Blount Announces 2011 Fourth Quarter and Full Year Results, Provides Outlook for 2012

PORTLAND, Ore., March 6, 2012 /PRNewswire/ -- Blount International, Inc. (NYSE: BLT) ("Blount" or the "Company") today announced results for the fourth quarter and full year ended December 31, 2011. Blount also provided an outlook for 2012.  

Results for the Quarter and Full Year Ended December 31, 2011

Sales in the fourth quarter were $236.5 million, a 38% increase from the fourth quarter of 2010 and a 4% increase when excluding the impact of acquired businesses. Operating income for the fourth quarter of 2011 was $21.4 million compared to $21.5 million in the prior year. The year-over-year impact of acquired businesses increased sales by $59.0 million and decreased operating income by $0.4 million in the fourth quarter of 2011. Fourth quarter 2011 operating income includes non-cash charges of $6.7 million related to accounting for acquisitions. Fourth quarter income from continuing operations was $9.5 million ($0.19 per diluted share) compared to $12.4 million ($0.25 per diluted share) in the fourth quarter of 2010. Both non-cash purchase accounting charges and a higher income tax rate contributed significantly to the lower income from continuing operations. The year-over-year increase in non-cash purchase accounting charges in the fourth quarter of 2011 reduced income from continuing operations by $3.4 million, or $0.07 per diluted share.  

Full year 2011 sales were $831.6 million, a 36% increase from 2010. Full year 2011 sales rose 14% when excluding sales generated from acquired businesses. Operating income for 2011 was $98.0 million compared to $85.6 million in 2010, and income from continuing operations was $49.7 million ($1.01 per diluted share) compared to $41.4 million ($0.85 per diluted share) in 2010. The year-over-year increase in non-cash purchase accounting charges in 2011 reduced income from continuing operations by $8.5 million, or $0.17 per diluted share.  

"The past year was extremely productive, including the acquisitions of KOX, PBL, and Woods/TISCO; the refinancing of our lending facility, which lowered our borrowing costs and provided us low cost acquisition financing; the introduction of an OREGON® branded log splitter and OREGON® PowerNow™ cordless chain saw; the ground breaking for the expansion of our saw chain and guide bar manufacturing facility in China, which will allow us to meet future customer demand; and the opening of our new Kansas City distribution center," commented Josh Collins, Blount's Chairman and Chief Executive Officer. "Our fourth quarter 2011 results reflect increased spending and investment in connection with executing our strategic programs as well as some slowing in sales growth compared to rates we saw earlier in the year. We expect a busy 2012 as we work to integrate the recently acquired businesses and increase capacity."

Segment Results

As a result of the acquisitions we made in 2011, we now operate in two business segments – the Forestry, Lawn, and Garden ("FLAG") segment and the Farm, Ranch, and Agriculture ("FRAG") segment.  Beginning with the fourth quarter of 2011, the Company is reporting separate results for the FLAG and FRAG segments. Blount's Concrete Cutting and Finishing ("CCF") business is included in "Corporate and Other." All financial information for our business segments is presented on a comparable basis.

Forestry, Lawn, and Garden

The FLAG segment reported fourth quarter and full year 2011 sales of $165.6 and $659.8 million, respectively. Fourth quarter 2011 sales increased 14% from the fourth quarter of 2010; 4% when excluding acquired businesses. For comparability, all sales statistics are quoted excluding the impact of acquired businesses for the period during which Blount did not own the acquired business. Fourth quarter 2011 sales were strongest in the South Asia and South American markets, growing a combined 10% compared to the fourth quarter of 2010, followed by the U.S. which grew 6% in the fourth quarter of 2011. Europe and Russia combined for an 8% sales decline as market conditions softened with sovereign debt concerns and economic conditions in that region. The change in segment sales for the comparable fourth quarter periods is illustrated below, with sales from businesses acquired within the past year of $14.0 million presented entirely as acquired volume increase.

Segment backlog was $182.4 million at December 31, 2011 compared to $126.0 million at December 31, 2010. Backlog at December 31, 2011 includes $9.7 million related to businesses acquired in 2011.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $26.3 million and $33.3 million, respectively, for the fourth quarter of 2011. Segment contribution to operating income and Adjusted EBITDA increased by 0.4% and 5.3%, respectively, for the fourth quarter of 2011 versus 2010.  Increased selling prices had the largest impact on segment operating income. A reconciliation of the fourth quarter 2011 contribution to operating income compared to the fourth quarter of 2010 is presented below.

The impact of steel costs reduced segment contribution to operating income, partially offset by favorable changes in currency exchange rates, which combined for a reduction to segment contribution margin by approximately 110 basis points. The positive impact of currency on the segment's cost structure was related to the relatively weaker Brazilian currency as well as more favorable currency exchange rates underlying material purchases on a year-over-year basis. Increased unit volume and segment average selling prices improved segment contribution to operating income, but were partially offset by increased costs/mix spending, combining for an increase in segment contribution margin of 90 basis points. The increase in segment cost/mix spending was driven by higher advertising expense in support of the recently introduced OREGON^® PowerNow™ cordless chain saw. Compensation and relocation costs also increased in connection with positioning personnel in the supply chain and marketing areas to execute the Company's strategic programs.

Farm, Ranch, and Agriculture

The FRAG segment reported fourth quarter and full year 2011 sales of $65.8 and $147.5 million, respectively. Fourth quarter 2011 sales increased $45.3 million from the fourth quarter of 2010, driven nearly entirely by sales generated by acquired businesses. Excluding the impact of acquired businesses, sales increased just over 1%. The change in segment sales for the comparable fourth quarter periods is illustrated below, with sales from business acquired within the past year of $45.1 million presented entirely as acquired volume increase.

Segment backlog was $28.3 million at December 31, 2011 compared to $6.7 million at December 31, 2010. December 31, 2011 backlog includes $21.5 million related to businesses acquired in 2011.

Segment contribution to operating income and Adjusted EBITDA was a net expense of $0.6 million and earnings of $6.3 million, respectively, for the fourth quarter of 2011. Acquired businesses had a significant impact on segment contribution to operating income. A reconciliation of the fourth quarter 2011 contribution to operating income compared to the fourth quarter of 2010 is presented below.

The unfavorable cost/mix impact on segment contribution to operating income was driven primarily by approximately $2.0 million of costs associated with consolidating the SpeeCo assembly and distribution center from Golden, Colorado, into our Kansas City, Missouri facility and supplier driven warranty expenses. Those costs include overlapping personnel expense, operating and logistics costs, and severance expense associated with closing the Golden, Colorado operation and product rework and refund expense associated with the warranty issues. The consolidation is expected to be completed by the end of the second quarter of 2012 and provide approximately $1.0 million of cost savings on an annual basis by the end of 2012.

Corporate and Other

Corporate and other generated net expense of $4.3 million in the fourth quarter of 2011, down from $5.4 million in the fourth quarter of 2010. Lower spending on strategic programs, primarily business acquisition expenses, drove the improvement.

Income from Continuing Operations

Fourth quarter 2011 income from continuing operations declined primarily due to the impact of non-cash purchase accounting charges and a larger income tax expense in the fourth quarter of 2011 compared to the fourth quarter of 2010. A reduction in net interest expense partially offset the impacts of purchase accounting and income taxes. Net interest expense was $4.5 million in the fourth quarter of 2011 versus $5.0 million in the fourth quarter of 2010. The impact of lower interest rates in 2011 more than offset the higher average borrowing levels driven by acquisitions in 2011. The change in continuing operations for the fourth quarter of 2011 compared to the fourth quarter of 2010 is illustrated in the table below.

The Company recorded tax expense of $7.0 million in the fourth quarter of 2011 versus $4.0 million in the fourth quarter of 2010. The fourth quarter 2011 effective tax rate was adversely impacted by certain book expense items that are not deductible for income tax purposes.

Cash Flow and Debt

As of December 31, 2011, the Company had net debt of $468.2 million, a decrease of $2.2 million from September 30, 2011. The decrease in net debt in the fourth quarter of 2011 resulted primarily from the generation of $16.7 million of cash from operations, offset by net capital expenditures of $15.2 million. Net capital expenditures were $9.3 million larger in the fourth quarter of 2011 than the fourth quarter of 2010 as the Company executed on its planned investment in China manufacturing capacity and incurred capital spending at acquired businesses. The Company generated $1.5 million in free cash flow in the fourth quarter of 2011. The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 2.8x as of December 31, 2011, which is consistent with September 30, 2011 and an increase from 2.1x of net leverage at the end of December 2010. The increase in leverage from the end of 2010 is the result of acquisitions made in 2011, offset by free cash flow generation in 2011.

2012 Financial Outlook

The Company's fiscal year 2012 outlook is for sales to range between $1,020 million and $1,060 million, and operating income to range between $120 million and $133 million. Our expectation for 2012 sales levels assumes growth in FLAG sales of 4% to 7% and growth in FRAG sales of 8% to 11%, both compared to 2011 pro forma full-year levels and including sales price increases of between 1% and 3%. The expectation for 2012 assumes that unfavorable foreign currency exchange rates will reduce operating income on a year-over-year basis by between $1.0 million and $2.0 million and rising steel prices will further reduce year-over-year operating income between $2.0 million and $3.0 million. The outlook for 2012 operating income also includes estimated non-cash charges as a result of acquisition accounting of approximately $17 million. Free cash flow for 2012 is expected to range between $50 million and $60 million, after approximately $45 million to $50 million of capital expenditures. Net interest expense is expected to be approximately $17 million in 2012, and the effective income tax rate for continuing operations is expected to be between 34% and 37% in 2012.

A comparison of key operating indicators for 2011 actual results, 2011 pro forma results, and the 2012 outlook mid-point, is provided in the table below:        

Adjusted EBITDA and Free Cash Flow are non-GAAP measures and are reconciled to Operating Income and Cash Flow from Operations in the attached financial data table.

Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for consumers and professionals operating primarily in two market segments: Forestry, Lawn, and Garden ("FLAG"); and Farm, Ranch, and Agriculture ("FRAG"). Blount also sells products in the construction markets and is the market leader in manufacturing saw chain and guide bars for chainsaws.  Blount has a global manufacturing and distribution footprint and sells its products in more than 115 countries around the world.  Blount markets its products primarily under the OREGON®, OREGON® PowerNow™, Carlton®, Woods®, TISCO, SpeeCo®, and ICS® brands. For more information about Blount, please visit our website at http://www.blount.com.

"Forward looking statements" in this release, including without limitation Blount's "outlook," "expectations," "beliefs," "plans," "indications," "estimates," "anticipations," "guidance" and their variants, as defined by the Private Securities Litigation Reform Act of 1995,  are based upon available information and upon assumptions that Blount believes are reasonable; however, these forward looking statements involve certain risks and should not be considered indicative of actual results that Blount may achieve in the future.  In particular, among other things, guidance given in this release is expressly based upon certain assumptions concerning market conditions, foreign currency exchange rates, and raw material costs, especially with respect to the price of steel, the presumed relationship between backlog and future sales trends and certain income tax matters, as well as being subject to the uncertainty of the current global economic situation.  To the extent that these assumptions are not realized going forward, or other unforeseen factors arise, actual results for the periods subsequent to the date of this announcement may differ materially.

SOURCE Blount International, Inc.