News Release

Lowers Guidance for 2015

WESTFORD, Mass.--(BUSINESS WIRE)--Nov. 4, 2015-- Kadant Inc. (NYSE:KAI) reported its financial results for the third fiscal quarter ended October 3, 2015.

Third Quarter 2015 Financial Highlights

• GAAP diluted earnings per share (EPS) from continuing operations increased 30% to $0.78 in the third quarter of 2015 compared to $0.60 in the third quarter of 2014. The third quarter of 2015 included an $0.11 unfavorable effect of foreign currency translation compared to the third quarter of 2014. Guidance was $0.70 to $0.72.
• Adjusted diluted EPS increased 24% to $0.78 in the third quarter of 2015 compared to $0.63 in the third quarter of 2014.
• Revenue decreased 7% to $92 million in the third quarter of 2015 compared to $99 million in the third quarter of 2014, including a $9 million, or 9%, decrease from the unfavorable effects of foreign currency translation and a $2 million, or 2%, increase from an acquisition. Guidance was $95 to $97 million.
• Parts and consumables revenue was $63 million in both the third quarters of 2015 and 2014, and represented 69% and 64% of total revenue, respectively. Excluding a $6 million, or 10%, unfavorable effect of foreign currency translation and a $2 million, or 4%, increase from an acquisition, parts and consumables revenue increased 6% compared to the third quarter of 2014.
• Gross margin was 47.5% in the third quarter of 2015, compared to 44.7% in the third quarter of 2014.
• Operating income increased 25% to $13 million, or 13.8% of revenue, in the third quarter of 2015 compared to $10 million, or 10.3% of revenue, in the third quarter of 2014. Operating income in the third quarter of 2015 was the second highest in our history.
• Cash flows from operations increased 5% to $16 million in the third quarter of 2015 and we ended the quarter with net cash (cash less debt) of $27 million.
• Net income from continuing operations was $9 million in the third quarter of 2015, up 30% compared to $7 million in the third quarter of 2014.
• Adjusted EBITDA was $15 million in the third quarter of 2015, up 14% compared to $13 million in the third quarter of 2014, and represented 16.6% of revenue, the highest percentage since we became a stand-alone public company in 2001.
• Bookings decreased 2% to $99 million in the third quarter of 2015 compared to $100 million in the third quarter of 2014, including a $10 million, or 10%, decrease from the unfavorable effects of foreign currency translation and a $2 million, or 2%, increase from an acquisition. Excluding the acquisition and the foreign currency translation effect, bookings increased 6% in the third quarter of 2015 compared to the third quarter of 2014.
• Backlog was a record $136 million at the end of the third quarter of 2015.
• We repurchased 118,242 shares of our common stock for $5 million in the third quarter of 2015.

Note: Adjusted diluted EPS and adjusted EBITDA are non-GAAP financial 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 quarter with 30 percent growth in EPS despite an $0.11 negative foreign currency effect,” said Jonathan W. Painter, president and chief executive officer of Kadant Inc. “Our diluted EPS from continuing operations was $0.78 in the third quarter of 2015, which exceeded our guidance of $0.70 to $0.72. Cash flows were strong and our operating margin increased to nearly 14 percent of revenue in the third quarter of 2015 compared to 10 percent of revenue in the third quarter of 2014.

“We had strong performance in our Stock-Preparation and Wood Processing Systems product lines, particularly in North America. We were also encouraged by the upward revenue and booking trends in our European businesses. That said, the effects of foreign currency translation negatively impacted our revenue and bookings by $9 million and $10 million, respectively, compared to the third quarter of 2014. Our parts and consumables business continues to be an important focus of ours and revenue from parts and consumables products represented 69 percent of our revenues in the third quarter of 2015.”

Third Quarter 2015

Kadant reported revenue of $91.9 million in the third quarter of 2015, a decrease of $6.8 million, or seven percent, compared with $98.7 million in the third quarter of 2014. Revenue for the third quarter of 2015 included an $8.6 million decrease from the unfavorable effects of foreign currency translation and an increase of $2.4 million from an acquisition compared to the third quarter of 2014. Operating income from continuing operations increased 25 percent to $12.7 million in the third quarter of 2015 compared to $10.2 million in the third quarter of 2014. Operating income included $0.5 million of expense related to restructuring in the third quarter of 2014. Adjusted operating income, a non-GAAP measure, was $12.7 million in the third quarter of 2015 compared to $10.7 million in the third quarter of 2014.

Net income from continuing operations was $8.6 million in the third quarter of 2015, or $0.78 per diluted share, compared to $6.7 million, or $0.60 per diluted share, in the third quarter of 2014. Net income from continuing operations in the third quarter of 2014 included $0.3 million, or $0.03 per diluted share, of after-tax restructuring costs. Adjusted net income, a non-GAAP measure, was $8.6 million, or $0.78 per diluted share, in the third quarter of 2015 compared to $7.0 million, or $0.63 per diluted share, in the third quarter of 2014.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)		Three Months Ended Oct. 3, 2015						Three Months Ended Sept. 27, 2014
		($ in millions)			Diluted EPS			($ in millions)			Diluted EPS
Income and Diluted EPS from continuing operations, as reported		$	8.6		$	0.78		$	6.7		$	0.60
Adjustment for the following:
Restructuring costs, net of tax			-			-			0.3			0.03
Adjusted Net Income and Adjusted Diluted EPS		$	8.6		$	0.78		$	7.0		$	0.63

Guidance

“The first nine months of 2015 have positioned us well for a solid year,” Mr. Painter continued. “That said, we now expect lower revenues in our Doctoring, Cleaning, & Filtration and Fluid-Handling product lines compared to our prior guidance, largely due to delays in capital bookings and shipments. In addition, the continued strengthening of the U.S. dollar since our last guidance has negatively impacted our full-year revenue and EPS guidance by an additional $3 million and $0.05, respectively. As a result, we are lowering our full year revenue guidance and now expect full year revenue of $388 to $390 million, revised from our previous guidance of $395 to $400 million. We are lowering our full year guidance for GAAP diluted EPS from continuing operations to $2.95 to $2.98, revised from our previous guidance of $3.05 to $3.11. For the fourth quarter of 2015, we expect to achieve GAAP diluted EPS from continuing operations of $0.79 to $0.82 on revenue of $105 to $107 million. We still expect 2015 to be a record year for GAAP diluted EPS.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Thursday, November 5, 2015, 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 December 4, 2015.

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

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.

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 revenue excluding acquisitions and the effect of 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, operating results, 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 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.

Revenue included $2.4 million from an acquisition and an $8.6 million unfavorable foreign currency translation effect in the third quarter of 2015 and $6.7 million from an acquisition and a $23.8 million unfavorable foreign currency translation effect in the first nine months of 2015. We present increases or decreases in revenue excluding the effects of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income and adjusted EBITDA exclude restructuring costs and expense related to acquired inventory and backlog. Adjusted net income and adjusted diluted EPS exclude restructuring costs. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs or none at all.

Adjusted operating income and adjusted EBITDA exclude:

• Pre-tax restructuring costs of $0.5 million in the third quarter of 2014 and $0.3 million and $0.9 million in the first nine months of 2015 and 2014, respectively.
• Pre-tax expense related to acquired inventory and backlog of $0.2 million and $2.6 million in the first nine months of 2015 and 2014, respectively.

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 third quarter of 2015.

Adjusted diluted EPS in the third quarters of 2015 and 2014 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					Oct. 3, 2015				Sept. 27, 2014				Oct. 3, 2015				Sept. 27, 2014
Revenues					$	91,929			$	98,719			$	282,507			$	296,921
Costs and Operating Expenses:
	Cost of revenues					48,261				54,607				148,775				165,547
	Selling, general, and administrative expenses					29,200				31,872				92,490				95,942
	Research and development expenses					1,787				1,555				5,247				4,696
	Restructuring costs					-				534				300				928
						79,248				88,568				246,812				267,113
Operating Income						12,681				10,151				35,695				29,808
Interest Income						54				42				150				346
Interest Expense						(239	)			(210	)			(701	)			(766	)
Income from Continuing Operations before Provision for Income Taxes						12,496				9,983				35,144				29,388
Provision for Income Taxes						3,782				3,246				10,964				9,468
Income from Continuing Operations						8,714				6,737				24,180				19,920
(Loss) Income from Discontinued Operation, Net of Tax						(4	)			(4	)			56				(18	)
Net Income						8,710				6,733				24,236				19,902
Net Income Attributable to Noncontrolling Interest						(67	)			(86	)			(232	)			(344	)
Net Income Attributable to Kadant					$	8,643			$	6,647			$	24,004			$	19,558
Amounts Attributable to Kadant:
			Income from Continuing Operations		$	8,647			$	6,651			$	23,948			$	19,576
			(Loss) Income from Discontinued Operation, Net of Tax			(4	)			(4	)			56				(18	)
			Net Income Attributable to Kadant		$	8,643			$	6,647			$	24,004			$	19,558
Earnings per Share from Continuing Operations Attributable to Kadant:
			Basic		$	0.80			$	0.61			$	2.20			$	1.78
			Diluted		$	0.78			$	0.60			$	2.15			$	1.74
Earnings per Share Attributable to Kadant:
			Basic		$	0.80			$	0.61			$	2.20			$	1.77
			Diluted		$	0.78			$	0.60			$	2.16			$	1.74
Weighted Average Shares:
			Basic			10,861				10,898				10,900				11,026
			Diluted			11,096				11,133				11,119				11,231
																	Increase
																	(Decrease)
																	Excluding Effect
					Three Months Ended								Increase				of Currency
Revenues by Product Line					Oct. 3, 2015				Sept. 27, 2014				(Decrease)				Translation (a,b)
Stock-Preparation					$	35,708			$	31,246			$	4,462			$	6,250
Doctoring, Cleaning, & Filtration						23,058				31,703				(8,645	)			(6,426	)
Fluid-Handling						22,023				25,420				(3,397	)			(726	)
	Papermaking Systems Segment					80,789				88,369				(7,580	)			(902	)
	Wood Processing Systems Segment					9,119				8,480				639				2,513
	Fiber-Based Products					2,021				1,870				151				151
					$	91,929			$	98,719			$	(6,790	)		$	1,762
																	Increase
																	(Decrease)
																	Excluding Effect
					Nine Months Ended								Increase				of Currency
					Oct. 3, 2015				Sept. 27, 2014				(Decrease)				Translation (a,b)
Stock-Preparation					$	101,625			$	93,668			$	7,957			$	13,566
Doctoring, Cleaning, & Filtration						77,144				86,892				(9,748	)			(3,381	)
Fluid-Handling						69,300				77,968				(8,668	)			(884	)
	Papermaking Systems Segment					248,069				258,528				(10,459	)			9,301
	Wood Processing Systems Segment					25,910				29,590				(3,680	)			319
	Fiber-Based Products					8,528				8,803				(275	)			(275	)
					$	282,507			$	296,921			$	(14,414	)		$	9,345
																	Increase
																	(Decrease)
																	Excluding Effect
					Three Months Ended								Increase				of Currency
Sequential Revenues by Product Line					Oct. 3, 2015				July 4, 2015				(Decrease)				Translation (a,b)
Stock-Preparation					$	35,708			$	35,271			$	437			$	595
Doctoring, Cleaning, & Filtration						23,058				26,800				(3,742	)			(3,370	)
Fluid-Handling						22,023				24,554				(2,531	)			(2,300	)
	Papermaking Systems Segment					80,789				86,625				(5,836	)			(5,075	)
	Wood Processing Systems Segment					9,119				9,019				100				690
	Fiber-Based Products					2,021				2,683				(662	)			(662	)
					$	91,929			$	98,327			$	(6,398	)		$	(5,047	)
																	Increase
																	(Decrease)
																	Excluding Effect
					Three Months Ended								Increase				of Currency
Revenues by Geography (c)					Oct. 3, 2015				Sept. 27, 2014				(Decrease)				Translation (a,b)
North America					$	54,989			$	54,359			$	630			$	2,939
Europe						18,351				20,932				(2,581	)			864
Asia						11,875				14,463				(2,588	)			(1,952	)
Rest of World						6,714				8,965				(2,251	)			(89	)
					$	91,929			$	98,719			$	(6,790	)		$	1,762
																	Increase
																	(Decrease)
																	Excluding Effect
					Nine Months Ended								Increase				of Currency
					Oct. 3, 2015				Sept. 27, 2014				(Decrease)				Translation (a,b)
North America					$	171,155			$	161,125			$	10,030			$	15,626
Europe						52,341				68,709				(16,368	)			(5,684	)
Asia						39,049				40,830				(1,781	)			557
Rest of World						19,962				26,257				(6,295	)			(1,154	)
					$	282,507			$	296,921			$	(14,414	)		$	9,345
																	Increase
																	(Decrease)
																	Excluding Effect
					Three Months Ended								Increase				of Currency
Sequential Revenues by Geography (c)					Oct. 3, 2015				July 4, 2015				(Decrease)				Translation (a,b)
North America					$	54,989			$	59,075			$	(4,086	)		$	(3,389	)
Europe						18,351				17,734				617				599
Asia						11,875				14,044				(2,169	)			(1,943	)
Rest of World						6,714				7,474				(760	)			(314	)
					$	91,929			$	98,327			$	(6,398	)		$	(5,047	)
																	Increase
																	(Decrease)
																	Excluding Effect
					Three Months Ended								Increase				of Currency
Bookings by Product Line					Oct. 3, 2015				Sept. 27, 2014				(Decrease)				Translation (a)
Stock-Preparation					$	42,087			$	34,328			$	7,759			$	10,870
Doctoring, Cleaning, & Filtration						24,655				29,824				(5,169	)			(2,680	)
Fluid-Handling						22,886				25,377				(2,491	)			128
	Papermaking Systems Segment					89,628				89,529				99				8,318
	Wood Processing Systems Segment					7,425				8,533				(1,108	)			418
	Fiber-Based Products					1,787				2,402				(615	)			(615	)
					$	98,840			$	100,464			$	(1,624	)		$	8,121
																	Increase
																	(Decrease)
																	Excluding Effect
					Nine Months Ended												of Currency
Bookings by Product Line					Oct. 3, 2015				Sept. 27, 2014				Decrease				Translation (a)
Stock-Preparation					$	115,018			$	123,655			$	(8,637	)		$	(1,639	)
Doctoring, Cleaning, & Filtration						77,675				90,435				(12,760	)			(5,926	)
Fluid-Handling						72,281				78,051				(5,770	)			2,599
	Papermaking Systems Segment					264,974				292,141				(27,167	)			(4,966	)
	Wood Processing Systems Segment					28,600				30,034				(1,434	)			2,768
	Fiber-Based Products					6,981				7,936				(955	)			(954	)
					$	300,555			$	330,111			$	(29,556	)		$	(3,152	)
					Three Months Ended								Nine Months Ended
Business Segment Information					Oct. 3, 2015				Sept. 27, 2014				Oct. 3, 2015				Sept. 27, 2014
Gross Profit Margin:
			Papermaking Systems			47.7	%			45.1	%			47.1	%			45.3	%
			Other			46.3	%			40.8	%			49.1	%			37.2	%
						47.5	%			44.7	%			47.3	%			44.2	%
Operating Income:
			Papermaking Systems		$	14,246			$	13,006			$	41,559			$	36,219
			Corporate and Other			(1,565	)			(2,855	)			(5,864	)			(6,411	)
					$	12,681			$	10,151			$	35,695			$	29,808
Adjusted Operating Income (b) (f)
			Papermaking Systems		$	14,246			$	13,540			$	42,047			$	37,208
			Corporate and Other			(1,565	)			(2,855	)			(5,864	)			(3,883	)
					$	12,681			$	10,685			$	36,183			$	33,325
Capital Expenditures from Continuing Operations:
			Papermaking Systems		$	1,258			$	1,325			$	3,412			$	2,614
			Corporate and Other			159				378				656				531
					$	1,417			$	1,703			$	4,068			$	3,145
					Three Months Ended								Nine Months Ended
Cash Flow and Other Data from Continuing Operations					Oct. 3, 2015				Sept. 27, 2014				Oct. 3, 2015				Sept. 27, 2014
Cash Provided by Operations					$	15,940			$	15,207			$	25,581			$	30,402
Depreciation and Amortization Expense						2,584				2,684				8,247				8,558
Balance Sheet Data													Oct. 3, 2015				Jan. 3, 2015
Assets
Cash, Cash Equivalents, and Restricted Cash													$	56,866			$	45,793
Accounts Receivable, Net														56,898				58,508
Inventories														67,532				55,223
Unbilled Contract Costs and Fees														7,741				5,436
Other Current Assets														21,258				18,714
Property, Plant and Equipment, Net														42,692				44,965
Intangible Assets														39,933				46,954
Goodwill														121,007				127,882
Other Assets														8,959				10,272
													$	422,886			$	413,747
Liabilities and Stockholders' Equity
Accounts Payable													$	27,199			$	27,233
Short- and Long-term Debt														29,375				25,861
Other Liabilities														103,438				95,194
	Total Liabilities													160,012				148,288
	Stockholders' Equity													262,874				265,459
													$	422,886			$	413,747
Adjusted Operating Income and Adjusted EBITDA					Three Months Ended								Nine Months Ended
Reconciliation					Oct. 3, 2015				Sept. 27, 2014				Oct. 3, 2015				Sept. 27, 2014
Consolidated
			Net Income Attributable to Kadant		$	8,643			$	6,647			$	24,004			$	19,558
			Net Income Attributable to Noncontrolling Interest			67				86				232				344
			Loss (Income) from Discontinued Operation, Net of Tax			4				4				(56	)			18
			Provision for Income Taxes			3,782				3,246				10,964				9,468
			Interest Expense, Net			185				168				551				420
			Operating Income			12,681				10,151				35,695				29,808
			Restructuring Costs			-				534				300				928
			Acquired Backlog Amortization (d)			-				-				107				392
			Acquired Profit in Inventory (e)			-				-				81				2,197
			Adjusted Operating Income (b)			12,681				10,685				36,183				33,325
			Depreciation and Amortization			2,584				2,684				8,140				8,166
			Adjusted EBITDA (b)		$	15,265			$	13,369			$	44,323			$	41,491
Papermaking Systems
			Operating Income		$	14,246			$	13,006			$	41,559			$	36,219
			Restructuring Costs			-				534				300				928
			Acquired Backlog Amortization (d)			-				-				107				-
			Acquired Profit in Inventory (e)			-				-				81				61
			Adjusted Operating Income (b)			14,246				13,540				42,047				37,208
			Depreciation and Amortization			1,867				1,910				5,916				5,855
			Adjusted EBITDA (b)		$	16,113			$	15,450			$	47,963			$	43,063
Corporate and Other
			Operating Loss		$	(1,565	)		$	(2,855	)		$	(5,864	)		$	(6,411	)
			Acquired Backlog Amortization (d)			-				-				-				392
			Acquired Profit in Inventory (e)			-				-				-				2,136
			Adjusted Operating Loss (b)			(1,565	)			(2,855	)			(5,864	)			(3,883	)
			Depreciation and Amortization			717				774				2,224				2,311
			Adjusted EBITDA (b)		$	(848	)		$	(2,081	)		$	(3,640	)		$	(1,572	)

(a) 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.

(b) Represents a non-GAAP financial measure.

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

(d) Represents intangible amortization expense associated with acquired backlog.

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

(f) 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 $402 million in fiscal year 2014 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 annual report on Form 10-K for the year ended January 3, 2015 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenue from large capital equipment and systems projects; the variability and uncertainties in sales of capital equipment in China; the effect of currency fluctuations on our financial results; our customers’ ability to obtain financing for capital equipment projects; changes in government regulations and policies; the oriented strand board market and levels of residential construction activity; development and use of digital media; price increases or shortages of raw materials; dependence on certain suppliers; international sales and operations; disruption in production; our acquisition strategy; our internal growth strategy; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; loss of key personnel; 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.

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Source: Kadant Inc.

Kadant Inc.
Investor contact:
Michael McKenney, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715