News Release

Lowers 2014 EPS Guidance Primarily Due to FX and Restructuring

Expects Record Revenues and Adjusted EPS for 2014

WESTFORD, Mass.--(BUSINESS WIRE)--Oct. 27, 2014--

Kadant Inc. (NYSE:KAI) reported its financial results for the third quarter ended September 27, 2014.

Third Quarter 2014 Financial Highlights

• GAAP diluted earnings per share (EPS) from continuing operations increased 5% to $0.60 in the third quarter of 2014 compared to $0.57 in the third quarter of 2013. Guidance was $0.52 to $0.54. Adjusted diluted EPS increased 11% to $0.63 in the third quarter of 2014 compared to $0.57 in the third quarter of 2013.
• Revenue increased 8% to $99 million in the third quarter of 2014, including $9 million from acquisitions, compared to $91 million in the third quarter of 2013. Guidance was $94 to $96 million.
• Bookings increased 23% to $100 million in the third quarter of 2014, including $9 million from acquisitions, compared to $82 million in the third quarter of 2013. Excluding acquisitions, bookings increased 12% in the third quarter of 2014 compared to the third quarter of 2013 and 13% for the corresponding nine-month periods.
• Parts and consumables revenue increased 21% to a record $63 million in the third quarter of 2014 compared to $52 million in the third quarter of 2013.
• Gross margin was 44.7% in the third quarter of 2014 compared to 43.9% in the third quarter of 2013.
• Net income from continuing operations was $6.7 million in the third quarter of 2014 compared to $6.5 million in the third quarter of 2013.
• Adjusted EBITDA was the second highest in the Company’s history, increasing 9% to $13 million in the third quarter of 2014 compared to $12 million in the third quarter of 2013.
• Backlog increased 30% to $128 million at the end of the third quarter of 2014 compared to $99 million in the third quarter of 2013.
• Cash flows from continuing operations increased 20% to $15 million in the third quarter of 2014 compared to $13 million in the third quarter of 2013.
• Repurchases of common stock were $2 million in the third quarter of 2014.

Note: Adjusted diluted EPS and adjusted EBITDA are non-GAAP measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures” and in the reconciliation tables below.

Management Commentary

“We had a solid third quarter with strong cash flows, gross margin, adjusted EBITDA, and a new record for parts and consumables revenue,” said Jonathan W. Painter, president and chief executive officer of Kadant Inc. “We exceeded our EPS guidance due to strong revenue performance, particularly in our Stock-Preparation and Wood Processing Systems product lines.

“Revenue was $99 million in the third quarter of 2014, increasing 8 percent compared to the third quarter of 2013, including a 47 percent increase in North America. We were pleased with our record parts and consumables revenue, which increased 21 percent to $63 million in the third quarter of 2014 compared to the third quarter of 2013, and reflects the continued focus we have placed on our parts and consumables business over the past several years.

“We are on track to achieve record adjusted EBITDA for the year. Adjusted EBITDA in the third quarter of 2014 was the second highest in our history at $13 million, up 9 percent compared to the third quarter of last year. Cash flows were excellent in the third quarter of 2014 at $15 million, up 20 percent compared to the third quarter of 2013, and we ended the third quarter of 2014 with net cash of $19 million.

“Our bookings of $100 million in the third quarter of 2014, including $9 million from acquisitions, increased 23 percent compared to the third quarter of 2013. Excluding bookings from acquisitions, our bookings in the third quarter of 2014 increased 12 percent compared to the third quarter of 2013 and increased 13 percent for the corresponding nine-month periods. We have put a lot of effort into several strategic initiatives to promote internal growth and it is nice to see these positive results.”

Third Quarter 2014

Kadant reported revenue of $98.7 million in the third quarter of 2014, an increase of $7.4 million, or 8 percent, compared with $91.3 million in the third quarter of 2013. Revenue for the third quarter of 2014 included $8.6 million from acquisitions and a $0.3 million increase from foreign currency translation compared to the third quarter of 2013. Operating income from continuing operations was $10.2 million in the third quarter of 2014, including $0.5 million of restructuring costs, compared to $9.9 million in the third quarter of 2013. Adjusted operating income, a non-GAAP measure, was $10.7 million in the third quarter of 2014 compared to $10.0 million in the third quarter of 2013.

Net income from continuing operations was $6.7 million, or $0.60 per diluted share, in the third quarter of 2014 compared to $6.5 million, or $0.57 per diluted share, in the third quarter of 2013. Adjusted net income from continuing operations, a non-GAAP measure, was $7.0 million, or $0.63 per diluted share, in the third quarter of 2014 compared to $6.5 million, or $0.57 per diluted share, in the third quarter of 2013.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)			Three Months Ended Sept. 27, 2014							Three Months Ended Sept. 28, 2013
			($ in millions)			Diluted EPS				($ in millions)			Diluted EPS
Income and Diluted EPS from Continuing Operations Attributable to Kadant, as reported			$	6.7		$	0.60			$	6.5		$	0.57
Restructuring costs, net of tax				0.3			0.03				-			-
Adjusted Net Income and Adjusted Diluted EPS			$	7.0		$	0.63			$	6.5		$	0.57

Guidance

“While we were pleased with our revenue and EPS performance in the third quarter, delays in capital shipments, weakening market conditions in Europe and South America, and an unfavorable effect from foreign currency exchange have adversely affected our outlook for the fourth quarter,” Mr. Painter continued. “We expect to achieve GAAP diluted EPS from continuing operations of $0.72 to $0.74 in the fourth quarter of 2014 on revenue of $104 to $106 million. If achieved, this fourth quarter diluted EPS would be a record on an adjusted basis. In addition, we expect to finish the year with record annual revenues, bookings, adjusted EBITDA, and adjusted EPS. For the full year, we expect revenue of $401 to $403 million, narrowed from our previous guidance of $400 to $410 million. We expect to achieve GAAP diluted EPS from continuing operations of $2.47 to $2.49, revised from our previous guidance of $2.50 to $2.60. We are lowering our full year 2014 EPS guidance due to a $0.03 unfavorable effect from foreign currency exchange and $0.03 of restructuring costs, as well as our reduced expectations for the fourth quarter. Our full year diluted EPS guidance includes $0.17 of expense related to acquired inventory and backlog associated with businesses acquired in 2013 and $0.06 of restructuring costs.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, October 28, 2014, at 11 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to www.kadant.com and click on “Investors”. To listen to the webcast via teleconference, call 877-703-6107 within the U.S., or +1-857-244-7306 outside the U.S. and reference participant passcode 83375884. Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. An archive of the webcast presentation will be available on our Web site until November 28, 2014.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third quarter results on its Web site at www.kadant.com under the “Investors” section.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenues excluding the effect of acquisitions and foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted EPS, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business or future outlook. We believe that the inclusion of such measures helps investors to gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

We present increases or decreases in revenues excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $0.5 million and $0.9 million for the three- and nine-month periods ended September 27, 2014, respectively, and exclude pre-tax expense related to acquired backlog and inventory of $2.6 million for the nine-month period ended September 27, 2014. Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $0.3 million for the nine-month period ended September 28, 2013. These items are excluded as they are not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs or none at all.

Adjusted net income and adjusted diluted EPS exclude after-tax restructuring costs of $0.3 million ($0.5 million net of tax of $0.2 million) in the three-month period ended September 27, 2014. Adjusted diluted EPS in the three-month periods ended September 27, 2014 and September 28, 2013 was calculated using the reported weighted average diluted shares for each period.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.

	Financial Highlights (unaudited) (In thousands, except per share amounts and percentages)
							Three Months Ended										Nine Months Ended
	Consolidated Statement of Income						Sept. 27, 2014					Sept. 28, 2013					Sept. 27, 2014					Sept. 28, 2013
	Revenues						$	98,719				$	91,315				$	296,921				$	249,684
	Costs and Operating Expenses:
		Cost of revenues						54,607					51,194					165,547					133,597
		Selling, general, and administrative expenses						31,872					28,606					95,942					85,001
		Research and development expenses						1,555					1,558					4,696					5,114
		Restructuring costs and other income, net (a)						534					45					928					263
								88,568					81,403					267,113					223,975
	Operating Income							10,151					9,912					29,808					25,709
	Interest Income							42					155					346					406
	Interest Expense							(210	)				(239	)				(766	)				(635	)
	Income from Continuing Operations before Provision
		for Income Taxes						9,983					9,828					29,388					25,480
	Provision for Income Taxes							3,246					3,327					9,468					7,786
	Income from Continuing Operations							6,737					6,501					19,920					17,694
	Loss from Discontinued Operation, Net of Tax							(4	)				(14	)				(18	)				(55	)
	Net Income							6,733					6,487					19,902					17,639
	Net Income Attributable to Noncontrolling Interest							(86	)				(40	)				(344	)				(148	)
	Net Income Attributable to Kadant						$	6,647				$	6,447				$	19,558				$	17,491
	Amounts Attributable to Kadant:
			Income from Continuing Operations				$	6,651				$	6,461				$	19,576				$	17,546
			Loss from Discontinued Operation, Net of Tax					(4	)				(14	)				(18	)				(55	)
			Net Income Attributable to Kadant				$	6,647				$	6,447				$	19,558				$	17,491
	Earnings per Share from Continuing Operations
		Attributable to Kadant:
			Basic				$	0.61				$	0.58				$	1.78				$	1.57
			Diluted				$	0.60				$	0.57				$	1.74				$	1.55
	Earnings per Share Attributable to Kadant:
			Basic				$	0.61				$	0.58				$	1.77				$	1.57
			Diluted				$	0.60				$	0.57				$	1.74				$	1.55
	Weighted Average Shares:
			Basic					10,898					11,153					11,026					11,165
			Diluted					11,133					11,365					11,231					11,321

																					Increase (Decrease) Excluding Effect of Currency Translation (b,c)
								Three Months Ended								Increase (Decrease)
	Revenues by Product Line							Sept. 27, 2014				Sept. 28, 2013
	Stock-Preparation							$	31,246			$	38,827			$	(7,581	)			$	(7,580	)
	Doctoring, Cleaning, & Filtration								31,703				28,801				2,902					2,680
	Fluid-Handling								25,420				21,837				3,583					3,538
		Papermaking Systems							88,369				89,465				(1,096	)				(1,362	)
		Wood Processing Systems							8,480				-				8,480					8,480
		Fiber-Based Products							1,870				1,850				20					20
								$	98,719			$	91,315			$	7,404				$	7,138
																					Increase Excluding Effect of Currency Translation (b,c)
								Nine Months Ended
								Sept. 27, 2014				Sept. 28, 2013				Increase
	Stock-Preparation							$	93,668			$	90,322			$	3,346				$	2,295
	Doctoring, Cleaning, & Filtration								86,892				82,329				4,563					4,028
	Fluid-Handling								77,968				68,464				9,504					9,123
		Papermaking Systems							258,528				241,115				17,413					15,446
		Wood Processing Systems							29,590				-				29,590					29,590
		Fiber-Based Products							8,803				8,569				234					234
								$	296,921			$	249,684			$	47,237				$	45,270

																				Increase (Decrease) Excluding Effect of Currency Translation (b,c)
							Three Months Ended								Increase (Decrease)
	Sequential Revenues by Product Line						Sept. 27, 2014				June 28, 2014
	Stock-Preparation						$	31,246			$	36,248			$	(5,002	)			$	(4,637	)
	Doctoring, Cleaning, & Filtration							31,703				28,180				3,523					3,790
	Fluid-Handling							25,420				27,547				(2,127	)				(1,767	)
		Papermaking Systems						88,369				91,975				(3,606	)				(2,614	)
		Wood Processing Systems						8,480				9,837				(1,357	)				(1,405	)
		Fiber-Based Products						1,870				3,023				(1,153	)				(1,153	)
							$	98,719			$	104,835			$	(6,116	)			$	(5,172	)

																				Increase (Decrease) Excluding Effect of Currency Translation (b,c)
							Three Months Ended								Increase (Decrease)
	Revenues by Geography (d)						Sept. 27, 2014				Sept. 28, 2013
	North America						$	54,359			$	36,987			$	17,372				$	17,458
	Europe							20,932				25,941				(5,009	)				(5,218	)
	China							10,700				14,726				(4,026	)				(4,038	)
	South America							7,006				8,032				(1,026	)				(1,008	)
	Other							5,722				5,629				93					(56	)
							$	98,719			$	91,315			$	7,404				$	7,138
																				Increase (Decrease) Excluding Effect of Currency Translation (b,c)
							Nine Months Ended								Increase (Decrease)
							Sept. 27, 2014				Sept. 28, 2013
	North America						$	161,125			$	116,215			$	44,910				$	45,214
	Europe							68,709				60,108				8,601					6,223
	China							31,043				38,307				(7,264	)				(7,564	)
	South America							19,950				20,024				(74	)				725
	Other							16,094				15,030				1,064					672
							$	296,921			$	249,684			$	47,237				$	45,270

																				Increase (Decrease) Excluding Effect of Currency Translation (b,c)
							Three Months Ended								Increase (Decrease)
	Sequential Revenues by Geography (d)						Sept. 27, 2014				June 28, 2014
	North America						$	54,359			$	53,224			$	1,135				$	1,250
	Europe							20,932				27,288				(6,356	)				(5,713	)
	China							10,700				13,648				(2,948	)				(2,948	)
	South America							7,006				6,074				932					1,026
	Other							5,722				4,601				1,121					1,213
							$	98,719			$	104,835			$	(6,116	)			$	(5,172	)

							Three Months Ended										Nine Months Ended
	Business Information						Sept. 27, 2014					Sept. 28, 2013					Sept. 27, 2014					Sept. 28, 2013
	Gross Profit Margin:
			Papermaking Systems					45.1	%				44.3	%				45.3	%				46.5	%
			Other					40.8	%				26.7	%				37.2	%				46.1	%
								44.7	%				43.9	%				44.2	%				46.5	%
	Operating Income:
			Papermaking Systems				$	13,006				$	14,210				$	36,219				$	35,975
			Corporate and Other					(2,855	)				(4,298	)				(6,411	)				(10,266	)
							$	10,151				$	9,912				$	29,808				$	25,709
	Adjusted Operating Income (c) (g)
			Papermaking Systems				$	13,540				$	14,255				$	37,208				$	36,238
			Corporate and Other					(2,855	)				(4,298	)				(3,883	)				(10,266	)
							$	10,685				$	9,957				$	33,325				$	25,972
	Bookings from Continuing Operations:
		Stock-Preparation					$	34,328				$	25,846				$	123,655				$	90,701
		Doctoring, Cleaning, & Filtration						29,824					29,171					90,435					85,079
		Fluid-Handling						25,377					24,775					78,051					74,497
			Papermaking Systems					89,529					79,792					292,141					250,277
			Wood Processing Systems					8,533					-					30,034					-
			Fiber-Based Products					2,402					1,844					7,936					8,769
							$	100,464				$	81,636				$	330,111				$	259,046
	Capital Expenditures from Continuing Operations:
			Papermaking Systems				$	1,325				$	1,427				$	2,614				$	3,825
			Corporate and Other					378					150					531					324
							$	1,703				$	1,577				$	3,145				$	4,149
							Three Months Ended										Nine Months Ended
	Cash Flow and Other Data from Continuing Operations						Sept. 27, 2014					Sept. 28, 2013					Sept. 27, 2014					Sept. 28, 2013
	Cash Provided by Operations						$	15,207				$	12,625				$	30,402				$	30,697
	Depreciation and Amortization Expense							2,684					2,302					8,558					6,730

	Balance Sheet Data							Sept. 27, 2014				Dec. 28, 2013
	Assets
	Cash, Cash Equivalents, and Restricted Cash							$	41,719			$	50,200
	Accounts Receivable, Net								67,714				70,271
	Inventories								57,707				62,805
	Unbilled Contract Costs and Fees								4,798				3,679
	Other Current Assets								19,153				19,333
	Property, Plant and Equipment, Net								43,452				44,885
	Intangible Assets								43,744				47,850
	Goodwill								129,880				131,915
	Other Assets								10,148				11,230
								$	418,315			$	442,168
	Liabilities and Stockholders' Equity
	Accounts Payable							$	27,873			$	28,388
	Short- and Long-term Debt								23,000				38,635
	Other Liabilities								99,194				104,724
		Total Liabilities							150,067				171,747
		Stockholders' Equity							268,248				270,421
								$	418,315			$	442,168

	Adjusted Operating Income and Adjusted EBITDA Reconciliation						Three Months Ended										Nine Months Ended
							Sept. 27, 2014					Sept. 28, 2013					Sept. 27, 2014					Sept. 28, 2013
	Consolidated
			Net Income Attributable to Kadant				$	6,647				$	6,447				$	19,558				$	17,491
			Net Income Attributable to Noncontrolling Interest					86					40					344					148
			Loss from Discontinued Operation, Net of Tax					4					14					18					55
			Provision for Income Taxes					3,246					3,327					9,468					7,786
			Interest Expense, Net					168					84					420					229
			Operating Income					10,151					9,912					29,808					25,709
			Restructuring Costs and Other Income, Net (a)					534					45					928					263
			Acquired Backlog Amortization (e)					-					-					392					-
			Acquired Profit in Inventory (f)					-					-					2,197					-
			Adjusted Operating Income (c)					10,685					9,957					33,325					25,972
			Depreciation and Amortization					2,684					2,302					8,166					6,730
			Adjusted EBITDA (c)				$	13,369				$	12,259				$	41,491				$	32,702
	Papermaking Systems
			Operating Income				$	13,006				$	14,210				$	36,219				$	35,975
			Restructuring Costs and Other Income, net (a)					534					45					928					263
			Acquired Profit in Inventory (f)					-					-					61					-
			Adjusted Operating Income (c)					13,540					14,255					37,208					36,238
			Depreciation and Amortization					1,910					2,180					5,855					6,371
			Adjusted EBITDA (c)				$	15,450				$	16,435				$	43,063				$	42,609
	Corporate and Other
			Operating Loss				$	(2,855	)			$	(4,298	)			$	(6,411	)			$	(10,266	)
			Acquired Backlog Amortization (e)					-					-					392					-
			Acquired Profit in Inventory (f)					-					-					2,136					-
			Adjusted Operating Loss (c)					(2,855	)				(4,298	)				(3,883	)				(10,266	)
			Depreciation and Amortization					774					122					2,311					359
			Adjusted EBITDA (c)				$	(2,081	)			$	(4,176	)			$	(1,572	)			$	(9,907	)

(a) Includes restructuring costs of $534 and $928 in the three- and nine-month periods ended September 27, 2014, respectively. Includes restructuring costs of $45 in the three-month period ended September 28, 2013 and restructuring costs of $2,003, net of a gain of $1,740 on the sale of assets, in the nine-month period ended September 28, 2013.

(b) Represents the increase (decrease) resulting from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.

(c) Represents a non-GAAP financial measure.

(d) Geographic revenues are attributed to regions based on customer location.

(e) Represents intangible amortization expense associated with backlog acquired in 2013.

(f) Represents expense within cost of revenues associated with profit in inventory acquired in 2013.

(g) See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."

About Kadant

Kadant Inc. is a global supplier of high-value, critical components and engineered systems used in process industries worldwide. The Company’s products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries. Kadant is based in Westford, Massachusetts, with revenue of $344 million in 2013 and 1,800 employees in 18 countries worldwide. For more information, visit www.kadant.com.

The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our expected future financial and operating performance, demand for our products, and economic and industry outlook. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading “Risk Factors” in Kadant’s quarterly report on Form 10-Q for the period ended June 28, 2014. These include risks and uncertainties relating to our dependence on process industries; significance of sales and operation of manufacturing facilities in China; oriented strand board market and levels of residential construction activity; commodity and component price increases or shortages; dependence on certain suppliers; international sales and operations; our acquisition strategy; our internal growth strategy; fluctuations in currency exchange rates; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; reliance on third-party research; protection of patents and proprietary rights; failure of our information systems or breaches of data security; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Source: Kadant Inc.

Kadant Inc.
Investor contact:
Thomas M. O’Brien, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715