7% during the past three months, and up nearly 100% from September 29, 2017. The fiscal 2019 first quarter included certain one-time expenses associated with the Veth acquisition, the September stock offering, and certain other non-recurring corporate expenses. As a result of strong order trends and the positive impact of the Veth acquisition, we believe fiscal 2019 will be another strong year for the Company.”
Twin Disc
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