News Release

Raises Adjusted Diluted EPS Guidance for 2013

WESTFORD, Mass. -- (BUSINESS WIRE) -- Jul. 29, 2013 -- Kadant Inc. (NYSE:KAI) reported its financial results for the second quarter ended June 29, 2013.

Second Quarter 2013 Highlights

• GAAP diluted earnings per share (EPS) from continuing operations was $0.51 in the second quarter of 2013, compared to $0.56 in the second quarter of 2012.
• Adjusted diluted EPS was $0.51 in the second quarter of 2013, excluding a gain of $0.12 on the sale of assets and acquisition-related restructuring costs of $0.12, compared to our adjusted diluted EPS guidance of $0.43 to $0.45, which excluded an estimated gain of $0.10 on the sale of assets.
• Bookings were $87 million in the second quarter of 2013, including $7 million from acquisitions, compared to $77 million in the second quarter of 2012.
• Revenues were $82 million in the second quarter of 2013, including $6 million from acquisitions, compared to $83 million in the second quarter of 2012. Our revenue guidance was $79 to $82 million, which included anticipated revenues from CBTI. Adjusting for revenues from Noss that were not included in the guidance, our adjusted revenue guidance was $81 to $84 million, which compares to our actual revenues of $82 million.
• Gross profit margins were a record 48.6% in the second quarter of 2013, up 490 basis points from the second quarter of 2012.
• Cash flows from continuing operations were $11 million in the second quarter of 2013, an increase of 30% compared to $9 million in the second quarter of 2012.
• The acquisitions of Companhia Brasileira de Tecnologia Industrial (CBTI) and certain assets of the Noss Group (Noss) were completed.
• Net cash was $48 million at the end of the second quarter.
• Cash returned to shareholders through a dividend payment and common stock repurchases was $2.8 million in the second quarter of 2013.

Adjusted diluted EPS, adjusted diluted EPS guidance, and adjusted revenue guidance 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 were pleased we exceeded our diluted EPS guidance on an adjusted basis,” said Jonathan W. Painter, president and chief executive officer of Kadant. “We also had excellent gross margins and cash flows in the second quarter of 2013. Gross profit margins in the second quarter of 2013 were a record 48.6 percent. Operating cash flows from continuing operations were $11.1 million in the second quarter of 2013, increasing 30 percent over the second quarter of 2012. We ended the quarter with net cash (cash less debt) of $48.5 million, an increase of 61 percent over $30.1 million in the second quarter of 2012. Significantly, our operating cash flows from continuing operations over the last twelve months were $44.0 million, reflecting the strength of our business.

“Consolidated bookings increased to $87.1 million in the second quarter compared to $77.4 million in the second quarter of 2012, including a $7.4 million increase from acquisitions and a 54 percent increase in China bookings. We ended the quarter with a strong backlog of $106.3 million, including $9.0 million from acquisitions. After the quarter closed, we booked orders for paper drying and fabric cleaning systems in Europe with a combined value of $4.4 million.”

Second Quarter 2013

Kadant reported revenues of $82.2 million in the second quarter of 2013, a decrease of $0.8 million, or one percent, compared with $83.0 million in the second quarter of 2012. Revenues in the second quarter of 2013 included $6.1 million from acquisitions and a $0.6 million increase from foreign currency translation compared to the second quarter of 2012. Operating income from continuing operations was $8.4 million in the second quarter of 2013, including a $1.7 million gain on the sale of assets and a $1.9 million acquisition-related restructuring charge, compared to $9.4 million in the second quarter of 2012.

Net income from continuing operations was $5.8 million in the second quarter of 2013, or $0.51 per diluted share, compared to $6.5 million, or $0.56 per diluted share, in the second quarter of 2012. Net income from continuing operations in the second quarter of 2013 included a $1.3 million, or $0.12 per diluted share, after-tax gain on the sale of assets and a $1.3 million, or $0.12 per diluted share, after-tax restructuring charge. Adjusted net income, a non-GAAP measure, was $5.8 million, or $0.51 per diluted share, in the second quarter of 2013 compared to $6.5 million, or $0.56 per diluted share, in the second quarter of 2012.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)			Three Months Ended June 29, 2013										Three Months Ended June 30, 2012
			($ in millions)					Diluted EPS					($ in millions)				Diluted EPS
Income and Diluted EPS from Continuing Operations Attributable to Kadant, as reported			$	5.8				$	0.51				$	6.5			$	0.56
Adjustments:
Gain on the sale of assets				(1.3	)				(0.12	)				-				-
Restructuring costs				1.3					0.12					-				-
Adjusted Net Income and Adjusted Diluted EPS			$	5.8				$	0.51				$	6.5			$	0.56

Guidance

“We expect to achieve GAAP diluted EPS from continuing operations of $0.47 to $0.49 in the third quarter of 2013 on revenues of $88 to $90 million,” Mr. Painter continued. “Our third quarter of 2013 guidance includes estimated restructuring costs of $0.01. For the full year, we now expect revenues of $340 to $345 million, revised from our previous guidance of $336 to $343 million. We expect to achieve GAAP diluted EPS from continuing operations of $2.02 to $2.07, which includes a gain of $0.12 on the sale of assets and acquisition-related restructuring costs of $0.13. This compares to our previous GAAP diluted EPS guidance of $2.00 to $2.10, which included an estimated gain of $0.10 on the sale of assets. On an adjusted diluted EPS basis, excluding the restructuring costs and gain on sale, we are raising our guidance to $2.03 to $2.08 from our previous guidance of $1.90 to $2.00.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 30, 2013, 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 www.kadant.com and click on the “Investors” tab. 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 August 30, 2013.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its Web site at 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 acquisitions and foreign currency translation, adjusted revenue guidance, adjusted operating income, adjusted net income, adjusted diluted EPS, adjusted diluted EPS guidance, 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 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.

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 revenue guidance for the second quarter of 2013 includes $2 million of revenues from the Noss acquisition.

Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $1.9 million and a pre-tax gain on the sale of assets of $1.7 million in the three-month and six-month periods ended June 29, 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 other income or none at all.

Adjusted net income and adjusted diluted EPS exclude after-tax restructuring costs of $1.3 million ($1.9 million net of tax of $0.6 million) and an after-tax gain on the sale of assets of $1.3 million ($1.7 million gain net of tax of $0.4 million) in the three-month and six-month periods ended June 29, 2013.

Adjusted diluted EPS in the three-month periods ended June 29, 2013 and June 30, 2012 was calculated using the reported weighted average diluted shares for each period.

Adjusted diluted EPS guidance for the second quarter of 2013 excludes a gain on the sale of assets of $0.10 and for the full-year 2013 excludes restructuring costs of $0.13 and a gain on the sale of assets of $0.12.

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.

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 29, 2013					June 30, 2012					June 29, 2013					June 30, 2012
Revenues					$	82,165				$	82,982				$	158,369				$	167,095
Costs and Operating Expenses:
	Cost of revenues					42,225					46,684					82,403					92,425
	Selling, general, and administrative expenses					29,445					25,490					56,395					51,633
	Research and development expenses					1,852					1,393					3,556					2,925
	Restructuring costs and other (income) expense, net (a)(g)					218					-					218					307
						73,740					73,567					142,572					147,290
Operating Income						8,425					9,415					15,797					19,805
Interest Income						142					74					251					168
Interest Expense						(231	)				(196	)				(396	)				(405	)
Income from Continuing Operations before Provision
	for Income Taxes					8,336					9,293					15,652					19,568
Provision for Income Taxes						2,492					2,705					4,459					5,843
Income from Continuing Operations						5,844					6,588					11,193					13,725
Loss from Discontinued Operation, Net of Tax						(12	)				(3	)				(41	)				(64	)
Net Income						5,832					6,585					11,152					13,661
Net Income Attributable to Noncontrolling Interest						(72	)				(42	)				(108	)				(65	)
Net Income Attributable to Kadant					$	5,760				$	6,543				$	11,044				$	13,596
Amounts Attributable to Kadant:
		Income from Continuing Operations			$	5,772				$	6,546				$	11,085				$	13,660
		Loss from Discontinued Operation, Net of Tax				(12	)				(3	)				(41	)				(64	)
		Net Income Attributable to Kadant			$	5,760				$	6,543				$	11,044				$	13,596
Earnings per Share from Continuing Operations
	Attributable to Kadant:
		Basic			$	0.52				$	0.57				$	0.99				$	1.18
		Diluted			$	0.51				$	0.56				$	0.98				$	1.17
Earnings per Share Attributable to Kadant:
		Basic			$	0.52				$	0.57				$	0.99				$	1.17
		Diluted			$	0.51				$	0.56				$	0.98				$	1.16
Weighted Average Shares:
		Basic				11,178					11,575					11,170					11,614
		Diluted				11,331					11,679					11,299					11,704
																				Decrease
																				Excluding Effect
					Three Months Ended										Increase					of Currency
Revenues by Product Line					June 29, 2013					June 30, 2012					(Decrease)					Translation (b,c)
Stock-Preparation					$	28,493				$	28,674				$	(181	)			$	(453	)
Doctoring, Cleaning, & Filtration (d)						27,666					27,546					120					(164	)
Fluid-Handling						23,094					23,741					(647	)				(715	)
	Papermaking Systems Segment					79,253					79,961					(708	)				(1,332	)
Fiber-based Products						2,912					3,021					(109	)				(109	)
					$	82,165				$	82,982				$	(817	)			$	(1,441	)
																				Increase
																				(Decrease)
																				Excluding Effect
					Six Months Ended										Increase					of Currency
					June 29, 2013					June 30, 2012					(Decrease)					Translation (b,c)
Stock-Preparation					$	51,495				$	61,391				$	(9,896	)			$	(10,267	)
Doctoring, Cleaning, & Filtration (d)						53,528					52,611					917					384
Fluid-Handling						46,627					46,109					518					531
	Papermaking Systems Segment					151,650					160,111					(8,461	)				(9,352	)
Fiber-based Products						6,719					6,984					(265	)				(265	)
					$	158,369				$	167,095				$	(8,726	)			$	(9,617	)
																				Increase
																				(Decrease)
																				Excluding Effect
					Three Months Ended										Increase					of Currency
Sequential Revenues by Product Line					June 29, 2013					March 30, 2013					(Decrease)					Translation (b,c)
Stock-Preparation					$	28,493				$	23,002				$	5,491				$	5,465
Doctoring, Cleaning, & Filtration (d)						27,666					25,862					1,804					1,904
Fluid-Handling						23,094					23,533					(439	)				(278	)
	Papermaking Systems Segment					79,253					72,397					6,856					7,091
Fiber-based Products						2,912					3,807					(895	)				(895	)
					$	82,165				$	76,204				$	5,961				$	6,196
																				Increase
																				(Decrease)
																				Excluding Effect
					Three Months Ended										Increase					of Currency
Revenues by Geography (e)					June 29, 2013					June 30, 2012					(Decrease)					Translation (b,c)
North America					$	40,350				$	40,730				$	(380	)			$	(580	)
Europe						16,594					18,861					(2,267	)				(2,473	)
China						12,353					11,151					1,202					941
South America						7,801					5,714					2,087					2,131
Other						5,067					6,526					(1,459	)				(1,460	)
					$	82,165				$	82,982				$	(817	)			$	(1,441	)
																				Increase
																				(Decrease)
																				Excluding Effect
					Six Months Ended										Increase					of Currency
					June 29, 2013					June 30, 2012					(Decrease)					Translation (b,c)
North America					$	79,228				$	80,429				$	(1,201	)			$	(1,450	)
Europe						34,167					37,901					(3,734	)				(4,145	)
China						23,581					23,044					537					118
South America						11,992					11,508					484					673
Other						9,401					14,213					(4,812	)				(4,813	)
					$	158,369				$	167,095				$	(8,726	)			$	(9,617	)
																				Increase
																				(Decrease)
																				Excluding Effect
					Three Months Ended										Increase					of Currency
Sequential Revenues by Geography					June 29, 2013					March 30, 2013					(Decrease)					Translation (b,c)
North America					$	40,350				$	38,878				$	1,472				$	1,461
Europe						16,594					17,573					(979	)				(768	)
China						12,353					11,228					1,125					1,030
South America						7,801					4,191					3,610					3,666
Other						5,067					4,334					733					807
					$	82,165				$	76,204				$	5,961				$	6,196
					Three Months Ended										Six Months Ended
Business Segment Information					June 29, 2013					June 30, 2012					June 29, 2013					June 30, 2012
Gross Profit Margin:
		Papermaking Systems				48.7	%				43.4	%				47.8	%				44.2	%
		Fiber-based Products				47.1	%				52.8	%				51.4	%				54.8	%
						48.6	%				43.7	%				48.0	%				44.7	%
Operating Income:
		Papermaking Systems			$	11,821				$	11,772				$	21,765				$	23,876
		Corporate and Fiber-based Products				(3,396	)				(2,357	)				(5,968	)				(4,071	)
					$	8,425				$	9,415				$	15,797				$	19,805
Adjusted Operating Income (c,f):
		Papermaking Systems			$	12,039				$	11,772				$	21,983				$	23,876
		Corporate and Fiber-based Products				(3,396	)				(2,357	)				(5,968	)				(4,071	)
					$	8,643				$	9,415				$	16,015				$	19,805
Bookings from Continuing Operations:
		Papermaking Systems			$	84,857				$	74,794				$	170,485				$	149,012
		Fiber-based Products				2,271					2,617					6,925					5,993
					$	87,128				$	77,411				$	177,410				$	155,005
Capital Expenditures from Continuing Operations:
		Papermaking Systems			$	1,226				$	503				$	2,398				$	761
		Corporate and Fiber-based Products				168					80					174					80
					$	1,394				$	583				$	2,572				$	841
																									Twelve
					Three Months Ended										Six Months Ended										Months Ended
Cash Flow and Other Data from Continuing Operations					June 29, 2013					June 30, 2012					June 29, 2013					June 30, 2012					June 29, 2013
Cash Provided by Operations					$	11,091				$	8,558				$	18,072				$	4,532				$	43,996
Depreciation and Amortization Expense						2,475					2,029					4,428					4,272
Balance Sheet Data															June 29, 2013					Dec. 29, 2012
Assets
Cash, Cash Equivalents, and Restricted Cash															$	64,487				$	54,553
Accounts Receivable, net																63,025					59,359
Inventories																54,052					42,077
Unbilled Contract Costs and Fees																1,087					2,800
Other Current Assets																19,749					16,804
Property, Plant and Equipment, net																41,476					39,168
Intangible Assets																25,995					26,095
Goodwill																108,381					107,947
Other Assets																10,642					10,145
															$	388,894				$	358,948
Liabilities and Shareholders' Investment
Accounts Payable															$	26,050				$	23,124
Short- and Long-term Debt																16,025					6,875
Other Liabilities																92,437					78,982
	Total Liabilities															134,512					108,981
	Stockholders' Equity															254,382					249,967
															$	388,894				$	358,948
Adjusted Operating Income and Adjusted EBITDA					Three Months Ended										Six Months Ended
Reconciliation					June 29, 2013					June 30, 2012					June 29, 2013					June 30, 2012
Consolidated
		Net Income Attributable to Kadant			$	5,760				$	6,543				$	11,044				$	13,596
		Net Income Attributable to Noncontrolling Interest				72					42					108					65
		Loss from Discontinued Operation, Net of Tax				12					3					41					64
		Provision for Income Taxes				2,492					2,705					4,459					5,843
		Interest Expense, net				89					122					145					237
		Operating Income				8,425					9,415					15,797					19,805
		Restructuring costs and other income, net (a)				218					-					218					-
		Adjusted Operating Income (c)				8,643					9,415					16,015					19,805
		Depreciation and Amortization				2,475					2,029					4,428					4,272
		Adjusted EBITDA (c)			$	11,118				$	11,444				$	20,443				$	24,077
Papermaking Systems
		Operating Income			$	11,821				$	11,772				$	21,765				$	23,876
		Restructuring costs and other income, net (a)				218					-					218					-
		Adjusted Operating Income (c)				12,039					11,772					21,983					23,876
		Depreciation and Amortization				2,356					1,909					4,191					4,033
		Adjusted EBITDA (c)			$	14,395				$	13,681				$	26,174				$	27,909
Corporate and Fiber-based Products
		Operating Loss			$	(3,396	)			$	(2,357	)			$	(5,968	)			$	(4,071	)
		Depreciation and Amortization				119					120					237					239
		EBITDA (c)			$	(3,277	)			$	(2,237	)			$	(5,731	)			$	(3,832	)

(a) Includes restructuring costs of $1,958, net of a gain of $1,740 on the sale of assets, in the three-month and six-month periods ended June 29, 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) This product line was formerly presented separately as doctoring, water-management, and other product lines. Prior period amounts have been recast to conform to the current presentation.

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

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

(g) Includes accelerated depreciation of $307 in the six-month period ended June 30, 2012 associated with the disposal of equipment in China related to a facility consolidation.

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry. Our stock-preparation; fluid-handling; and doctoring, cleaning, and filtration products 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 $332 million in 2012 and 1,600 employees in 17 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 March 30, 2013. 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; commodity and component price increases or shortages; international sales and operations; fluctuations in our 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; 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