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Albany International Reports Second-Quarter FY19 Results

Albany International Corp. (NYSE:AIN) today reported operating results for its Fiscal Year 2019 (FY19) second quarter, which ended June 30, 2019.

“I am very pleased with our ongoing improvements in both net sales and profitability growth,” said Albany International President and Chief Executive Officer Olivier Jarrault.

“Our focus on labor productivity, operational efficiencies, and pricing drove improvements across our Engineered Composites segment, which reported record revenue and profitability in the quarter. We continue to meet our customers’ increasing demands and to drive new product development and process improvement activities, while improving quality and on-time delivery.

“In the Machine Clothing segment, we delivered another solid quarter: even with revenues slightly lower than the very strong Q2 of FY18, the segment delivered an overall gross margin above 51% and even slightly above the level delivered in Q1 of FY19.

“Our relentless focus on operational excellence and productivity improvements, through the deployment of a standardized, disciplined operating system, continues to deliver outstanding results. Through the first half of the year, we have seen steady improvement in our operational metrics coupled with exceptional top-line performance.”

For the second quarter ended June 30, 2019:

  • Net sales were $273.9 million, an increase of 7.3% compared to the prior year, reflecting strong growth in Engineered Composites and a modest decline in Machine Clothing compared to a very strong Q2 FY18 in that segment. Excluding the impact of currency translation effects, net sales increased 8.8%.
  • Gross profit was $105.2 million, up from $91.6 million last year, an increase of 14.8%, driven by the overall increase in net sales and gross margin expansion in both segments.
  • Operating income was $54.2 million, compared to $42.2 million in the prior year, an increase of 28.6%, driven by higher gross profit and lower restructuring expenses, partially offset by higher SG&A, which was principally due to changes in foreign currency revaluation gains and losses.
  • Effective tax rate was 29.6%, compared to 18.9% last year. The increase was primarily due to $0.6 million of unfavorable income tax adjustments in Q2 2019, compared to $4.1 million of favorable adjustments last year.
  • Net income attributable to the Company was $34.1 million ($1.05 per share), compared to $29.9 million ($0.93 per share) in Q2 2018. Adjusted earnings per share (or Adjusted EPS, a non-GAAP measure) was $1.09 per share, compared to $0.94 per share in Q2 2018.
  • Adjusted EBITDA (a non-GAAP measure) was $72.4 million, compared to $61.4 million in Q2 2018, representing an increase of 17.9%.

Please see the tables below for a reconciliation of non-GAAP measures to their comparable GAAP measures.

“Albany International continues to deliver in line with, and in some cases above, our expectations,” said Albany International Chief Financial Officer and Treasurer Stephen Nolan. “In addition to the solid revenue and profit delivered in the quarter, our working capital management initiatives resulted in significantly improved year-over-year performance in cash generation: net cash from operating activities generated in the first half of this fiscal year was $83 million, compared to $17 million in the prior year.”

Outlook for Fiscal Year 2019

Albany International is reaffirming the following financial guidance for FY19:

  • Machine Clothing revenue relatively flat on a currency-neutral basis compared to FY18 and MC Adjusted EBITDA of between $195 and $205 million;
  • Engineered Composites revenue growth of 20-25%, with improved Adjusted EBITDA margins from FY18;
  • Total company revenue of between $1.05 and $1.08 billion;
  • Effective income tax rate, including tax adjustments, of 27% to 29%;
  • Total company depreciation and amortization of between $70 and $75 million;
  • GAAP earnings per share of between $3.04 and $3.34 and Adjusted earnings per share of between $3.05 and $3.35;
  • Total company Adjusted EBITDA of between $225 and $240 million.

In addition, Albany International is revising its capital expenditures guidance for FY19 to between $80 and $90 million for the full year (previously guided as between $20 and $25 million per quarter).

 
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
 

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

 

$273,949

$255,374

Net sales

$525,321

$478,977

168,767

163,731

Cost of goods sold

328,368

309,552

 

105,182

91,643

Gross profit

196,953

169,425

40,816

36,700

Selling, general, and administrative expenses

81,761

78,588

9,242

10,198

Technical and research expenses

19,491

20,515

899

2,589

Restructuring expenses, net

1,383

11,162

 

54,225

42,156

Operating income

94,318

59,160

4,631

4,621

Interest expense, net

9,048

8,909

930

726

Other expense, net

(278

)

2,178

 

48,664

36,809

Income before income taxes

85,548

48,073

14,405

6,966

Income tax expense

21,881

10,331

 

34,259

29,843

Net income

63,667

37,742

205

(59

)

Net income/(loss) attributable to the noncontrolling interest

423

178

$34,054

$29,902

Net income attributable to the Company

$63,244

$37,564

 

$1.05

$0.93

Earnings per share attributable to Company shareholders - Basic

$1.96

$1.17

$1.05

$0.93

Earnings per share attributable to Company shareholders - Diluted

$1.96

$1.16

Shares of the Company used in computing earnings per share:

32,299

32,257

Basic

32,286

32,239

 

32,311

32,273

Diluted

32,298

32,255

 

$0.18

$0.17

Dividends declared per share, Class A and Class B

$0.36

$0.34

 
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
 

June 30,

December 31,

2019

2018

ASSETS
Cash and cash equivalents

$215,233

$197,755

Accounts receivable, net

220,584

223,176

Contract assets

54,431

57,447

Inventories

104,254

85,904

Income taxes prepaid and receivable

7,165

7,473

Prepaid expenses and other current assets

25,108

21,294

Total current assets

626,775

593,049

 
Property, plant and equipment, net

458,038

462,055

Intangibles, net

46,089

49,206

Goodwill

164,083

164,382

Deferred income taxes

66,082

62,622

Noncurrent receivables

45,651

45,061

Other assets

51,381

41,617

Total assets

$1,458,099

$1,417,992

 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable

$61,899

$52,246

Accrued liabilities

120,693

129,030

Current maturities of long-term debt

19

1,224

Income taxes payable

14,078

6,806

Total current liabilities

196,689

189,306

 
Long-term debt

482,019

523,707

Other noncurrent liabilities

119,642

88,277

Deferred taxes and other liabilities

8,433

8,422

Total liabilities

806,783

809,712

 
SHAREHOLDERS' EQUITY
Preferred stock, par value $5.00 per share;
authorized 2,000,000 shares; none issued

-

-

Class A Common Stock, par value $.001 per share;
authorized 100,000,000 shares; issued 39,095,992 in 2019
and 37,450,329 in 2018

39

37

Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and outstanding
1,617,998 in 2019 and 3,233,998 in 2018

2

3

Additional paid in capital

431,037

430,555

Retained earnings

641,297

589,645

Accumulated items of other comprehensive income:
Translation adjustments

(116,631

)

(115,976

)

Pension and postretirement liability adjustments

(48,636

)

(47,109

)

Derivative valuation adjustment

(2,849

)

4,697

Treasury stock (Class A), at cost 8,408,770 shares in 2019
and 8,418,620 shares in 2018

(256,391

)

(256,603

)

Total Company shareholders' equity

647,868

605,249

Noncontrolling interest

3,448

3,031

Total equity

651,316

608,280

Total liabilities and shareholders' equity

$1,458,099

$1,417,992

 
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
 
 
Three Months EndedSix Months ended
June 30,June 30,

2019

2018

2019

2018

OPERATING ACTIVITIES

$34,259

$29,843

Net income

$63,667

$37,742

Adjustments to reconcile net income to net cash provided by operating activities:

15,345

17,114

Depreciation

30,987

35,416

2,409

2,559

Amortization

4,723

5,205

319

(6,183

)

Change in deferred taxes and other liabilities

(746

)

(8,211

)

720

853

Provision for write-off of property, plant and equipment

1,106

1,124

152

154

Non-cash interest expense

303

154

1,170

1,047

Compensation and benefits paid or payable in Class A Common Stock

623

1,336

-

34

Fair value adjustment on foreign currency option

-

71

 
Changes in operating assets and liabilities that provided cash:

14,434

(12,052

)

Accounts receivable

2,810

(37,141

)

3,528

(13,877

)

Contract assets

3,047

(11,761

)

(1,505

)

(1,687

)

Inventories

(18,167

)

(13,440

)

(1,384

)

(1,157

)

Prepaid expenses and other current assets

(4,188

)

(5,220

)

(316

)

(5

)

Income taxes prepaid and receivable

358

97

(14,276

)

11,420

Accounts payable

7,474

8,882

(1,074

)

5,846

Accrued liabilities

(12,169

)

4,619

5,724

10,020

Income taxes payable

7,230

6,589

(46

)

(1,643

)

Noncurrent receivables

(340

)

(4,170

)

(481

)

(854

)

Other noncurrent liabilities

(2,160

)

(1,231

)

(448

)

(5,745

)

Other, net

(1,462

)

(3,321

)

58,530

35,687

Net cash provided by operating activities

83,096

16,740

 
INVESTING ACTIVITIES

(14,606

)

(23,352

)

Purchases of property, plant and equipment

(35,404

)

(39,123

)

(27

)

(23

)

Purchased software

(49

)

(52

)

(14,633

)

(23,375

)

Net cash used in investing activities

(35,453

)

(39,175

)

 
FINANCING ACTIVITIES

-

10,020

Proceeds from borrowings

20,000

23,031

(9,004

)

(5,653

)

Principal payments on debt

(37,008

)

(14,143

)

(178

)

-

Principal payments on finance lease liabilities

(578

)

-

-

-

Taxes paid in lieu of share issuance

(971

)

(1,652

)

28

3

Proceeds from options exercised

72

150

(5,813

)

(5,482

)

Dividends paid

(11,621

)

(10,956

)

(14,967

)

(1,112

)

Net cash used in financing activities

(30,106

)

(3,570

)

 

(1,082

)

(7,882

)

Effect of exchange rate changes on cash and cash equivalents

(59

)

(2,978

)

 

27,848

3,318

Increase/(decrease) in cash and cash equivalents

17,478

(28,983

)

187,385

151,426

Cash and cash equivalents at beginning of period

197,755

183,727

$215,233

$154,744

Cash and cash equivalents at end of period

$215,233

$154,744

 

Reconciliation of non-GAAP measures to comparable GAAP measures

The following table presents Net sales and the effect of changes in currency translation rates:

(in $ thousands, except
percentages)

Net Sales,
as reported,
Q2 2019

Decrease
due to
changes in
currency
translation
rates

Q2 2019
sales on
same basis
as Q2 2018
currency
translation
rates

Net sales as
reported, Q2
2018

% Change
compared to
Q2 2018,
excluding
currency
rate effects

Machine Clothing

$155,016

$2,888

$157,904

$161,784

-2.4

%

Albany Engineered Composites

118,933

1,012

119,945

93,590

28.2

%

Total

$273,949

$3,900

$277,849

$255,374

8.8

%

Adjusted EBITDA for the current-year and comparable prior-year periods has been calculated as follows:

 

Three months ended June 30, 2019

(in $ thousands)

Machine
Clothing

Albany
Engineered
Composites

Corporate
Expenses
and Other

Total
Company

Operating income/(loss) (GAAP)

$49,538

$17,732

($13,045)

$54,225

Interest, taxes, and other income/(expense)

-

-

(19,966)

(19,966)

Net income/(loss) (GAAP)

49,538

17,732

(33,011)

34,259

Interest expense, net

-

-

4,631

4,631

Income tax expense

-

-

14,405

14,405

Depreciation and amortization expense

5,606

11,071

1,077

17,754

EBITDA (non-GAAP)

55,144

28,803

(12,898)

71,049

Restructuring expenses, net

935

(32)

(4)

899

Foreign currency revaluation (gains)/losses

317

79

345

741

Pre-tax (income) attributable to non-controlling interest

-

(272)

-

(272)

Adjusted EBITDA (non-GAAP)

$56,396

$28,578

($12,557)

$72,417

Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales – non-GAAP)

36.4%

24.0%

-

26.4%

 
 

Three months ended June 30, 2018

(in $ thousands)

Machine
Clothing

Albany
Engineered
Composites

Corporate
Expenses
and Other

Total
Company

Operating income/(loss) (GAAP)

$50,315

$4,092

($12,251

)

$42,156

Interest, taxes, and other income/(expense)

-

-

(12,313

)

(12,313

)

Net income/(loss) (GAAP)

50,315

4,092

(24,564

)

29,843

Interest expense, net

-

-

4,621

4,621

Income tax expense

-

-

6,966

6,966

Depreciation and amortization expense

8,182

10,247

1,244

19,673

EBITDA (non-GAAP)

58,497

14,339

(11,733

)

61,103

Restructuring expenses, net

1,800

558

231

2,589

Foreign currency revaluation (gains)/losses

(2,331

)

116

(188

)

(2,403

)

Pre-tax expense attributable to non-controlling interest

-

121

-

121

Adjusted EBITDA (non-GAAP)

$57,966

$15,134

($11,690

)

$61,410

Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales – non-GAAP)

35.8

%

16.2

%

-

24.0

%

 

Per share impact of the adjustments to earnings per share are as follows:

Three months ended June 30, 2019

(in $ thousands, except per share amounts)

Pre-Tax
Amount

Tax Effect

After-Tax
Amount

Per Share
|Amount

Restructuring expenses, net

$899

$255

$644

$0.02

Foreign currency revaluation (gains)/losses

741

210

531

0.02

 

Three months ended June 30, 2018

(in $ thousands, except per share amounts)

Pre-Tax
Amount

Tax Effect

After-Tax
Amount

Per Share
Amount

Restructuring expenses, net

$2,589

$779

$1,810

$0.06

Foreign currency revaluation (gains)/losses

(2,403

)

(723

)

(1,680

)

(0.05

)

 

Resulting second quarter Adjusted EPS was as follows:

Three months ended
June 30,

Per Share Amounts (Basic)

2019

2018

Earnings per share (GAAP)

$1.05

$0.93

Restructuring expenses, net (after-tax)

0.02

0.06

Foreign currency revaluation (gains)/losses (after-tax)

0.02

(0.05

)

Adjusted Earnings per share

$1.09

$0.94

The tables below provide a reconciliation of forecasted full-year 2019 Adjusted EBITDA and Adjusted EPS (non-GAAP measures) to the comparable GAAP measures:

Forecast of Full Year 2019 Adjusted EBITDA

Total Company

Machine Clothing

(in $ millions)

Low

High

Low

High

Net income attributable to the Company (GAAP)

$98

$108

$172

$180

Interest expense, net

17

16

-

-

Income tax expense

40

41

-

-

Depreciation and amortization

70

75

22

24

EBITDA (non-GAAP)

225

240

194

204

Restructuring expenses, net (a)

1

1

1

1

Foreign currency revaluation (gains)/losses (a)

(1

)

(1

)

-

-

Pre-tax (income) attributable to non-controlling interest

-

-

-

-

Adjusted EBITDA (non-GAAP)

$225

$240

$195

$205

 

Forecast of Full Year 2019
Adjusted Earnings Per Share

Per Share Amounts – Basic (b)

Low

High

Earnings per share (GAAP)

$3.04

$3.34

Restructuring expenses, net (a)

0.03

0.03

Foreign currency revaluation (gains)/losses (a)

(0.02

)

(0.02

)

Adjusted Earnings per share (non-GAAP)

$3.05

$3.35

  1. Due to the uncertainty of these items, full year forecast is estimated as equal to actual results through Q2 2019
  2. Calculations based on shares outstanding estimate of 32.3 million

About Albany International Corp.

Albany International is a leading developer and manufacturer of engineered components, using advanced materials processing and automation capabilities, with two core businesses. Machine Clothing is the world’s leading producer of fabrics and process felts used in the manufacture of all grades of paper products. Albany Engineered Composites is a rapidly growing designer and manufacturer of advanced materials-based engineered components for jet engine and airframe applications, supporting both commercial and military platforms. Albany International is headquartered in Rochester, New Hampshire, operates 22 plants in 10 countries, employs 4,700 people worldwide, and is listed on the New York Stock Exchange (Symbol AIN). Additional information about the Company and its products and services can be found at www.albint.com.

Non-GAAP Measures

This release, including the conference call commentary associated with this release, contains certain non-GAAP measures, including: net sales, and percent change in net sales, excluding the impact of currency translation effects (for each segment and on a consolidated basis); EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis, represented in dollars or as a percentage of net sales); Net debt and changes in Net debt; and Adjusted earnings per share (or Adjusted EPS). Such items are provided because management believes that they provide additional useful information to investors regarding the Company’s operational performance.

Presenting Net sales and increases or decreases in Net sales, after currency effects are excluded, can give management and investors insight into underlying sales trends. Net sales, or percent changes in net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts are then compared to the U.S. dollar amount as reported in the current period.

EBITDA, Adjusted EBITDA and Adjusted EPS are performance measures that relate to the Company’s continuing operations. EBITDA, or net income with interest, taxes, depreciation, and amortization added back, is a common indicator of financial performance used, among other things, to analyze and compare core profitability between companies and industries because it eliminates effects due to differences in financing, asset bases and taxes. The Company calculates EBITDA by removing the following from Net income: Interest expense net, Income tax expense, Depreciation and amortization. Adjusted EBITDA is calculated by: adding to EBITDA costs associated with restructuring, and inventory write-offs associated with discontinued businesses; charges and credits related to pension plan settlements; adding (or subtracting) revaluation losses (or gains); subtracting (or adding) gains (or losses) from the sale of buildings or investments; subtracting insurance recovery gains in excess of previously recorded losses; and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC). Adjusted EBITDA may also be presented as a percentage of net sales by dividing it by net sales. An understanding of the impact in a particular quarter of specific restructuring costs, currency revaluation, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Restructuring expenses in the MC segment, while frequent in recent years, are reflective of significant reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the profitability of the business going forward as restructured. Adjusted earnings per share (Adjusted EPS) is calculated by adding to (or subtracting from) net income attributable to the Company per share, on an after-tax basis: restructuring charges; charges and credits related to pension plan settlements and curtailments; inventory write-offs associated with discontinued businesses; foreign currency revaluation losses (or gains); acquisition expenses; and losses (or gains) from the sale of investments.

EBITDA, Adjusted EBITDA, and Adjusted EPS, as defined by the Company, may not be similar to similarly named measures of other companies. Such measures are not considered measurements under GAAP, and should be considered in addition to, but not as substitutes for, the information contained in the Company’s statements of income.

The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insight into underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on income from continuing operations and the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period.

Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any.

Forward-Looking Statements

This press release may contain statements, estimates, guidance or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “should,” “look for,” “guidance,” “guide,” and similar expressions identify forward-looking statements, which generally are not historical in nature. Because forward-looking statements are subject to certain risks and uncertainties (including, without limitation, those set forth in the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q), actual results may differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements in this release or in the webcast include, without limitation, statements about macroeconomic and paper-industry trends and conditions during 2019 and in future years; expectations in 2019 and in future periods of sales, EBITDA, Adjusted EBITDA (both in dollars and as a percentage of net sales), Adjusted EPS, income, gross profit, gross margin, cash flows and other financial items in each of the Company’s businesses, and for the Company as a whole; the timing and impact of production and development programs in the Company’s AEC business segment and the sales growth potential of key AEC programs, as well as AEC as a whole; the amount and timing of capital expenditures, future tax rates and cash paid for taxes, depreciation and amortization; future debt and net debt levels and debt covenant ratios; and changes in currency rates and their impact on future revaluation gains and losses. Furthermore, a change in any one or more of the foregoing factors could have a material effect on the Company’s financial results in any period. Such statements are based on current expectations, and the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Statements expressing management’s assessments of the growth potential of its businesses, or referring to earlier assessments of such potential, are not intended as forecasts of actual future growth, and should not be relied on as such. While management believes such assessments to have a reasonable basis, such assessments are, by their nature, inherently uncertain. This release and earlier releases set forth a number of assumptions regarding these assessments, including historical results, independent forecasts regarding the markets in which these businesses operate, and the timing and magnitude of orders for our customers’ products. Historical growth rates are no guarantee of future growth, and such independent forecasts and assumptions could prove materially incorrect in some cases.

Contacts:

Stephen Nolan
518-445-2281
stephen.nolan@albint.com

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