RACINE, Wis., Aug. 04, 2017 (GLOBE NEWSWIRE) — Twin Disc, Inc. (NASDAQ:TWIN), today reported financial results for the fiscal 2017 fourth quarter ended June 30, 2017.
Sales for the fiscal 2017 fourth quarter were $53,591,000, compared to $42,646,000 for the same period last year. For the fiscal 2017 full year, sales were $168,182,000, compared to $166,282,000 for fiscal 2016. The increase in 2017 fourth quarter sales was primarily due to improved demand for the Company’s 8500 series transmission systems from North American pressure pumping customers, and higher sales of aftermarket components.
Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “We continued to deliver 8500 series transmission systems for the oil and gas market, which were part of the large orders we received in the third quarter. These deliveries had a favorable impact on fourth quarter sales, profitability, and backlog, and I am pleased to report positive net income and EBITDA in the fourth quarter. We believe trends in our oil and gas markets are improving. The last meaningful investment cycle for pressure pumping capital equipment was six years ago. Since then, the volatility in oil prices has caused many oil services companies to use their equipment longer, and postpone investments. As producers adjust their cost structure to lower oil and gas prices, we anticipate improvements in their profitability will be invested in rebuilds and new equipment for the North American pressure pumping fleet. We are well-positioned to benefit from anticipated improvements in oil and gas demand, as a result of Twin Disc’s high-quality, high-horsepower transmissions systems, ability to efficiently fulfill orders, and service-oriented culture.”
Gross profit for the fiscal 2017 fourth quarter was 31.4 percent, 520 basis points higher compared to 26.2 percent for the same period last year. Gross profit for the fiscal 2017 fourth quarter was favorably impacted by higher shipments of oil and gas transmission systems, increased aftermarket volume, improved operating efficiencies, and a global reduction in fixed manufacturing costs. For the fiscal 2017 full year, gross margin was 28.7 percent, compared to 24.4 percent for fiscal 2016.
For the fiscal 2017 fourth quarter, marketing, engineering and administrative (ME&A) expenses increased $793,000 to $14,001,000, compared to $13,208,000 for the fiscal 2016 fourth quarter. The 6.0 percent increase in ME&A expenses reflects the fourth quarter bonus accrual ($596,000) resulting from the Company’s success in achieving operational performance improvements and fixed cost reductions, and corporate development spending of $300,000, partially offset by reduced pension expense and other cost reductions. For the fiscal 2017 full year, ME&A expenses decreased $4,340,000, or 7.6 percent, to $52,773,000, compared to $57,113,000 for fiscal 2016.
Twin Disc recorded restructuring charges of $424,000 in the fiscal 2017 fourth quarter, compared to restructuring charges of $134,000 in the same period last fiscal year. For the fiscal 2017 full year, Twin Disc had restructuring charges of $1,791,000, compared to $921,000 for the same period last fiscal year. Fiscal 2017’s restructuring activities related primarily to headcount reductions at certain of the Company’s domestic and foreign operations. These initiatives are expected to generate approximately $2,400,000 in annualized savings, in addition to fiscal 2016’s restructuring activities, which were expected to generate over $4,500,000 in annualized savings.
During fiscal 2017, the Company recorded a $2,646,000 non-cash impairment charge primarily to write down goodwill associated with the Company’s domestic industrial business. This impairment is primarily the result of a lack of significant market recovery related to these products. This business remains a strategic priority for Twin Disc, as evidenced by the recent acceleration of new product offerings. The Company anticipates profitable growth as markets recover and its new products gain market penetration. During fiscal 2016, the Company recorded a $7,602,000 non-cash goodwill impairment charge in the fiscal 2016 fourth quarter related to the domestic industrial business and the European propulsion business.
The effective tax rate for the twelve months of fiscal 2017 was 35.8 percent, which was significantly lower than the prior year rate of 48.6 percent. During fiscal 2016, the Company recorded the favorable impact of $2,400,000 of foreign tax credits associated with the repatriation of cash from certain foreign entities. Adjusting for this non-recurring tax benefit, the fiscal 2016 effective tax rate would have been 39.1 percent. The fiscal 2017 rate was favorably impacted by discrete items related to foreign earnings.
Net earnings attributable to Twin Disc for the fiscal 2017 fourth quarter were $1,162,000, or $0.10 per diluted share, compared with a net loss attributable to Twin Disc of ($5,517,000), or ($0.48) per share, for the fiscal 2016 fourth quarter. For the fiscal 2017 full year, the net loss attributable to Twin Disc was ($6,294,000), or ($0.56) per share, compared to a loss of ($13,104,000), or ($1.17) per diluted share for fiscal 2016.
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)* were $3,356,000 for the fiscal 2017 fourth quarter, compared to ($7,564,000) for the fiscal 2016 fourth quarter. For the fiscal 2017 full year, EBITDA was ($2,388,000) compared to ($16,113,000), for fiscal 2016. EBITDA for fiscal 2017 includes charges for restructuring of ($1,791,000) and goodwill impairment of ($2,646,000), while the fiscal 2016 EBITDA includes charges for restructuring of ($921,000) and goodwill impairment of ($7,602,000).
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “We are seeing the benefits from the initiatives created over the past two years to improve our cost structure and create a more capital-efficient business. Higher, more profitable sales, controlled operating expenses and prudent working capital management helped the company generate $4,020,000 of operating cash flow in the fourth quarter. This was the third consecutive quarter of improving cash provided from operating activities. Working capital at June 30, 2017, was $84,911,000, compared to $88,904,000, at June 30, 2016. At June 30, 2017, the Company had $16,367,000 in cash and $6,323,000 of borrowings drawn under its $40,000,000 revolving credit facility. For fiscal 2017, we invested $3,133,000 in capital expenditures and expect to invest approximately $7,000,000 to $9,000,000 in capital expenditures in fiscal 2018. As we enter the new fiscal year, we will continue to proactively manage our cost structure, while looking at ways to further improve our operating efficiencies.”
Mr. Batten concluded: “Our six-month backlog at June 30, 2017 was $46,437,000 compared to $49,835,000 at March 31, 2017, and $35,709,000 at June 30, 2016. I am encouraged by improving oil and gas demand. We have also started to see positive signs in our global patrol boat and North American inland marine markets, but remain cautious within our overall commercial marine, pleasure craft, airport rescue and firefighting, military, and industrial markets. In addition, the first quarter typically is our most challenging quarter from a seasonality perspective as we are impacted by summer shut downs in several of our markets and geographies. The continued and proactive restructuring we have accomplished across our global footprint over the past two years has provided significant cost savings and flexibility to withstand a lengthy downturn in many of our markets. As evidenced by our 2017 fourth quarter results, Twin Disc’s adjusted cost structure has significantly improved margins and lowered our breakeven point. As sustained demand improves, we are well positioned for profitable growth.”
Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:30 a.m. Eastern Time on Friday, August 4, 2017. To participate in the conference call, please dial 888-282-4591 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:30 p.m. August 4, 2017 until midnight August 11, 2017. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 8169539.
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://ir.twindisc.com/index.cfm and follow the instructions at the web cast link. The archived webcast will be available shortly after the call on the Company’s website.