NILES, IL--(Marketwire - September 9, 2010) - MFRI, Inc. (
SECOND QUARTER:
SALES -- Sales increased 1.3% to $61.9 million, from $61.1 million for the prior-year's quarter. Sales increased in all reportable segments.
GROSS PROFIT -- Gross profit for the quarter decreased to $13.7 million or 22.2% of sales from $14.6 million or 23.9% of sales in the corresponding prior-year quarter. The largest gross profit decrease resulted from the reduced sales and gross profits in the Dubai piping market, while gross profit increased in the filtration products, industrial process cooling and in the U.S. piping systems businesses.
EXPENSES -- Operating expenses decreased to $10.9 million or 17.6% of sales from $11.8 million or 19.4% of sales in the prior-year period. The decrease in expenses was primarily due to staffing reductions, expense control measures and decreased profit-based incentive compensation.
NET INCOME -- Net income was $2.9 million or $0.42 per diluted share, compared to net income of $3.8 million or $0.55 per diluted share in the prior-year's quarter, primarily due to the changes mentioned above and to the current quarter's one-time charge of $475,000 for the closing of the South African filter operation. Without this one-time charge, net income would have been $3.4 million or $0.49 per diluted share. The annual effective income tax rate was less than the statutory U.S. federal income tax rate mainly due to the impact of income tax free earnings in the United Arab Emirates ("U.A.E.").
YEAR-TO-DATE (SIX MONTHS):
SALES -- Sales for the six months ended July 31, 2010 were $111.7 million, 13.2% less than $128.7 million for the prior-year's first six months. Year-to-date sales decreased in all businesses except industrial process cooling. The prior year period for the piping systems business included higher sales related to the India pipeline project, which was completed in the fall of 2009, and a stronger Dubai market. Heating, ventilating and air conditioning ("HVAC") business included in Corporate and Other decreased in the current year. New construction activity has been adversely affected by the current economy
GROSS PROFIT -- Year-to-date gross profit decreased to $24.5 million or 21.9% of sales from $33.4 million or 25.9% in the prior year. Virtually the entire gross profit decline occurred in the piping systems business due to the reduced volume in the U.A.E. and the completion of the large project in India. The filtration products and industrial process cooling businesses each experienced an increase in their gross profit for the period. This increase in gross profit was primarily due to increased volume, margin and benefits from previous expense reduction initiatives.
EXPENSES -- Year-to-date operating expenses decreased to $21.8 million in 2010 from $23.7 million in the corresponding period in 2009, primarily due to reduced costs in connection with staff reductions and lower profit based incentive compensation.
NET INCOME -- Net income was $2.4 million or $0.35 diluted earnings per share, compared to $9.8 million or $1.42 diluted earnings per share in the prior-year period. This decrease was due to the lower volume of the piping systems business in the U.A.E., and 2009 activities not repeated in 2010 including the India pipeline project and profits from the HVAC activities. The annual effective income tax rate was less than the statutory U.S. federal income tax rate mainly due to the impact of income tax free earnings in the U.A.E.
CURRENT STATUS:
BACKLOG -- The Company's backlog on July 31, 2010 was $64.9 million, a decrease of 11.6% from January 31, 2010, principally the result of reduced activity in the U.S. and the U.A.E. piping systems businesses.
PIPING SYSTEMS -- The Company actively worked on a 600 kilometer (370 mile) India pipeline project that was completed in the fall of 2009. In January 2010, the Company received an additional order to insulate and jacket at least 150 kilometer (93 mile) of pipe. In 2010, production did not begin until the second quarter and is expected to be substantially complete by the end of the third quarter. A poor economic climate, particularly in Dubai, has been a major cause of decreased business activity in that part of the world.
FILTRATION PRODUCTS -- Industrial markets for filters continue to be constrained, yet operations show some improvement, which was indicated by a 14.2% increase in net sales and doubling of gross profit from the prior-year's second quarter. The second quarter operating loss was reduced by 71.6% compared to last year's second quarter, despite one-time costs of $475,000 for the closure of the South African operation. Although year-to-date, sales were down slightly, the operating loss was reduced by half. Without the South African operation closing costs, the filtration products business would have been essentially at break-even for the second quarter, and the year-to-date operating loss would have improved by 73.4%. The Company will continue to invest in new product development and geographic expansion to improve its competitive position in this very challenging climate.
INDUSTRIAL PROCESS COOLING -- Market conditions for industrial process cooling continue to be soft but show some signs of improvement. Net sales grew 31.5% for the quarter and 17.8% year-to-date versus last year. Gross profit grew 45.5% and the gross margin percentage improved 2.8 percentage points from last year's second quarter. This improvement, coupled with expense control, resulted in a modest profit for the quarter and six months. Quoting activity and orders show increased strength over the past several months, both domestically and internationally, but market conditions remain uncertain.
David Unger, CEO, commented, "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 facilitate growth for the long term. One example 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, "We are pleased with the improved performance of the filtration products and industrial process cooling businesses. While the piping systems business has seen a significant reduction compared to last year, it still is performing well given the reduced demand in the U.A.E. and smaller project activity in India. Pursuing new initiatives while addressing the day-to-day challenges of difficult to predict and often reduced market demand will continue to test our Company; however, we are prepared to face this reality and intend to 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 July 31, 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)
| (In 000's except per share data) | Three Months Ended July 31, |
Six Months Ended July 31, |
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| Operating Statement Information | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| Net sales | ||||||||||||||||||
| Piping Systems | $ | 33,160 | $ | 32,556 | $ | 58,376 | $ | 65,183 | ||||||||||
| Filtration Products | 21,045 | 18,435 | 40,159 | 41,740 | ||||||||||||||
| Industrial Process Cooling | 7,316 | 5,563 | 12,507 | 10,616 | ||||||||||||||
| Corporate and Other | 366 | 4,552 | 695 | 11,146 | ||||||||||||||
| Total | 61,887 | 61,106 | 111,737 | 128,685 | ||||||||||||||
| Gross profit | ||||||||||||||||||
| Piping Systems | 9,268 | 11,309 | 16,270 | 25,457 | ||||||||||||||
| Filtration Products | 2,441 | 1,214 | 5,078 | 3,860 | ||||||||||||||
| Industrial Process Cooling | 2,112 | 1,452 | 3,401 | 2,503 | ||||||||||||||
| Corporate and Other | (78 | ) | 654 | (254 | ) | 1,536 | ||||||||||||
| Total | 13,743 | 14,629 | 24,495 | 33,356 | ||||||||||||||
| Income (loss) from operations | ||||||||||||||||||
| Piping Systems | 5,487 | 6,864 | 8,923 | 16,816 | ||||||||||||||
| Filtration Products | (514 | ) | (1,810 | ) | (1,033 | ) | (2,095 | ) | ||||||||||
| Industrial Process Cooling | 365 | (288 | ) | 181 | (783 | ) | ||||||||||||
| Corporate and Other | (2,513 | ) | (1,984 | ) | (5,408 | ) | (4,284 | ) | ||||||||||
| Total | 2,825 | 2,782 | 2,663 | 9,654 | ||||||||||||||
| (Loss) from joint venture | 24 | 106 | 121 | 106 | ||||||||||||||
| Interest expense, net | 404 | 530 | 689 | 1,218 | ||||||||||||||
| Income before income taxes | 2,397 | 2,146 | 1,853 | 8,330 | ||||||||||||||
| Income tax benefit | (485 | ) | (1,605 | ) | (545 | ) | (1,427 | ) | ||||||||||
| Net income | $ | 2,882 | $ | 3,751 | $ | 2,398 | $ | 9,757 | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||
| Basic | 6,839 | 6,819 | 6,838 | 6,818 | ||||||||||||||
| Diluted | 6,860 | 6,846 | 6,863 | 6,854 | ||||||||||||||
| Earnings per share: | ||||||||||||||||||
| Basic | $ | 0.42 | $ | 0.55 | $ | 0.35 | $ | 1.43 | ||||||||||
| Diluted | 0.42 | 0.55 | 0.35 | 1.42 | ||||||||||||||
| Backlog: | July 31, 2010 | January 31, 2010 | ||||||
| Piping Systems | $ | 34,389 | $ | 48,770 | ||||
| Filtration Products | 18,691 | 21,397 | ||||||
| Industrial Process Cooling | 3,700 | 2,377 | ||||||
| Corporate and Other | 8,073 | 788 | ||||||
| Total | $ | 64,853 | $ | 73,332 | ||||
See the Company's Form 10-Q for the period for notes to financial statements.