Kadant's Q3 net income up 91.1% year-over-year to US$8.6M, net sales up 27.0% to US$84.4M; results driven by record high bookings, tax gains from asset sale, foreign currency translation

WESTFORD, Massachusetts , October 26, 2011 (press release) – Kadant Inc. (NYSE:KAI - News) reported revenues from continuing operations of $84.4 million in the third quarter of 2011, an increase of $17.9 million, or 27 percent, compared to $66.5 million in the third quarter of 2010. Revenues in the third quarter of 2011 included increases of $4.0 million, or 6 percent, from foreign currency translation and $1.6 million, or 2 percent, from acquisitions compared to the third quarter of 2010. Operating income from continuing operations in the third quarter of 2011 was $10.8 million, or 12.8 percent of revenues, compared to $6.3 million, or 9.4 percent of revenues, in the third quarter of 2010. Operating income in the third quarters of 2011 and 2010 included income of $2.3 million and $0.7 million, respectively, related to gains from the sale of assets. Net income in the third quarter of 2011 was $8.6 million, or $.70 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 was $9.8 million, or $.80 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 included after-tax gains from the sale of assets of $2.0 million, or $.16 per diluted share, and a benefit from discrete tax items of $2.1 million, or $.17 per share, primarily due to the favorable resolution of an uncertain tax position. Net income from continuing operations in the third quarter of 2010 included after-tax gains from the sale of assets of $0.7 million, or $.06 per diluted share. Loss from discontinued operation in the third quarter of 2011 was $1.2 million, or $.10 per diluted share, due to an increase in the estimated liability associated with the recently filed class action settlement disclosed in a Form 8-K filed today. Adjusted net income, a non-GAAP measure, in the third quarter of 2011 was $5.7 million, or $.47 per diluted share, increasing 50 percent compared to $3.8 million, or $.30 per diluted share, in the third quarter of 2010.

“We had another outstanding quarter,” said Jonathan W. Painter, president and chief executive officer of Kadant. “GAAP diluted EPS from continuing operations was $.80 and is the highest quarterly result achieved in our 19 years as a public company. Excluding the gains from the sale of a building and a benefit from discrete tax items, adjusted diluted EPS increased over 50 percent from last year’s third quarter to $.47. This exceeded our guidance of $.40 to $.42, largely due to higher than expected revenues, and included bad debt expense of $.03 for a customer bankruptcy which occurred during the quarter and was not reflected in our guidance.

“Revenues of $84 million also exceeded our guidance, which was $80 to $82 million. Revenues increased 27 percent compared to the third quarter last year and, encouragingly, included double digit increases in all our major product lines, led by stock-preparation, which was up 38 percent.

“Bookings were $95 million in the third quarter of 2011, increasing 63 percent over last year’s third quarter and 9 percent over the second quarter of 2011. This strong bookings performance, one of our best ever, contributed to a record backlog of $128 million, which was up 89 percent over third quarter last year and 7 percent over the previous record high set in the second quarter of 2011. Our book-to-bill ratio was 1.13, marking the fourth consecutive quarter where bookings have exceeded revenues. In general, the bookings performance was very strong in both our North American and European-based operations, offsetting weak bookings in China. We were particularly pleased with the bookings in our chemical pulping business, where we won large orders from customers in Russia, China, and the United States.

“Cash flows from continuing operations were $12 million, doubling over last year’s third quarter. We ended the third quarter of 2011 with $48 million in cash. Our net cash position, that is, cash less debt, was $31 million, up $2 million over the second quarter of 2011, despite having repurchased over $9 million of our common stock during the third quarter. In a separate press release also issued today, we announced that our board of directors has authorized $30 million of stock repurchases through November 2012.

“I am also pleased to report that we have settled the class action lawsuit related to the composites decking products business sold in 2005. As a result of this settlement, we increased our estimated liability reported in the discontinued operation by $1.2 million in the third quarter of 2011 to $3.3 million, including $2.6 million for claims and $0.7 million for legal costs.

“We are still on track to have a record annual EPS performance in 2011, both on a GAAP and on an adjusted basis. Looking forward, as we firm up our shipment plans for the fourth quarter, we now estimate that gross margins will be lower than we had anticipated at the time of our July earnings call. We expect to achieve GAAP diluted EPS from continuing operations of $.56 to $.58 in the fourth quarter of 2011 on revenues of $92 to $94 million. For the full year we expect to achieve GAAP diluted EPS from continuing operations of $2.42 to $2.44 on revenues of $330 to $332 million, revised from our previous guidance of $2.15 to $2.25 on revenues of $325 to $335 million. Adjusted diluted EPS for the year, excluding the asset and tax gains recorded in the third quarter of 2011, is expected to be $2.09 to $2.11, as compared to our previous guidance of $2.15 to $2.25.”

Conference Call

Kadant will hold a webcast with a slide presentation on Thursday, October 27, 2011, at 11 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To view this webcast, go to www.kadant.com and click on the “Investors” tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 outside the U.S. and reference participant passcode 83375884. An archive of the webcast presentation will be available on our Web site until November 25, 2011. In addition, shortly after the webcast, Kadant will post its general investor presentation incorporating the third quarter results on its Web site at www.kadant.com under the “Investors” tab. This presentation will be available until the end of the fourth quarter of 2011.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenues excluding the effect of foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.

We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends. In addition, we exclude from certain financial measures restructuring costs, gains on the sale of assets and pension curtailment, and benefit from discrete tax items to give investors additional insight into our quarterly and annual operating performance, especially when compared to quarters in which such items had greater or lesser effect, or no effect. In addition, these items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain a better understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Adjusted diluted EPS in the three-month periods ended October 1, 2011 and October 2, 2010 was calculated using the reported weighted average diluted shares for each period.

Adjusted net income and adjusted diluted EPS exclude:

gains on the sale of assets, net of tax, of $2.0 million, or $.16 per diluted share, in the third quarter of 2011 and $0.7 million, or $.06 per diluted share, in the third quarter of 2010. We believe that this other income is not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs and other income or none at all.
discrete tax items of $2.1 million, or $.17 per diluted share, in the third quarter of 2011. These tax benefits were primarily due to the favorable resolution of an uncertain tax position. We believe that these tax benefits are not comparable to other periods, which may have differing levels of discrete tax items or none at all.

Adjusted EBITDA and adjusted operating income exclude gains from the sale of assets of $2.3 million in the three- and nine-month periods ended October 1, 2011. Adjusted EBITDA and adjusted operating income exclude a gain from the sale of assets of $0.7 million in the three-month period ended October 2, 2010, and gains from the sale of assets and pension curtailment of $1.3 million, offset by restructuring costs of $0.2 million in the nine-month period ended October 2, 2010. These items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.

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