Twin Disc, Inc. (NASDAQ:TWIN), today reported financial results for the fiscal 2017 first quarter ended September 30, 2016.
Sales for the fiscal 2017 first quarter were $35,835,000, compared to $37,373,000 for the same period last year. The sales decline for the fiscal 2017 first quarter is primarily the result of lower demand in Asia for the Company’s commercial marine products. Demand for the Company’s oil and gas related products remained depressed through the first fiscal quarter, in line with the global decline in oil and natural gas production.
Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “Over the past six quarters we have taken a number of meaningful actions to align our cost structure for a period of prolonged weakness across many of our end markets. These actions have been difficult and impact many aspects of our business and communities, but are necessary for Twin Disc to weather this challenging cycle. Our proactive approach helped us improve our gross profit percent significantly during the first quarter despite lower volumes. We continue to pursue opportunities to improve efficiencies and reduce costs, with additional workforce reductions recently completed in the second fiscal quarter. It is important to note that these ongoing cost reduction activities do not sacrifice quality or our commitment to our customers, and are solely focused on improving efficiencies and realigning our operations for lower volumes. Based on our conscious decisions to hold strategic inventory, invest in R&D, and maintain a high level of customer service, we expect to gain share in many of our markets as they eventually recover.”
Gross margin for the fiscal 2017 first quarter was 25.6 percent, compared to 21.9 percent for the same period last year. The 370 basis point increase in gross profit percent for the fiscal 2017 first quarter was primarily due to improved operating efficiencies and a global reduction in fixed manufacturing costs, which more than offset the impact of lower volumes.
For the fiscal 2017 first quarter marketing, engineering and administrative (ME&A) expenses declined $2,765,000 to $12,475,000, compared to $15,240,000 for the fiscal 2016 first quarter. The 18.1 percent decline in ME&A expenses in the quarter was primarily due to cost reduction actions taken over the past four quarters, along with reduced pension expense and reduced spending on corporate development.
During the fiscal 2017 first quarter, the Company recorded restructuring charges of $258,000, related to headcount reductions at certain of the Company’s foreign operations.
The fiscal 2017 first quarter effective tax rate was 28.3 percent, compared to the fiscal 2016 first quarter rate of 34.1 percent. Both periods were impacted by non-deductible operating losses in a foreign jurisdiction that is subject to a full valuation allowance. Adjusting both periods for the non-deductible losses, the fiscal 2017 first quarter rate would have been 39.6 percent, compared to 35.2 percent for the fiscal 2016 first quarter. The increase in the fiscal 2017 effective tax rate was primarily a function of jurisdictional mix and reduced foreign tax credits.
Net loss attributable to Twin Disc for the fiscal 2017 first quarter was ($2,696,000), or ($0.24) per diluted share, compared to a net loss attributable to Twin Disc of ($4,323,000), or ($0.39) per diluted share, for the fiscal 2016 first quarter.
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)* were ($1,779,000) for the fiscal 2017 first quarter, compared to ($4,219,000) for the fiscal 2016 first quarter.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “Our balance sheet remains strong and provides us with significant flexibility to withstand the downturn in our markets, while making targeted investments in our business to strengthen our organization. At September 30, 2016, the Company had $16,077,000 in cash and $9,694,000 of borrowings drawn under our $40,000,000 revolving credit facility. Working capital at September 30, 2016, was $87,893,000, compared to $88,904,000, at June 30, 2016, and $97,475,000 at September 25, 2015. After limited investment in capital expenditures in the fiscal 2017 first quarter, we expect capital expenditures for the full year to be approximately $4,000,000 to $6,000,000, which reflects our plans to continue to conserve capital while investing in modern equipment and facilities, global sourcing programs, and new products.
Mr. Batten concluded: “Our six-month backlog at September 30, 2016 was $33,082,000, compared to $35,709,000 at June 30, 2016 and $37,526,000 at September 25, 2015. As a result of weaker global economic growth and lower oil production, the conditions of many of our markets remain challenging and continue to impact our six-month backlog. However, since the end of the first quarter, activity from customers within our oil and gas market has started to pick up as oil prices have stabilized. While it is too early to declare a turn in our oil and gas cycle, I am encouraged by trends we are beginning to see from customers in this market. Twin Disc has a strong product line of pressure pumping transmissions, and we expect to improve our leadership position as the market recovers.”
Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on Tuesday, November 1, 2016. To participate in the conference call, please dial 877-681-3376 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. November 1, 2016 until midnight November 8, 2016. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 6966203.
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.
About Twin Disc, Inc.
Twin Disc, Inc. designs, manufactures and sells marine and heavy-duty off-highway power transmission equipment. Products offered include: marine transmissions, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and control systems. The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government and industrial markets. The Company’s worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network.