SOURCE: MFRI

MFRI

June 10, 2014 08:00 ET

MFRI Reports 1Q 2014 Net Sales of $59.5 Million and EPS of $0.57 From Continuing Operations

NILES, IL--(Marketwired - Jun 10, 2014) - MFRI, Inc. (NASDAQ: MFRI)

  • Net sales increase 9% vs. 1Q13
  • Net income from continuing operations increases to $4.2 million from $1.7 million
  • EPS from continuing operations of $0.57 vs. $0.25 in 1Q13

MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the first quarter ended April 30, 2014.

President and CEO Bradley Mautner commented, "MFRI turned in an excellent first-quarter performance, continuing to benefit from the many steps we took to build our business in prior years. Net sales from continuing operations rose 9%, driven by Piping Systems, which continued to fulfill orders for a significant domestic oil and gas project and for major projects in Saudi Arabia and the United Arab Emirates (U.A.E.). As a result, our EPS from continuing operations of $0.57 is more than double the EPS in the prior year's quarter. 

"We continue to develop new products for use in the oil and gas industries and are actively pursuing many large projects in the Middle East and other geographies like Canada, Africa and South America. Even as we support project development with engineered solutions and budgets, it should be remembered that the length of the procurement cycle and unpredictability of customer schedules for large projects impact our ability to generate revenue quickly when we win business. Therefore, our focus for the remaining quarters of 2014 is to win our share of the 'mega projects' and to begin execution of some project elements later this year, setting the stage for a robust 2015." 

Mr. Mautner continued, "Sales of Filtration Products were down year over year due to continued lower demand for fabric filter bag products, reflecting decreased domestic activity in coal-fired power plants and steel industries. Although we have been historically strong in both sectors, needs in the U.S. steel industry have been soft and coal now provides just 37% of the nation's electricity -- down from 52% in 2000. To offset these trends, we have intensified our efforts in other industries, like waste-to-energy, minerals and cement. 

"On the positive side, even as volume has been under pressure, Filtration Products' gross profit rose more than 11% in the first quarter. With our focus on profitable growth in non-coal/steel end-use markets for both fabric and pleated filters, we are encouraged by the progress we have been making to improve this segment's operations. To capitalize on growing demand for filtration products in international markets, we have expanded our salesforce in Asia and expect to begin production in the U.A.E. by September. The Middle East facility will enable us to more effectively serve the region's growing gas turbine power generation market and, eventually, the dust collection market as well.

"With four quarters of year-over-year growth in earnings and cash flow, we have also improved the Company's balance sheet, with the leverage ratio of Debt/Equity down to 0.41 by quarter-end compared to 0.68 a year ago."

THREE MONTHS ENDED APRIL 30, 2014

In fiscal 2013 and 2014, the Company made several changes to its portfolio of businesses, including the sale of most of the domestic assets of its industrial process cooling subsidiary, Thermal Care, Inc., for $16.1 million in April 2013. In June 2013 the Company sold substantially all of the assets of its HVAC installation business, and in February 2014 it sold its remaining European industrial process cooling business. The results of these businesses and the gain from the disposition of Thermal Care's assets -- which together accounted for $9.4 million in income in the first quarter of fiscal 2013 -- are classified as discontinued operations in the Company's consolidated financial statements.

SALES - Net sales increased 9% to $59.5 million in the current quarter, from $54.7 million in the prior-year quarter. Piping Systems sales increased 17% or $6.3 million compared to the prior-year quarter, mainly due to a significant domestic oil and gas project and sales growth in Saudi Arabia and the U.A.E. Filtration Products sales decreased by $1.5 million from the prior-year quarter, due primarily to reduced domestic demand for fabric filter bags.

GROSS PROFIT - Gross profit rose 26% to $16.0 million in the current quarter, from $12.7 million in the prior-year quarter, mainly due to the sales increase in Piping Systems. Filtration Products' gross profit increased 11.3% from the prior-year quarter.

EXPENSES - Operating expenses as a percent of net sales decreased to 17.3%, from 18.6% in the prior-year quarter.

TAXES - The Company's consolidated effective tax rate from continuing operations was 23.2% for the three months ended April 30, 2014, which was affected primarily by the income earned in Saudi Arabia. 

NET INCOME - First quarter net income was $3.8 million compared to $11.1 million in the prior-year quarter, which included $9.4 million income from discontinued operations, including the gain from the sale of Thermal Care's domestic assets.

BACKLOG

The Company's backlog decreased 19.1%, or $16.0 million, from January 31, 2014. This decrease primarily reflects the continued execution of large-scale Piping Systems projects in Saudi Arabia and the U.A.E. MFRI's Piping Systems business is based on large, discrete projects so backlog and revenues can vary significantly in both geographies and reporting periods. Both fiscal 2013 and the first quarter of fiscal 2014 were very active periods as major projects for various customers overlapped, which stimulated sales in the period. The Company continues to pursue, and expects to win, new Piping Systems and Filtration Products projects worldwide. However, due to the projects' many complex technical and commercial requirements, any success in winning major projects would most likely result in revenue in late 2014 or in 2015.

         
Backlog ($ in thousands):   4/30/2014   1/31/2014   4/30/2013
Piping Systems   $ 44,716   $ 60,555   $ 95,640
Filtration Products     22,817     22,938     22,232
Total   $ 67,533   $ 83,493   $ 117,872
                   

MFRI, Inc.

MFRI, Inc. manufactures pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling as well as other applications. The Company also manufactures custom-designed industrial filtration products to remove particulates from air and other gas streams. In total, MFRI has manufacturing operations at 10 locations in six countries.

Forward-Looking Statements

Statements and other information contained in this announcement that can be identified by the use of forward-looking 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, including, without limitation, statements regarding the expected future performance and operations of the Company. 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, the project nature of the business, the increasing international nature of the business, 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's Form 10-Q for the period ended April 30, 2014 will be accessible at www.sec.gov and www.mfri.com. For more information, visit the Company's website or contact its investor relations representative, LHA.

   
   
MFRI, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)  
(In thousands, except per share data)  
   
    Three Months Ended
April 30,
 
    2014     2013  
Net sales                
  Piping Systems   $ 42,354     $ 36,058  
  Filtration Products     17,170       18,633  
    Total   $ 59,524     $ 54,691  
Gross profit                
  Piping Systems   $ 13,458     $ 10,444  
  Filtration Products     2,531       2,275  
    Total   $ 15,989     $ 12,719  
Income (loss) from operations                
  Piping Systems   $ 8,017     $ 5,380  
  Filtration Products     (544 )     (483 )
  Corporate     (1,764 )     (2,364 )
    Total   $ 5,709     $ 2,533  
                 
Loss from joint venture     (8 )     (295 )
                 
Interest expense, net     237       421  
Income from continuing operations before income taxes     5,464       1,817  
                 
Income tax expense     1,266       105  
                 
Income from continuing operations     4,198       1,712  
                 
(Loss) income from discontinued operations, net of tax     (371 )     9,369  
                 
Net income   $ 3,827     $ 11,081  
                 
Weighted average common shares outstanding                
  Basic     7,177       6,932  
  Diluted     7,315       6,934  
                 
Earnings per share from continuing operations                
  Basic   $ 0.58     $ 0.25  
  Diluted   $ 0.57     $ 0.25  
(Loss) earnings per share from discontinued operations                
  Basic and diluted   $ (0.05 )   $ 1.35  
Earnings per share                
  Basic   $ 0.53     $ 1.60  
  Diluted   $ 0.52     $ 1.60  
                   

See accompanying notes to consolidated financial statements.
Note: Earnings per share calculations could be impacted by rounding.

 
 
 
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(In thousands except per share data)   April 30, 2014   January 31, 2014
ASSETS   Unaudited    
Current assets            
  Cash, cash equivalents and restricted cash     13,567     13,834
  Trade accounts receivable, less allowance for doubtful accounts     47,568     45,659
  Inventories, net     34,668     33,547
  Prepaid expenses and other current assets     8,916     8,052
    Total current assets     104,719     101,092
Property, plant and equipment, net of accumulated depreciation     42,000     42,541
Long-term assets            
  Note receivable     4,566     4,659
  Investment in joint venture     6,542     6,550
  Other assets     7,118     8,427
    Total long-term assets     18,226     19,636
Total assets   $ 164,945   $ 163,269
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities            
  Trade accounts payable     17,188     15,276
Accrued liabilities, compensation, incentives, and payroll taxes     11,742     16,329
Current maturities of long-term debt     6,369     8,274
Other current liabilities, including customer deposits     14,224     13,603
    Total current liabilities     49,523     53,482
Long-term liabilities            
  Long-term debt, less current maturities     26,242     23,469
  Other long-term liabilities     8,847     9,680
    Total long-term liabilities     35,089     33,149
Stockholders' equity            
    Total stockholders' equity     80,333     76,638
Total liabilities and stockholders' equity   $ 164,945   $ 163,269
             
             
             
MFRI, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)  
   
(In thousands)   Three Months Ended
April 30,
 
    2014     2013  
Operating activities                
  Net income   $ 3,827     $ 11,081  
Adjustments to reconcile net income to net cash flows used in operating activities                
  Depreciation and amortization     1,433       1,530  
  Loss (gain) on disposal of discontinued operations     12       (11,401 )
  Deferred tax expense     612       2,667  
  Other, net     (462 )     209  
Changes in operating assets and liabilities                
  Accounts receivable     (1,726 )     (14,534 )
  Costs and estimated earnings in excess of billings on uncompleted contracts     (2,313 )     149  
  Accrued compensation and payroll taxes     (4,598 )     1,340  
  Other assets and liabilities     1,899       (5,104 )
Net cash used in operating activities     (1,316 )     (14,063 )
                 
Investing activities                
  Net proceeds from sale of discontinued operations     --       16,123  
  Capital expenditures, other investing activities     (773 )     (440 )
Net cash (used in) provided by investing activities     (773 )     15,683  
                 
Financing activities                
Proceeds from debt     17,412       40,813  
Payments of debt on revolving lines of credit, other     (15,738 )     (35,989 )
Other financing     (315 )     (1,579 )
Net cash provided by financing activities     1,359       3,245  
                 
Effect of exchange rate changes on cash and cash equivalents     173       (917 )
Net (decrease) increase in cash and cash equivalents     (557 )     3,948  
Cash and cash equivalents - beginning of period     13,395       7,035  
Cash and cash equivalents - end of period   $ 12,838     $ 10,983  
                 

See accompanying notes to consolidated financial statements.