News Release

Lowers Full Year 2012 Revenue and EPS Guidance

WESTFORD, Mass.--(BUSINESS WIRE)--Jul. 30, 2012-- Kadant Inc. (NYSE:KAI) reported its financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Financial Highlights

• GAAP diluted earnings per share (EPS) from continuing operations was $0.56 in the second quarter of 2012 compared to $0.59 in the second quarter of 2011. Guidance was $0.50 to $0.52.
• Revenues were $83.0 million in the quarter compared to $82.5 million in the second quarter of 2011. Guidance was $83 to $85 million.
• Net income was $6.5 million in the quarter compared to $7.3 million in the second quarter of 2011.
• EBITDA was $11.4 million in the quarter, down 8% from the second quarter of 2011, and was 13.8% of revenues compared to 15.1% in last year's second quarter.
• Cash flows from continuing operations were $8.6 million in the quarter, up 25% from the second quarter of 2011.
• Repurchases of common stock were $7.3 million in the second quarter of 2012.

Note: EBITDA is a non-GAAP measure that excludes 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 were very pleased with our results in the second quarter of 2012," said Jonathan W. Painter, president and chief executive officer of Kadant. "Diluted EPS from continuing operations was $0.56, one of the best performances in our twenty-year history as a public company, and exceeded our guidance, which was $0.50 to $0.52.

"Revenues of $83.0 million were at the low end of our guidance, which was $83 to $85 million, and included an unfavorable foreign exchange translation effect of $3.5 million. Revenues also included a $2.4 million increase from Kadant M-Clean, which was acquired late in the second quarter of 2011 and included only one month's results in that period. We were encouraged that our product gross margins were a solid 43.7 percent, although down from the near record level of 45.7 percent in the second quarter of 2011. Our EBITDA was $11.4 million in the second quarter of 2012, down from $12.5 million in the second quarter of 2011, and represented 13.8 percent of revenues. Operating cash flows from continuing operations were $8.6 million, up from $6.8 million in last year's second quarter, and we repurchased $7.3 million of our common stock in the quarter. Cash less debt was $30.1 million at the end of the quarter.

"The global economic uncertainty, particularly in Europe and China, continued to impact our booking results in the second quarter of 2012. Consolidated bookings were $77.4 million in the second quarter of 2012, down 11 percent from last year's second quarter, and included decreases of 30 percent and 19 percent in Europe and China, respectively. Consolidated bookings were flat on a sequential basis."

Second Quarter 2012

Kadant reported revenues from continuing operations of $83.0 million in the second quarter of 2012, an increase of $0.5 million compared with $82.5 million in the second quarter of 2011. Revenues for the second quarter of 2012 included a $3.5 million decrease from foreign currency translation and a $2.4 million increase from Kadant M-Clean compared to the second quarter of 2011. Operating income from continuing operations was $9.4 million in the second quarter of 2012 compared to $10.5 million in the second quarter of 2011. Net income was $6.5 million in the second quarter of 2012, or $0.56 per diluted share, compared to $7.3 million, or $0.59 per diluted share, in the second quarter of 2011.

Guidance

"Looking forward, the continuing weak economic conditions in Europe and China, coupled with our recent bookings results and the adverse translation effect associated with the strengthening U.S. dollar, have led us to reduce guidance for the second half of the year," Jonathan W. Painter continued. "We expect to achieve diluted EPS of $0.49 to $0.51 in the third quarter of 2012 on revenues of $80 to $82 million. For the full year, we expect to achieve diluted EPS of $2.05 to $2.10 on revenues of $325 to $330 million, revised from our previous guidance of $2.10 to $2.20 on revenues of $335 to $345 million. I should note that if we achieve the revised EPS guidance for the full year, it will be the second highest result we have ever attained."

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 31, 2012, at 11 a.m. eastern time to discuss its second quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to http://www.kadant.com and click on the "Investors" tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 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 http://www.sec.gov. An archive of the webcast presentation will be available on our Web site until August 30, 2012.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its Web site at http://www.kadant.com under the "Investors" tab.

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 foreign currency translation, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted 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, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain a better 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 and to the performance of our competitors. 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 foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted EBITDA excludes pre-tax gains of $2.3 million, net of restructuring costs of $0.4 million in the twelve-month period ended June 30, 2012. 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 other income, or none at all.

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								Six Months Ended
Consolidated Statement of Income				June 30, 2012				July 2, 2011				June 30, 2012				July 2, 2011
Revenues				$	82,982			$	82,457			$	167,095			$	154,137
Costs and Operating Expenses:
Cost of revenues					46,684				44,751				92,425				82,338
Selling, general, and administrative expenses					25,490				25,821				51,633				50,294
Research and development expenses					1,393				1,403				2,925				2,715
Other expense (a)					-				-				307				-
					73,567				71,975				147,290				135,347
Operating Income					9,415				10,482				19,805				18,790
Interest Income					74				122				168				221
Interest Expense					(196	)			(299	)			(405	)			(556	)
Income from Continuing Operations before Provision
for Income Taxes					9,293				10,305				19,568				18,455
Provision for Income Taxes					2,705				2,927				5,843				5,200
Income from Continuing Operations					6,588				7,378				13,725				13,255
Loss from Discontinued Operation, Net of Tax					(3	)			(5	)			(64	)			(9	)
Net Income					6,585				7,373				13,661				13,246
Net Income Attributable to Noncontrolling Interest					(42	)			(69	)			(65	)			(151	)
Net Income Attributable to Kadant				$	6,543			$	7,304			$	13,596			$	13,095
Amounts Attributable to Kadant:
Income from Continuing Operations				$	6,546			$	7,309			$	13,660			$	13,104
Loss from Discontinued Operation, Net of Tax					(3	)			(5	)			(64	)			(9	)
Net Income Attributable to Kadant				$	6,543			$	7,304			$	13,596			$	13,095
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic				$	0.57			$	0.59			$	1.18			$	1.07
Diluted				$	0.56			$	0.59			$	1.17			$	1.05
Earnings per Share Attributable to Kadant:
Basic				$	0.57			$	0.59			$	1.17			$	1.07
Diluted				$	0.56			$	0.59			$	1.16			$	1.05
Weighted Average Shares:
Basic					11,575				12,321				11,614				12,294
Diluted					11,679				12,477				11,704				12,442
																Increase
																(Decrease)
																Excluding Effect
				Three Months Ended								Increase				of Currency
Revenues by Product Line				June 30, 2012				July 2, 2011				(Decrease)				Translation (b,c)
Stock-Preparation				$	28,674			$	32,320			$	(3,646	)		$	(2,821	)
Fluid-Handling					23,741				24,471				(730	)			583
Doctoring					13,985				13,694				291				910
Water-Management					13,046				8,515				4,531				5,179
Other					515				621				(106	)			(27	)
Papermaking Systems Segment					79,961				79,621				340				3,824
Fiber-based Products					3,021				2,836				185				185
				$	82,982			$	82,457			$	525			$	4,009
																Increase
																(Decrease)
																Excluding Effect
				Six Months Ended								Increase				of Currency
				June 30, 2012				July 2, 2011				(Decrease)				Translation (b,c)
Stock-Preparation				$	61,391			$	55,643			$	5,748			$	6,622
Fluid-Handling					46,109				47,104				(995	)			688
Doctoring					27,622				27,757				(135	)			732
Water-Management					23,853				15,330				8,523				9,331
Other					1,136				1,321				(185	)			(59	)
Papermaking Systems Segment					160,111				147,155				12,956				17,314
Fiber-based Products					6,984				6,982				2				2
				$	167,095			$	154,137			$	12,958			$	17,316

															Increase
															(Decrease)
															Excluding Effect
			Three Months Ended								Increase				of Currency
Sequential Revenues by Product Line			June 30, 2012				March 31, 2012				(Decrease)				Translation (b,c)
Stock-Preparation			$	28,674			$	32,717			$	(4,043	)		$	(3,860	)
Fluid-Handling				23,741				22,368				1,373				1,759
Doctoring				13,985				13,637				348				429
Water-Management				13,046				10,807				2,239				2,356
Other				515				621				(106	)			(85	)
Papermaking Systems Segment				79,961				80,150				(189	)			599
Fiber-based Products				3,021				3,963				(942	)			(942	)
			$	82,982			$	84,113			$	(1,131	)		$	(343	)
															Increase
															(Decrease)
															Excluding Effect
			Three Months Ended								Increase				of Currency
Revenues by Geography (d)			June 30, 2012				July 2, 2011				(Decrease)				Translation (b,c)
North America			$	40,730			$	36,634			$	4,096			$	4,590
Europe				18,861				19,560				(699	)			1,007
China				11,151				15,754				(4,603	)			(4,642	)
South America				5,714				4,877				837				1,681
Other				6,526				5,632				894				1,373
			$	82,982			$	82,457			$	525			$	4,009
															Increase
															(Decrease)
															Excluding Effect
			Six Months Ended								Increase				of Currency
			June 30, 2012				July 2, 2011				(Decrease)				Translation (b,c)
North America			$	80,429			$	74,802			$	5,627			$	6,310
Europe				37,901				33,598				4,303				6,588
China				23,044				24,610				(1,566	)			(2,005	)
South America				11,508				9,579				1,929				3,051
Other				14,213				11,548				2,665				3,372
			$	167,095			$	154,137			$	12,958			$	17,316
															Increase
															(Decrease)
															Excluding Effect
			Three Months Ended								Increase				of Currency
Sequential Revenues by Geography			June 30, 2012				March 31, 2012				(Decrease)				Translation (b,c)
North America			$	40,730			$	39,699			$	1,031			$	1,146
Europe				18,861				19,040				(179	)			74
China				11,151				11,893				(742	)			(668	)
South America				5,714				5,794				(80	)			196
Other				6,526				7,687				(1,161	)			(1,091	)
			$	82,982			$	84,113			$	(1,131	)		$	(343	)
			Three Months Ended								Six Months Ended
Business Segment Information			June 30, 2012				July 2, 2011				June 30, 2012				July 2, 2011
Gross Profit Margin:
Papermaking Systems				43.4	%			45.3	%			44.2	%			46.3	%
Fiber-based Products				52.8	%			56.6	%			54.8	%			53.2	%
				43.7	%			45.7	%			44.7	%			46.6	%
Operating Income:
Papermaking Systems			$	11,772			$	13,073			$	23,876			$	23,770
Corporate and Fiber-based Products				(2,357	)			(2,591	)			(4,071	)			(4,980	)
			$	9,415			$	10,482			$	19,805			$	18,790
Bookings from Continuing Operations:
Papermaking Systems			$	74,794			$	85,564			$	149,012			$	165,832
Fiber-based Products				2,617				1,777				5,993				5,808
			$	77,411			$	87,341			$	155,005			$	171,640
Capital Expenditures from Continuing Operations:
Papermaking Systems			$	503			$	2,746			$	761			$	3,910
Corporate and Fiber-based Products				80				54				80				54
			$	583			$	2,800			$	841			$	3,964

			Three Months Ended						Six Months Ended
Cash Flow and Other Data from Continuing Operations			June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Cash Provided by Operations			$	8,558		$	6,839		$	4,532		$	7,206
Depreciation and Amortization Expense				2,029			1,982			4,272			3,847
Balance Sheet Data									June 30, 2012			Dec. 31, 2011
Assets
Cash, Cash Equivalents, and Restricted Cash									$	42,099		$	47,650
Accounts Receivable, net										57,134			59,492
Inventories										49,167			50,527
Unbilled Contract Costs and Fees										10,662			3,244
Other Current Assets										12,788			13,378
Property, Plant and Equipment, net										38,055			40,095
Intangible Assets										27,288			29,053
Goodwill										104,912			105,959
Other Assets										9,041			9,000
									$	351,146		$	358,398
Liabilities and Shareholders' Investment
Accounts Payable									$	25,645		$	28,624
Short- and Long-term Debt										12,000			12,250
Other Liabilities										84,543			93,894
Total Liabilities									$	122,188		$	134,768
Shareholders' Investment									$	228,958		$	223,630
									$	351,146		$	358,398

																				Twelve Months
				Three Months Ended								Six Months Ended								Ended
Adjusted EBITDA Reconciliation				June 30, 2012				July 2, 2011				June 30, 2012				July 2, 2011				June 30, 2012
Consolidated
Net Income Attributable to Kadant				$	6,543			$	7,304			$	13,596			$	13,095			$	34,076
Net Income Attributable to Noncontrolling Interest					42				69				65				151				188
Loss from Discontinued Operation, Net of Tax					3				5				64				9				64
Provision for Income Taxes					2,705				2,927				5,843				5,200				4,928
Interest Expense, net					122				177				237				335				469
Operating Income					9,415				10,482				19,805				18,790				39,725
Depreciation and Amortization					2,029				1,982				4,272				3,847				8,361
EBITDA (c)				$	11,444			$	12,464			$	24,077			$	22,637			$	48,086
Restructuring costs and other income, net																					(1,874	)
Adjusted EBITDA (c)																				$	46,212
Papermaking Systems
Operating Income				$	11,772			$	13,073			$	23,876			$	23,770
Depreciation and Amortization					1,909				1,860				4,033				3,604
EBITDA (c)				$	13,681			$	14,933			$	27,909			$	27,374
Corporate and Fiber-based Products
Operating Loss				$	(2,357	)		$	(2,591	)		$	(4,071	)		$	(4,980	)
Depreciation and Amortization					120				122				239				243
EBITDA (c)				$	(2,237	)		$	(2,469	)		$	(3,832	)		$	(4,737	)

(a)			Represents accelerated depreciation in the six-month period ended June 30, 2012 associated with the anticipated disposal of equipment in China related to a facility consolidation.
(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)			Starting in the first quarter of 2012, geographic revenues are attributed to regions based on customer location. Prior period amounts have been recasted to conform to the current presentation.

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry. Our stock-preparation, fluid-handling, doctoring, and water-management equipment and systems are designed to increase efficiency and improve quality in pulp and paper production. Many of our products, particularly in our fluid-handling product line, are also used to optimize production in other process industries. In addition, we produce granules from papermaking byproducts for agricultural and lawn and garden applications. Kadant is based in Westford, Massachusetts, with revenues of $335 million in 2011 and 1,700 employees in 17 countries worldwide. For more information, visit http://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 quarter ended March 31, 2012. These include risks and uncertainties relating to our dependence on the pulp and paper industry; significance of sales and operation of manufacturing facilities in China; our ability to adjust operating costs and manufacturing sufficiently in China to meet demand; commodity and component price increases or shortages; international sales and operations; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; litigation costs related to our discontinued operation; our acquisition strategy; 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