SOURCE: MFRI

MFRI

June 11, 2010 08:00 ET

MFRI Announces Results for First Quarter Ended April 30, 2010

NILES, IL--(Marketwire - June 11, 2010) - MFRI, Inc. (NASDAQ: MFRI) announced today sales and earnings for the quarter ended April 30, 2010. The Company's net sales in the first quarter were $49.9 million, 26.2% less than $67.6 million in the corresponding quarter of the prior year; net loss was $484 thousand or ($0.07) per diluted share, compared to net income of $6.0 million or $0.88 per diluted share, in the prior-year's quarter.

FIRST QUARTER

SALES -- Sales were $49.9 million, 26.2% less than $67.6 million for the prior-year's quarter and essentially the same as the previous quarter. The prior-year quarter included sales related to the India pipeline project, which was completed in the fall of 2009, and activity in the heating, ventilation and air conditioning systems ("HVAC") business included in Corporate and Other.

GROSS PROFIT -- Gross profit for the quarter decreased to $10.8 million or 21.6% of sales from $18.7 million or 27.7% of sales in the corresponding prior-year quarter, which included gross profit related to the India pipeline project. Excluding the effects of the India pipeline project and HVAC activity, gross profit was in line with prior year and substantially higher than the $6.1 million of the previous quarter.

EXPENSES -- Operating expenses decreased to $10.9 million or 21.9% of sales from $11.9 million or 17.5% of sales in the prior-year period. The decrease in expenses was primarily due to staffing reductions and decreased profit-based incentive expense.

NET (LOSS) INCOME -- Net loss was $484 thousand or ($0.07) per diluted share, compared to net income of $6.0 million or $0.88 per diluted share in the prior-year's quarter. This decrease was primarily due to the absence of sales and profits related to the India pipeline project and HVAC activity that occurred in the prior-year first quarter. The effective income tax rate of 11.1% was less than the statutory U. S. federal income tax rate mainly due to the impact of tax-free foreign income in the United Arab Emirates ("U.A.E.").

BACKLOG -- The Company's backlog on April 30, 2010 was $86.1 million, up $12.8 million or 17.4% from January 31, 2010. The principal factors driving this increase are bookings in domestic piping systems activity, addition of an HVAC project, and the highest level of bookings in industrial process cooling since October 2008.

PIPING SYSTEMS -- The first quarter net sales and profit were significantly below the record first quarter last year. In the prior year, the Company was working actively on a 600 Kilometer (370 mile) India pipeline project. Since the initial project was completed in the fall of 2009, no work was performed in the fourth quarter of 2009 or first quarter of 2010 at the India facility. However, in January 2010, the Company received an order to insulate and jacket at least an additional 150 kilometers (93 miles) of pipeline for this project. The new work will begin in the second quarter of 2010 and is expected to be completed by the end of the year. With backlog up by 8% from the beginning of the fiscal year, the Company is off to a good start considering the generally poor economic climate particularly in the Dubai market.

FILTRATION PRODUCTS -- Industrial markets for filters continue to be constrained, and this was reflected in an 18.0% decrease in net sales from the prior-year's first quarter. Even so, the filtration products business maintained a level gross profit and improved gross margin by 2.4 percentage points compared to the prior-year period. Foreign exchange loss and increased product development, selling and advertising expenses produced a bigger operating loss than last year's first quarter. However, when compared to the previous quarter, the loss was substantially reduced on lower sales due to improved margins. The Company will continue to invest in new product development and geographic expansion of sales activity to improve its competitive position in this very challenging market.

INDUSTRIAL PROCESS COOLING -- Market conditions for industrial process equipment continue to be difficult although the market is showing some signs of improvement. Net sales were slightly higher than the same quarter last year and essentially flat with last quarter. Gross profit margin improved 4.0 percentage points from the prior year and 2.4 percentage points from last quarter. This improvement, coupled with good expense control, resulted in a small loss for the quarter compared to much larger losses in the prior-year's quarters. Quoting activity and orders have shown increased strength over the past several months, both domestically and internationally. Several large orders were secured and the base business seems to be solidifying with backlog at the highest level since October 2008.

HVAC CONTRACTING -- The market for new HVAC projects remained constrained by economic conditions. Quoting activity for HVAC projects has maintained reasonably high levels and in early 2010, an $8 million contract was obtained for a Chicago project. Fieldwork on this new project is expected to begin late in the second quarter of 2010.

David Unger, CEO, said, "Maintaining our diversified product mix and geographic view has helped mitigate the effects of a difficult global economic climate. We believe market conditions will remain challenging for some time. We plan to continue to make strategic investments that are necessary to maintain growth in the long term. An example of that is our recently announced initiative to establish a pipe insulation facility in Saudi Arabia designed to capture a greater share of the growing market in that country and nearby Gulf Cooperation Council countries."

Brad Mautner, President and COO, said, "Although the quarter produced a net loss, each of the businesses worked diligently to maximize their results from the opportunities that were available. This is certainly evident when comparing sequential quarters. Net sales were essentially flat from last quarter; however, the Company increased gross profit substantially and reduced the net loss from $0.85 to $0.07 per diluted share. Balancing new initiatives with the day-to-day challenges of reduced market demands will continue to test our Company; however we are prepared to face this reality and leverage our strengths to improve results even more."

MFRI, Inc. is a multi-line company engaged in the following businesses: pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling and other applications; custom-designed industrial filtration products to remove particulates from dry gas streams; industrial process cooling equipment to remove heat from molding, printing and other industrial processes; and installation of heating, ventilation and air conditioning for large buildings.

Form 10-Q for the period ended April 30, 2010 will be accessible at http://www.sec.gov/. For more information visit the Company's website www.mfri.com or contact the Company directly.

Statements and other information contained in this announcement which can be identified by the use of forward-looking terminology such as "anticipate," "may," "will," "expect," "continue," "remain," "intend," "aim," "should," "prospects," "could," " position," "future," "potential," "believes," "plans," "likely," "seems," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties include, but are not limited to, economic conditions, market demand and pricing, competitive and cost factors, raw material availability and prices, global interest rates, currency exchange rates, labor relations and other risk factors.

MFRI, INC. AND SUBSIDIARIES
Condensed Statements of Operations and Related Data (Unaudited)
                                                 Three Months Ended
(In 000's except per share data)         April 30,  January 31,  April 30,
Operating Statement Information            2010         2010       2009
                                         ---------  -----------  ---------

Net sales
  Piping Systems                         $  25,216  $    20,778  $  32,627
  Filtration Products                       19,114       21,598     23,305
  Industrial Process Cooling                 5,191        5,268      5,053
  Corporate and Other (1)                      329        1,466      6,594
                                         ---------  -----------  ---------
     Total                                  49,850       49,110     67,579
                                         ---------  -----------  ---------
Gross profit:
  Piping Systems                             7,002        4,011     14,148
  Filtration Products                        2,637          726      2,646
  Industrial Process Cooling                 1,289        1,178      1,051
  Corporate and Other                         (176)         185        882
                                         ---------  -----------  ---------
     Total                                  10,752        6,100     18,727
                                         ---------  -----------  ---------
Income (loss) from operations
  Piping Systems                             3,436          185      9,952
  Filtration Products                         (519)      (2,306)      (285)
  Industrial Process Cooling                  (184)        (681)      (495)
  Corporate and Other                       (2,895)      (1,466)    (2,300)
                                         ---------  -----------  ---------
     Total                                    (162)      (4,268)     6,872

(Loss) income from joint venture               (97)          87          0

Interest expense, net                          285          323        688

                                         ---------  -----------  ---------
(Loss) income before income taxes             (544)      (4,504)     6,184

Income tax (benefit) expense                   (60)       1,277        178

                                         ---------  -----------  ---------
Net (loss) income                        $    (484) $    (5,781) $   6,006
                                         =========  ===========  =========

Weighted average common shares
 outstanding
  Basic                                      6,837        6,835      6,816
  Diluted                                    6,837        6,835      6,852

(Loss) earnings per share:
  Basic                                  $   (0.07) $     (0.85) $    0.88
  Diluted                                $   (0.07) $     (0.85) $    0.88


                                         April 30,  January 31,
                                           2010        2010
Backlog:                                 ---------- -----------
Piping Systems                           $   52,564 $    48,770
Filtration Products                          21,271      21,397
Industrial Process Cooling                    4,021       2,377
Corporate and Other                           8,223         788
                                         ---------- -----------
  Total                                  $   86,079 $    73,332
                                         ========== ===========

(1) Corporate and Other includes activity for the installation of heating,
    ventilation and air conditioning systems.
See the Company's Form 10-Q for the period for notes to financial statements.