SPX Reports Fourth Quarter And Full Year 2014 Results And Provides 2015 Financial Modeling Targets

CHARLOTTE, N.C., Feb. 12, 2015 /PRNewswire/ -- SPX Corporation (NYSE: SPW) today reported results for the fourth quarter and the year ended December 31, 2014 and provided 2015 financial modeling targets.

Fourth Quarter 2014 Overview:

• Revenues decreased 3.9% to $1.28 billion from $1.33 billion in the year-ago quarter. Organic revenues* decreased 0.5%, due primarily to a $40 million reduction in revenue recognized on the power projects in South Africa. Currency decreased revenues by 3.4%.
• Segment income and margins were $152.3 million and 11.9%, compared to $172.5 million and 13.0% in the year-ago quarter.
  • Q4 2014 segment income included a $25 million charge in the Thermal Equipment and Services segment related to additional costs and accruals on the South Africa projects. 
• Net loss per share from continuing operations was $0.78, compared to diluted net income per share from continuing operations of $1.87 in the year-ago quarter.
• Q4 2014 net loss per share from continuing operations included the following notable items:
  • Non-cash pension expense of $1.45, due primarily to the annual mark-to-market adjustment;
  • Non-cash asset impairment charges of $0.74;
  • A charge of $0.46 related to additional costs and accruals on the South Africa projects;
  • Costs of $0.39 associated with the planned spin-off of the Flow business;
  • Income tax expense of $0.46 related to the repatriation of $92 million of cash; and
  • Income tax benefits of $0.36 related to various discrete income tax items
• Excluding the items mentioned above, Q4 2014 adjusted diluted earnings per share from continuing operations were $2.36.
• Net cash generated from continuing operations was $140.0 million and included $58.4 million of income tax payments associated with gains on asset sales, $18.6 million of tax payments related to repatriation of cash from China and $7.0 million of cash outflows related to the planned spin-off. In the year-ago quarter, net cash generated from continuing operations was $254.7 million.
• Adjusted free cash flow from continuing operations was $204.4 million, compared to $242.3 million in the year-ago quarter.

Full Year 2014 Overview:

• Revenues decreased 1.1% to $4.72 billion from $4.77 billion in the prior year. Organic revenues* decreased 0.4%, due primarily to a $94 million reduction in revenue recognized on the large power projects in South Africa. Currency decreased revenues by 0.7%.
• Segment income and margins improved to $522.1 million and 11.1%, compared to $510.1 million and 10.7% in the prior year.
  • 2014 segment income included a $34 million loss in the Thermal Equipment and Services reportable segment related to the South Africa projects.
• Diluted net income per share from continuing operations was $9.05, compared to diluted net income per share from continuing operations of $4.55 in the prior year.
• 2014 diluted net income per share included the following notable items:
  • Gain on asset sale of $7.34 attributable to the sale of the company's joint venture interest in EGS Electrical Group, LLC;
  • Non-cash pension expense of $1.73, due primarily to the annual mark-to-market adjustment;
  • Non-cash asset impairment charges of $0.70;
  • A charge of $0.47 related to the early extinguishment of debt; 
  • A charge of $0.44 related to additional costs and accruals on the South Africa projects;
  • Costs of $0.39 associated with the planned spin-off of the Flow business;
  • Income tax expense of $0.43 related to the repatriation of $92 million of cash; and
  • Income tax benefits of $0.34 related to various discrete income tax items.
• Excluding the items mentioned above, 2014 adjusted diluted earnings per share from continuing operations were $5.53.
• Net cash generated from continuing operations was $81.7 million and included $235.0 million of income tax payments associated with gains on asset sales, $18.6 million of tax payments related to the repatriation of cash from China and $7.0 million of cash outflows related to the planned spin-off. In the prior year, net cash generated from continuing operations was $111.6 million and included $115.0 million of tax payments associated with gains on asset sales and a $160.0 million discretionary pension contribution, net of taxes.
• Adjusted free cash flow from continuing operations was $281.2 million, compared to $331.5 million in the prior year.

"2014 was a milestone year for SPX.  We completed a successful transition to our new operational alignment and executed several strategic actions that culminated with the announcement of our plan to spin-off our Flow business in 2015," said Chris Kearney, Chairman, President and CEO of SPX.  "We finished 2014 with solid operating performance in the fourth quarter, highlighted by strong free cash flow conversion and impressive margin improvement in our Flow segment for the sixth consecutive quarter.  Flow's segment income margins were 16.2% in the fourth quarter and 13.9% for the full year, up 190 points and 220 points, respectively, over the prior year periods."    

"As we begin 2015, we remain focused on continued operational improvement and separating SPX into two strong, independent companies.  We see this as a unique opportunity to create shareholder value at both future companies and we are committed to that goal," Kearney concluded.

2015 Financial Modeling Approach:

For 2015 the company has provided financial modeling targets for revenue, segment income, EBITDA and other reasonably predictable items.  SPX management does not believe it is useful to provide 2015 EPS guidance given its plan to complete the spin-off of its Flow business in Q3 2015 and the uncertain timing of related financial impacts.  However, the company plans to provide regular updates on the actions and related costs associated with the spin-off of its Flow business.

2015 Financial Modeling Targets:

"For 2015, we are targeting organic growth to be flat to up 4% and expect segment income margins to expand 90 points.  We are targeting consolidated EBITDA⁽¹⁾ in the range of $550 million to $600 million," said Jeremy Smeltser, Vice President and Chief Financial Officer. 

"The strength of the U.S. dollar and reduced oil prices are challenging headwinds to growing our top-line in 2015," Smeltser continued. "Given recent oil prices and customer behavior, we expect Flow's Power & Energy organic revenue to decline double-digits in 2015.  In contrast, we expect organic growth in Flow's Food & Beverage and Industrial businesses, as well as organic growth in our Thermal and Industrial segments, where year-end 2014 backlogs were up double-digits on a year-over-year basis."

CONTINUING OPERATIONS OVERVIEW

Flow Technology  

Revenues for the fourth quarter of 2014 were $679.5 million, compared to $720.0 million in the fourth quarter of 2013, a decrease of $40.5 million, or 5.6%.  Currency fluctuations decreased revenues by 4.4%.  Organic revenues* declined 1.2% due primarily to lower sales in Asia Pacific. 

Segment income was $109.9 million, or 16.2% of revenues, in the fourth quarter of 2014, compared to $103.2 million, or 14.3% of revenues, in the fourth quarter of 2013. The increase in segment income and margin was driven by improved operational performance across all three end market platforms, led by Flow's Power & Energy business.  Cost reductions associated with restructuring actions also contributed to the improved profitability.

Thermal Equipment and Services

Revenues for the fourth quarter of 2014 were $384.2 million, compared to $364.7 million in the fourth quarter of 2013, an increase of $19.5 million, or 5.3%.  Organic revenues* increased 8.6%, while currency fluctuations decreased revenues by 3.3%.  The organic revenue growth was driven by increased sales of cooling equipment in the Americas and Asia Pacific, heat exchangers in the Americas and Europe and personal comfort heating products in North America.  This increase more than offset a $40 million organic decline in revenue associated with the large power projects in South Africa. 

Segment income was $10.5 million, or 2.7% of revenues, in the fourth quarter of 2014 compared to $32.3 million, or 8.9% of revenues, in the fourth quarter of 2013.  The decrease in segment income and margin was due to a $25.0 million charge recorded in the period for additional costs and accruals related to the large power projects in South Africa.  The business environment surrounding the projects in South Africa has become increasingly difficult with extended schedules and on-going challenges with certain subcontractors.  This charge offset improved profitability in other businesses in the segment, driven primarily by the organic growth described above.

Industrial Products and Services and Other

Revenues for the fourth quarter of 2014 were $214.0 million, compared to $244.2 million in the fourth quarter of 2013, a decrease of $30.2 million, or 12.4%.  Organic revenues* decreased 11.7% and currency fluctuations decreased revenues by 0.7%.  The organic revenue decline was due primarily to fewer shipments of fare collection systems and power transformers in the U.S.

Income was $31.9 million, or 14.9% of revenues, in the fourth quarter of 2014, compared to $37.0 million, or 15.2% of revenues, in the fourth quarter of 2013.  The decrease in income and margin was due to a significant decline in fare collection system sales and profit, which are expected to recover in 2015. 

OTHER ITEMS

Share Repurchases:  During the fourth quarter of 2014, the company repurchased a total of 0.823 million shares of common stock under a Rule 10b5-1 trading plan for $74.5 million. For the full year, the company repurchased a total of 4.852 million shares of common stock for $488.8 million, completing the $500 million share repurchase plan that began trading on December 18, 2013.

Dividend:   On November 20, 2014, the company announced that its Board of Directors had declared a quarterly dividend of $0.375 per common share to shareholders of record on December 15, 2014, which was paid on January 5, 2015. 

Pension:   During the fourth quarter of 2014, the company recognized a charge to net periodic benefit expense of $86.3 million primarily related to mark-to-market pension accounting and to a lesser extent, actions to annuitize a portion of the company's U.K. pension plan.  The mark-to-market adjustment resulted from lower discount rates and changes in mortality rate assumptions, partially offset by better than expected returns on the plans' assets.

Form 10-K:  The company expects to file its annual report on Form 10-K for the year ended December 31, 2014 with the Securities and Exchange Commission no later than March 1, 2015. This press release should be read in conjunction with that filing, which will be available on the company's website at www.spx.com, in the Investor Relations section.

About SPX:  Based in Charlotte, North Carolina, SPX Corporation (NYSE: SPW) is a global, multi-industry manufacturing leader with approximately $5 billion in annual revenue, operations in more than 35 countries and over 14,000 employees. The company's highly-specialized, engineered products and technologies are concentrated in flow technology and energy infrastructure. Many of SPX's innovative solutions are playing a role in helping to meet rising global demand for electricity and processed foods and beverages, particularly in emerging markets. The company's products include food processing systems for the food and beverage industry, critical flow components for oil and gas processing, power transformers for utility companies, and cooling systems for power plants. For more information, please visit www.spx.com.

*Non-GAAP number. See attached schedules for reconciliation to most comparable GAAP number.

⁽¹⁾ Consolidated EBITDA as defined by SPX's credit facilities.

Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. Please read these results in conjunction with the company's documents filed with the Securities and Exchange Commission, including the company's annual reports on Form 10-K, and any amendments thereto, and quarterly reports on Form 10-Q. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements. Actual results may differ materially from these statements. The words "expect," "anticipate," "project" and similar expressions identify forward-looking statements. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company's current complement of businesses, which is subject to change. Also, there can be no assurance as to when the company's planned spin-off will be completed, if at all, or if the spin-off will be completed in the form contemplated.  Even if the transaction is completed as and on the timetable currently contemplated, the two publicly-traded companies may not realize some of or all projected benefits, or expenses relating to the spin-off may be significantly higher than projected.  Following completion of the spin-off, there can be no guarantee the combined value of the common stock of the two publicly traded companies will equal or exceed the value of our stock had the spin-off not occurred.  Statements in this press release speak only as of the date of this press release, and SPX disclaims any responsibility to update or revise such statements.

SOURCE SPX Corporation

Related Links

http://www.spx.com