Press Release: CSW Industrials Reports Fiscal -2-
Consolidated gross profit of $130.8 million decreased 1.1%, or $1.5 million, compared to the prior year period. Modestly lower gross profit was primarily associated with the previously discussed acceleration of lower margin projects in the ASBP end market, and an $0.8 million gain on sale of property, plant, and equipment in the prior year that did not recur, partially offset by increased inorganic sales. As a result, gross margin as a percentage of sales decreased 20 basis points to 45.8%, compared to 46.0% in the prior year.
GAAP consolidated operating expenses were $88.3 million, or 30.9% of revenue, compared to the prior year period of $81.4 million, or 28.3% of revenue. The increase in operating expenses in the current period was primarily due to the TRUaire acquisition ($7.1 million) and JV-related ($1.1 million) transaction expenses, as well as severance costs ($0.5 million) resulting from the departure of a former executive officer, partially offset by reduced spend on travel-related expenses ($2.5 million). The increase in operating expenses as a percentage of sales was primarily attributable to these increased expenses. Adjusted to exclude fiscal third quarter non-recurring items, adjusted operating expenses in the current period were $80.3 million, or 28.1% of revenue. There were no operating expense adjustments in the prior year period.
GAAP operating income in the current period was $42.6 million, compared to the prior year period of $50.9 million. The $8.4 million decrease was driven by the increase in operating expenses and the decrease in gross profit as discussed above. Adjusted to exclude transaction and fiscal third quarter non-recurring expenses in the current period, operating income was $50.5 million, or 17.7% of revenue, as compared to 17.5% as adjusted in the prior year period for the aforementioned gain on sale that did not recur.
GAAP net income in the current year period was $30.7 million, or $2.06 per diluted share. Adjusted to exclude the tax-effected transaction expenses in the fiscal third quarter, adjusted year-to-date 2021 net income was $37.2 million, or $2.49 per diluted share. In the prior year period, GAAP net income from continuing operations was $31.4 million, or $2.07 per diluted share. After adjusting the prior year period to exclude one-time items, the most significant being the charge in the fiscal second quarter to terminate the U.S. qualified pension plan ($5.4 million after-tax, or $0.35 per diluted share), gain on sale of property, and a normalized tax rate, the adjusted net income from continuing operations was $35.8 million, or $2.35 per diluted share.
The effective tax rate on continuing operations for the first nine months ended December 31, 2020, was 23.8% on a GAAP basis.
The Company's effective tax rate for fiscal 2021 is expected to be in a range of 24% to 26%.
For the first nine months of the current fiscal year, Industrial Products segment revenue increased 10.1% (7.6% organic) to $192.5 million, compared to $174.8 million in the prior year period. The increase was primarily due to organic sales volume growth into the HVAC/R ($13.9 million) and ASBP ($4.5 million) end markets, and additional inorganic growth from the TRUaire acquisition ($4.5 million), partially offset by decreased sales volumes into the general industrial ($2.8 million) and rail ($2.4 million) end markets. Reported GAAP segment operating income was $39.0 million, compared to $42.1 million in the prior year. Reported segment operating income margin was 20.3% in the fiscal first three quarters, as compared to 24.1% in the prior year period. Adjusted for the fiscal third quarter TRUaire transaction expenses ($6.9 million), operating income in the current year period was $46.0 million, or 23.9% of revenue.
For the first nine months of the fiscal year, Specialty Chemicals segment revenue was $93.3 million, compared to $112.6 million in the prior year period, as COVID-19 pandemic-driven demand degradation negatively impacted sales in nearly all end markets served. Reported GAAP segment operating income in the current period was $14.5 million, compared to $19.2 million in the prior year period. The decline in reported operating income was due to lower revenues ($19.3 million), JV-related transaction expenses ($1.1 million), and a gain on sale of property, plant and equipment in the prior year that did not recur ($0.8 million), partially offset by decreases in travel-related expenses, personnel-related expenses, and sales commissions. In the current period, segment operating income margin was 15.5%, compared to 17.0% in the prior year period, due to the operating income impacts noted above. Adjusted to exclude the JV-related expenses, current year adjusted segment operating income was $15.5 million, or 16.6% of revenue, as compared to prior year adjusted segment operating income of $18.4 million, or 16.3% of revenue.
Operating cash flow from continuing operations for the first nine months of the fiscal year was $54.0 million, as compared to $60.4 million in the prior year period. The decrease in operating cash flow was attributable to the aforementioned transaction expenses in the current year period.
All percentages are calculated based upon the attached financial statements and reconciliations of non-GAAP financial measures.
Conference Call Information
The Company will host a conference call today at 10:00 a.m. ET to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at https://cswindustrials.gcs-web.com/. To access the call, participants may dial 1-877-407-0784, international callers may use 1-201-689-8560, and request to join the CSW Industrials earnings call.
A telephonic replay will be available shortly after the conclusion of the call and until, Friday February 19, 2021. Participants may access the replay at 1-844-512-2921, international callers may use 1-412-317-6671, and enter access code 13715018. The call will also be available for replay via webcast link on the CSWI Investor Relations website.
Safe Harbor Statement
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, effective tax rate, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations, and financial performance and condition.
The forward-looking statements included in this press release are based on our current expectations, projections, estimates, and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K.
All forward-looking statements included in this press release are based on information currently available to us, and we assume no obligation to update any forward-looking statement except as may be required by law.
Non-GAAP Financial Measures
This press release includes an analysis of adjusted earnings per share, adjusted net income, and adjusted operating income, which are non-GAAP financial measures of performance. For a reconciliation of these measures to the most directly comparable GAAP measures and for a discussion of why we consider these non-GAAP measures useful, see the "Reconciliation of Non-GAAP Measures" section of this release.
About CSW Industrials, Inc.
CSWI is a diversified industrial growth company with well-established, scalable platforms and domain expertise across two segments: Industrial Products and Specialty Chemicals. CSWI's broad portfolio of leading products provides performance optimizing solutions to its customers. CSWI's products include mechanical products for HVAC/R applications, building products, sealants, and high-performance specialty lubricants. Markets that CSWI serves include: HVAC/R, architecturally-specified building products, general industrial, plumbing, rail, energy, and mining. For more information, please visit www.cswindustrials.com.
Adrianne D. Griffin
Vice President, Investor Relations, & Treasurer
CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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