|ESCO Announces Second Quarter 2017 Results|
GAAP EPS of $0.43 Tops February Guidance Range of $0.37 - $0.42
ST. LOUIS, May 4, 2017 - ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the second quarter (Q2 2017) and six months year-to-date (YTD 2017) periods ended March 31, 2017.
In 2016, Management completed its defined restructuring actions and presented its 2016 operating results on an "EPS - As Adjusted" basis, and reconciled these amounts to their respective GAAP equivalents.
This release includes certain non-GAAP financial measures such as EPS - As Adjusted, and earnings before interest, taxes, depreciation and amortization (EBITDA). Management believes these non-GAAP financial measures are useful in assessing the operational profitability of the Company's business segments, and therefore, allow shareholders better visibility into the Company's underlying operations. See "Non-GAAP Financial Measures" described below.
Chairman's Commentary - Q2 2017
Vic Richey, Chairman and Chief Executive Officer, commented, "I'm pleased with our operating performance on several financial metrics as we were again able to exceed our earnings commitments provided in February. Summarizing our Q2 performance, we hit our sales targets, exceeded the top end of our EPS goals, generated far more cash flow than previously anticipated, and booked orders across the company that exceeded our expectations.
"Our year-to-date earnings performance was primarily driven by the continued strength of Doble and the success of its recently introduced new products, solutions and software offerings which are being very well received by our utility customers. This result, coupled with better than expected Filtration performance driven by platform breadth and product diversity within our aerospace businesses, strong contributions from our navy and space applications, and lower than planned spending, enabled us to exceed our financial goals.
"Of special note, cash flow and entered orders for the first six months were stronger than expected as we generated $37 million in cash from operating activities and recorded $350 million of new orders, which resulted in a book-to-bill ratio greater than 1.0 in every segment, and a $42 million increase in backlog from the start of the year. The $100 million of orders and $111 million of project backlog in Test are noteworthy as this gives me confidence that Test will be able to deliver its second half commitments and meet our expectations for the year.
"Doble's results continue to exceed expectations on nearly every financial metric, as YTD 2017 sales and earnings were above plan and included higher than expected deliveries of new products such as the DUC and Doble Prime, as well as additional software and service revenues which carry higher margins. Doble's Q2 2017 EBIT dollars and margins reflect the costs incurred hosting the Annual Client Conference, which occurred in Q2 2017 compared to Q3 2016.
"The Filtration group remains on track for the year despite some earlier sales push-out at VACCO resulting from project timing on a few large programs. PTI and Crissair continue to deliver strong operating results and their YTD 2017 operating margins are ahead of plan driven by the continued strength of our commercial aerospace platforms. Westland and Mayday are performing as expected and we see additional growth opportunities in the future based on the expanded level of bid and proposal activity we are participating in today.
"Technical Packaging delivered its Q2 2017 financial commitments and we are pleased to see the KAZ program running at full production. We expect to see significant seasonal growth over the balance of the year.
"Over the past few years, we have communicated our expectations with the goal of demonstrating consistency and predictability within our diversified, multi-segment operating structure, which is designed to reduce volatility and provide stable earnings. I believe our performance in 2017 demonstrates that our focused strategy and our lean cost structure are working.
"On the acquisition front, I'm excited about the current opportunities we are evaluating and remain optimistic that we can further supplement our organic growth in both the near term and longer term. We will remain disciplined in our approach and will continue to maintain our focus on generating an attractive ROIC.
"We plan to continue to build on our current momentum, and we are maintaining a favorable view of our future with our goal remaining the same - to increase long-term shareholder value."
The next quarterly cash dividend of $0.08 per share will be paid on July 19, 2017 to stockholders of record on July 5, 2017.
Business Outlook - 2017
Management's current expectations for 2017 remain consistent with the details outlined in the Business Outlook presented in the Company's November 7, 2016 release.
Management continues to see meaningful sales, EBIT and EBITDA growth across each of the Company's business segments and anticipates growth rates in 2017 and beyond, that exceed the Company's defined peer group and the broader industrial market.
Management continues to expect 2017 GAAP EPS in the range of $2.16 to $2.26 per share, which includes the previously defined impact of the Mayday inventory "step up" charge in the first half of 2017 and the additional depreciation and amortization of intangibles resulting from recent acquisitions.
On a quarterly basis, Management continues to expect 2017 operating results to reflect a profile similar to 2016 and previous years, with revenues and EPS being more second-half weighted. As with past years, projected Q4 2017 sales and EPS are expected to be the strongest/highest of the fiscal year.
Management expects Q3 2017 GAAP EPS to be in the range of $0.46 to $0.51 per share, which includes the quarterly impact of the incremental depreciation and amortization resulting from recent acquisitions as detailed and quantified at the beginning of the year within the November earnings release.
Chairman's Commentary - 2017
Mr. Richey continued, "Given the challenges facing the overall industrial landscape, I'm very pleased with our performance over the first six months, and I remain confident that we are on track to achieve the sales, EPS, EBIT and EBITDA growth that we projected for 2017. Despite some project timing between Quarters that we tend to face regularly across our business platforms, we wrapped up first half EPS on track and well ahead of plan on cash flow and entered orders. Our current backlog and the expectations for additional orders over the remainder of the year have us well positioned to meet our 2017 commitments.
"We remain focused on sales and earnings growth, and our market leadership positions as well as the breadth and diversity of our new product offerings should allow us to outperform the majority of our industrial peers and the overall industrial market.
"I believe our outlook puts us in a solid position to meet our shareholder value-creation goals, both short-term and longer-term, and we continue to see opportunities to supplement our growth through accretive acquisitions. We remain committed to our longer-term growth targets and goals."
The Company will host a conference call today, May 4, at 4:00 p.m. Central Time, to discuss the Company's Q2 2017 results. A live audio webcast will be available on the Company's website at www.escotechnologies.com. Please access the website at least 15 minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available for seven days on the Company's website noted above or by phone (dial 1-855-859-2056 and enter the pass code 6835503).
Statements in this press release regarding the Company's expected quarterly, 2017 full year and beyond results, revenue and sales growth, EPS, EPS growth, EBIT, EBITDA, gross profit, interest expense, non-cash depreciation and amortization of intangibles, corporate costs, effective tax rates, the Company's ability to increase operating margins, realize financial goals and increase shareholder value, the success of acquisition efforts, the size, number and timing of future sales and growth opportunities, the long-term success of the Company, and any other statements which are not strictly historical are "forward-looking" statements within the meaning of the safe harbor provisions of the federal securities laws.
Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company's actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment including, but not limited to those described in Item 1A, "Risk Factors", of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016, and the following: the success of the Company's competitors; site readiness issues with Test segment customers; weakening of economic conditions in served markets; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; unforeseen charges impacting corporate operating expenses; delivery delays or defaults by customers; the performance of the Company's international operations; material changes in the costs and availability of certain raw materials; the appropriation and allocation of Government funds; the termination for convenience of Government and other customer contracts; the timing and content of future contract awards or customer orders; containment of engineering and development costs; performance issues with key customers, suppliers and subcontractors; labor disputes; the impacts of natural disasters on the Company's operations and those of the Company's customers and suppliers; changes in laws and regulations, including but not limited to changes in accounting standards and taxation requirements; costs relating to environmental matters arising from current or former facilities; financial exposure in connection with Company guarantees of certain Aclara contracts; the availability of select acquisitions; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the Company's successful execution of cost reduction and profit improvement initiatives.
Non-GAAP Financial Measures
The financial measures EBIT, EBITDA, and EPS - As Adjusted are presented in this press release. The Company defines "EBIT" as earnings before interest and taxes, "EBITDA" as earnings before interest, taxes, depreciation and amortization, and "EPS - As Adjusted" as GAAP earnings per share (EPS) excluding the restructuring charges described above which were $0.07 per share for Q2 2016.
EBIT, EBITDA and EPS - As Adjusted are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes that EBIT and EBITDA are useful in assessing the operational profitability of the Company's business segments because they exclude interest, taxes, depreciation and amortization, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by Management in determining resource allocations within the Company as well as incentive compensation. The Company believes that the presentation of EBIT, EBITDA, and EPS - As Adjusted provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.
ESCO, headquartered in St. Louis: Manufactures highly-engineered filtration and fluid control products for the aviation, space and process markets worldwide; is the industry leader in RF shielding and EMC test products; provides diagnostic instruments, software and services for the benefit of the electric utility industry and industrial power users; and, produces custom thermoformed packaging, pulp based packaging, and specialty products for medical and commercial markets. Further information regarding ESCO and its subsidiaries is available on the Company's website at www.escotechnologies.com.