TWIN
$6.82
Twin Disc
$.32
4.92%
Earnings Details
Quarter June 2020
Friday, August 7, 2020 8:00:00 AM
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Summary

Twin Disc (TWIN) Recent Earnings

Twin Disc (TWIN) reported a Quarter June 2020 loss of $0.12 per share on revenue of $59.4 million. The consensus estimate was a loss of $0.29 per share on revenue of $40.9 million. Revenue fell 18.0% compared to the same quarter a year ago.

Twin Disc Inc designs, manufactures and sells marine and heavy duty off-highway power transmission equipment. Its products include marine transmissions, surface drives, propellers, boat management systems, power-shift transmissions and controls systems.

Results
Reported Earnings
($0.12)
Earnings Whisper
-
Consensus Estimate
($0.29)
Reported Revenue
$59.4 Mil
Revenue Estimate
$40.9 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Twin Disc, Inc. Announces Fiscal 2020 Fourth Quarter Financial Results

   

  • Fourth quarter gross profit percent improved 60 basis points year-over-year
  • Generated $4.3 million of cash from operating activities during the fourth quarter
  • Veth Propulsion sales increased 6.2% for fiscal 2020
  • $7.2 million of annualized expense reductions announced in response to the COVID-19 crisis
  • Challenging market conditions due to the impacts of the COVID-19 crisis and weaker oil and gas markets

RACINE, Wis., Aug. 07, 2020 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the fiscal 2020 fourth quarter ended June 30, 2020

Sales for the fiscal 2020 fourth quarter were $59.4 million, compared to $72.4 million for the same period last year. The 18.0% decrease in 2020 fourth quarter sales was primarily due to continued softness in the Company’s oil and gas markets along with weaker demand for industrial and marine products compared to the same period the prior fiscal year.  Despite a difficult global economy, our Veth Propulsion acquisition reported a 6.2% increase in sales for fiscal 2020 and a 26.0% increase compared to the prior fiscal year fourth quarter.  This growth reflects the acquisition synergies we have been able to achieve with respect to market penetration and product acceptance in Veth’s non-traditional markets of Asia and North America.  For the fiscal 2020 full year, sales were $246.8 million, compared to $302.7 million for fiscal 2019.  Foreign currency exchange had a $0.9 million unfavorable impact on fiscal 2020 fourth quarter sales and a $4.8 million unfavorable impact on fiscal 2020 year-to-date sales.   

John H. Batten, Chief Executive Officer, commented: “Our six-month backlog at June 30, 2020, was $66.6 million, compared to $87.4 million at March 27, 2020, and $99.6 million at June 30, 2019. By many accounts, fiscal 2020 was one of the most challenging years in Twin Disc’s 102-year history.  As the COVID-19 crisis continues impacting demand across many of our global markets, we are focused on managing the actions that are under our control.  Throughout our history we have successfully emerged from challenging industry cycles, and I am confident we will come out of the COVID-19 crisis as a stronger and leaner company that is better positioned to compete within our various markets. Across our global manufacturing and distribution operations, our teams have remained dedicated to delivering quality, craftsmanship and innovation to our worldwide customers. I am proud of the response, hard work and commitment of our global employees during this challenging period.”

Mr. Batten continued: “In response to the COVID-19 crisis and the severe impact the pandemic is having on many of our global markets, we are taking aggressive actions to reduce expenses, while focusing on initiatives that improve Twin Disc’s efficiency, productivity, and cost structure.  As a result, we recently announced $7.2 million of annualized expense reductions primarily impacting our domestic operations.  Simultaneously, we have pursued strategies to limit the capital requirements of our business, improve manufacturing efficiency, reduce costs, and diversify our geographic footprint and end-market concentration, while enhancing the quality and reliability of Twin Disc’s products. On August 1, 2020, we opened our new manufacturing facility in Lufkin, TX. As this facility ramps up production, we believe it will further improve our manufacturing and logistic capabilities, while concentrating resources closer to many of our end customers.” 

Gross profit percent for the fiscal 2020 fourth quarter was 23.3%, compared to 22.7% in the fiscal 2019 fourth quarter.  The 60 basis point increase in gross profit margin percentage for the fiscal 2020 fourth quarter compared to the fiscal 2019 fourth quarter was primarily due to the positive impact of targeted cost reduction initiatives on certain key products, along with a global focus on cost containment. For the fiscal 2020 full year, gross profit was 22.6%, compared to 29.6% for the fiscal 2019 full year. 

For the fiscal 2020 fourth quarter, marketing, engineering and administrative (ME&A) expenses decreased $1.2 million to $15.1 million, compared to $16.3 million for the fiscal 2019 fourth quarter.  The 7.1% decrease in ME&A expenses in the quarter was primarily due to reduced professional fees ($0.6 million), reduced domestic salaries ($0.4 million), reduced corporate travel ($0.2 million), reduced marketing activities ($0.2 million) and general cost containment actions ($0.3 million). These decreases were partially offset by an increase to amortization expense due to a change in assumptions ($0.5 million).  As a percent of revenues, ME&A expenses were 25.5% for the fiscal 2020 fourth quarter, compared to 22.5% for the same period last fiscal year.  For the fiscal 2020 full year, ME&A expenses decreased $8.3 million, or (11.6%), to $63.2 million, compared to $71.5 million for the fiscal 2019 full year. As a percent of revenues, for the fiscal 2020 full year, ME&A expenses increased to 25.6%, compared to 23.6% for the fiscal 2019 full year. 

Twin Disc recorded restructuring charges of $0.2 million in the fiscal 2020 fourth quarter, compared to restructuring charges of $0.4 million in the same period last fiscal year.  Restructuring activities during the fiscal 2020 fourth quarter related primarily to cost reduction and productivity actions at the Company’s European operations.  For the fiscal 2020 full year, the Company recorded restructuring charges of $5.1 million, compared to $1.2 million for the fiscal 2019 full year. 

During the fiscal 2020 third quarter, the Company recorded a $27.6 million non-cash goodwill and long-lived asset impairment charge related to the unprecedented uncertainty in the Company’s markets due to the global COVID-19 pandemic, along with an historic decline in oil prices impacting the global energy market.

The effective tax rate for fiscal 2020 was 9.5% compared to 25.6% for fiscal 2019.  Under the Tax Cuts and Jobs Act, a company is prohibited from recognizing certain foreign global intangible low taxed income (“GILTI”) deductions and credits when in a domestic loss position, but is required to include the foreign GILTI income inclusions.  The $5.8 million GILTI inclusion and deemed taxes decreased the fiscal 2020 rate by 2.8%.  The Company determined that the carrying value of certain goodwill and intangibles exceeded their fair value and a $27.6 million impairment loss was recorded in the third fiscal quarter, resulting in a decrease to the effective tax rate of 13.3%.  Income generated in foreign jurisdictions and other tax preference items also impacted the rate. 

Net loss attributable to Twin Disc for the fiscal 2020 fourth quarter was $(1.8 million), or $(0.13) per share, compared to a net loss of $(0.8 million), or $(0.06) per share, for the fiscal 2019 fourth quarter.  For the fiscal 2020 full year, net loss attributable to Twin Disc was $(39.8 million), or $(3.03) per diluted share, compared to net income of $10.7 million, or $0.83 per diluted share for the fiscal 2019 full year. 

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was $1.3 million for the fiscal 2020 fourth quarter, compared to $2.9 million for the fiscal 2019 fourth quarter.  For the fiscal 2020 full year, EBITDA was a negative $(30.2 million) compared to EBITDA of $29.9 million for the fiscal 2019 full year. 

Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “Throughout the COVID-19 crisis we have aggressively eliminated expenses and aligned our cost structure with expected sales, while focusing on strengthening our balance sheet and reducing working capital levels. For fiscal year 2020 we generated $9.6 million of cash from operating activities, including $4.3 million of cash from operating activities during the fiscal 2020 fourth quarter.  Working capital at June 30, 2020 was $107.2 million, compared to $127.3 million at June 30, 2019.  Inventory reduction efforts contributed $5.3 million to this year-over-year improvement. We have deferred all non-essential spending and capital expenditures to conserve cash until the economic environment becomes clearer, and currently expect to invest $7 million to $9 million in capital expenditures during fiscal 2021.”

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on Friday, August 7, 2020. To participate in the conference call, please dial 866-548-4713 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. August 7, 2020, until midnight August 14, 2020. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 7300177. 

The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, access Twin Disc's website at http://ir.twindisc.com and follow the instructions at the webcast link. The archived webcast will be available shortly after the call on the Company's website.

About Twin Disc, Inc.
Twin Disc, Inc. designs, manufactures and sells marine and heavy-duty off-highway power transmission equipment.  Products offered include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and control systems.  The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government and industrial markets.  The Company’s worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network. For more information, please visit www.twindisc.com.

Forward-Looking Statements
This press release may contain statements that are forward looking as defined by the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors including those identified in the Company’s most recent periodic report and other filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved.  Risk factors also include the effects of the COVID-19 pandemic, and any impact the COVID-19 pandemic may have on the Company’s business operations, as well as its impact on general economic and financial market conditions. 

*Non-GAAP Financial Disclosures
Financial information excluding the impact of asset impairments, restructuring charges, foreign currency exchange rate changes and the impact of acquisitions, if any, in this press release are not measures that are defined in U.S. Generally Accepted Accounting Principles (“GAAP”). These items are measures that management believes are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating our earnings growth prospects. Non-GAAP measures are used by management as a performance measure to judge profitability of our business absent the impact of foreign currency exchange rate changes and acquisitions. Management analyzes the company’s business performance and trends excluding these amounts.  These measures, as well as EBITDA, provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.

Definition – Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

The sum of, net earnings and adding back provision for income taxes, interest expense, depreciation, and amortization expenses: this is a financial measure of the profit generated excluding the above-mentioned items.

--Financial Results Follow--

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
(In thousands, except per-share data; unaudited) 
    
 Quarter Ended Year Ended
 June 30,
 June 30,
  June 30,
 June 30,
 
2020 2019  2020 2019 
Net sales$  59,376 $  72,447  $  246,838 $  302,663 
Cost of goods sold   45,564    55,996     191,130    213,022 
  Gross profit 13,812  16,451   55,708  89,641 
      
Marketing, engineering and     
  administrative expenses 15,111  16,272   63,218  71,541 
Restructuring expenses 237  441     5,138    1,179 
Goodwill and other asset impairment charge -  -   27,603  - 
Other operating income   -    (220)    -    (1,577)
(Loss) income from operations (1,536) (42)  (40,251
)
 18,498
 
      
Interest expense 536  344   1,860  1,927 
Other expense, net   11    456     1,629    2,064 
    547    800     3,489    3,991 
(Loss) income before income
  taxes and noncontrolling interest
 (2,083
) (842)  (43,740)
 14,507 
Income tax expense (benefit)   (447)   (69)    (4,169)   3,711 
      
(Loss) income (1,636) (773)  (39,571) 10,796 
Less: Net earnings attributable to     
  noncontrolling interest, net of tax   (124)   (49)    (246)   (123)
Net (loss) income attributable to Twin Disc$  (1,760)$   (822) $  (39,817)$  10,673 
          
Net (loss) income per share data:     
  Basic (loss) income per share attributable
    to Twin Disc common shareholders
$  (0.13)$  (0.06) $ (3.03)$0.84 
  Diluted (loss) income per share attributable
    to Twin Disc common shareholders
$  (0.13)$  (0.06) $  (3.03)$  0.83 
      
Weighted average shares outstanding data:     
Basic shares outstanding 13,175  12,991   13,153  12,571 
Diluted shares outstanding 13,175  12,991   13,153  12,682 
      
Comprehensive income:     
  Net (loss) income$  (1,636)$  (773) $  (39,571)$  10,796 
  Benefit plan adjustments, net of taxes   (4,373)   (5,548)    (1,675)   (4,121)
  Foreign currency translation adjustment   1,649    546     (966)   (2,671)
  Unrealized loss on cash flow hedge, net of taxes   (16)   (509)    (595)   (509)
  Comprehensive (loss) income (4,376) (6,284)  (42,807) 3,495 
Less: Comprehensive income
    attributable to noncontrolling interest
 (134) (46)  (266) (98)
 Comprehensive (loss) income attributable to
    Twin Disc
$  (4,510)$  (6,330) $  (43,073)$ 3,397 


 
RECONCILIATION OF CONSOLIDATED NET (LOSS) INCOME TO EBITDA
(In thousands; unaudited)
   
 Quarter EndedYear Ended
 June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Net (loss) income attributable to Twin Disc$(1,760)$(822)$(39,817)$10,673 
Interest expense 536  344  1,860  1,927 
Income taxes (447) (69) (4,169) 3,711 
Depreciation and amortization   3,008    3,415    11,925    13,612 
Earnings (loss) before interest, taxes,
depreciation and amortization
$  1,337 $  2,868 $(30,201)$  29,923 


* Includes $27.6 million impairment charge recorded in the third quarter of fiscal 2020.

 
CONDENSED CONSOLIDATED BALANCE SHEETS
  (In thousands; unaudited)
   
 June 30, June 30, 
  2020  2019 
ASSETS  
Current assets:  
  Cash$  10,688 $  12,362 
  Trade accounts receivable, net 30,682  44,013 
  Inventories 120,607  125,893 
  Prepaid expenses 5,269  11,681 
  Other   6,739    8,420 
  Total current assets 173,985  202,369 
   
Property, plant and equipment, net 72,732  71,258 
Goodwill, net -  25,954 
Deferred income taxes 24,445  18,178 
Intangible assets, net 18,973  25,353 
Other assets   3,992    3,758 
       
TOTAL ASSETS$  294,127 $  346,870 
       
LIABILITIES AND EQUITY  
Current liabilities:  
  Short-term borrowings and current maturities of long-term debt$  4,691 $  2,000 
  Accounts payable 25,663  31,468 
  Accrued liabilities   36,380    41,646 
       
  Total current liabilities 66,734  75,114 
   
Long-term debt 37,896  40,491 
Lease obligations 13,495  12,646 
Accrued retirement benefits 27,938  25,878 
Deferred income taxes 5,501  7,429 
Other long-term liabilities   2,605    2,494 
       
Total liabilities 154,169  164,052 
   
Twin Disc shareholders’ equity:  
Preferred shares authorized: 200,000; issued: none; no par value -  - 
Common shares authorized: 30,000,000;
  Issued: 14,632,802; no par value
  42,756   45,047 
Retained earnings 156,655  196,472 
Accumulated other comprehensive loss   (41,226)   (37,971)
  158,185  203,548 
  Less treasury stock, at cost
  (1,226,809 and 1,392,524 shares, respectively)
 18,796   21,332 
       
  Total Twin Disc shareholders' equity   139,389    182,216 
   
Noncontrolling interest   569    602 
Total equity   139,958    182,818 
       
TOTAL LIABILITIES AND EQUITY$  294,127 $  346,870 



 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
  
 For the Year Ended
 June 30,
2020
June 30,
2019
   
CASH FLOWS FROM OPERATING ACTIVITIES:  
  Net (loss) income$  (39,571)$  10,796 
  Adjustments to reconcile net (loss) income to net cash  
   provided (used) by operating activities:  
  Depreciation and amortization 11,925  9,335 
  Goodwill and other impairment charge 27,603  - 
  Amortization of inventory fair value step-up -  4,277 
  Stock compensation expense 1,158  2,591 
  Restructuring of operations 2,269  - 
  Gain on sale of Mill Log -  (768)
  Gain on contingent consideration of Veth Propulsion acquisition -  (809)
  Provision for deferred income taxes (8,072) 6,846 
  Other, net 258  84 
  Net change in operating assets and liabilities   14,048    (37,813)
Net cash provided (used) by operating activities   9,618    (5,461)
       
CASH FLOWS FROM INVESTING ACTIVITIES:  
  Capital expenditures (10,699) (11,979)
  Acquisition of Veth Propulsion, less cash acquired -  (60,195)
  Proceeds from sale of plant assets 137  239 
  Proceeds from sale of Mill Log business -  5,158 
  Proceeds from life insurance policy 102  101 
  Other, net   (159)   (233)
Net cash used by investing activities   (10,619)   (66,909)
       
CASH FLOWS FROM FINANCING ACTIVITIES:  
  Proceeds from issuance of common stock, net -  32,210 
  Borrowings under long-term debt agreement 8,200  44,480 
  Borrowings under revolving loan agreement 99,262  147,854 
  Repayments under revolving loan agreement (105,065) (129,548)
  Repayments of long-term borrowings (2,241) (24,752)
  Payments of withholding taxes on stock compensation (913) (1,005)
  Dividends paid to noncontrolling interest (298) (115)
  Proceeds from exercise of stock options   -    36 
Net cash (used) provided by financing activities   (1,055)   69,160 
       
Effect of exchange rate changes on cash   382    401 
       
  Net change in cash (1,674) (2,809)
   
Cash:  
  Beginning of year   12,362    15,171 
       
  End of year$  10,688 $  12,362 
       

Contact: Jeffrey S. Knutson
(262) 638-4242


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Source: Twin Disc, Incorporated