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Xerium Reports First Quarter Results(May 08, 2014)
YOUNGSVILLE, N.C., May 8, 2014 (GLOBE NEWSWIRE) -- Xerium Technologies, Inc. (NYSE:XRM), a leading global provider of industrial consumable products and services, today announced its Q1 2014 results.
Q1 2014 roll sales were weaker than expected in North America and Europe
Weather conditions and a market inventory correction in containerboard drove weaker than expected roll sales in the quarter in North America and Europe. We expected and planned for sales to be weak, and they were. We believe these market conditions were temporary, and indeed orders were as expected in the quarter, growing 5.8% to $146.0 million. Rolls sales were in line in the rest of the world, outside North America and Europe. Constant currency machine clothing sales declined 0.9%, while machine clothing Adjusted EBITDA increased from $18.1 million in Q1 2013 to $19.1 million in Q1 2014. See "Segment Information" and "Non-GAAP Financial Measures" below.
The Company's sales growth and cost reduction programs are on track to deliver expected results for the year
The Company is underway with a balanced program of sales growth and cost reduction. The cost reduction programs are comprised of a plant repositioning program and operational excellence programs. The plant repositioning program will dramatically reposition our assets to mirror forward growth activities – geographically and by product type – and at the same time increase our competitiveness by being leaner and more nimble. The plant repositioning program includes:
6 plant closures – 5 are underway
11 plant expansions – all 11 are underway
2 new greenfield plants – both are underway
The operational excellence programs involve all 28 Xerium plants globally. Every single plant has a site specific program to address the following initiatives:
Bidding out procured items and finding new low cost suppliers
Implementing throughput best practices
Installing a new lower cost logistics network
New safety program
Capital projects to lower costs
These programs have been centralized globally in order to spread best practices uniformly across all regions. Implemented in parallel with these foundational moves is an equally sized set of sales growth programs. The programs are comprised of new people, industry specialists with additive knowledge to Xerium's current commercial team, a new R&D program, new R&D tools, new machines with capabilities the Company has never had, and a new product program with 11 specific programs. The first wave of new products (4 in total) is rolling out right now and they are:
EnerVent – a brand new highly engineered and machined roll cover optimized for tissue machines
Smart 6.0 – the industry's first load sensing roll cover for suction box applications
Shoe press belt – the Company has received its first order for a very innovative approach to this application
TAD (through air drying) fabrics – the Company's first offering for high-end tissue machine applications
The Company is shifting with the market – a smaller market in the global printing & writing market (now just ~23% of the global pulp & paper market), and a larger position in the growing markets for tissue, packaging papers, boxboard, fiber cement, non-woven belts, rolls for the flexible packaging industry, and rolls for the film production industry. Xerium continues to advance its position and increase market share globally in the growing non-paper markets such as fiber cement and nonwovens, with a dedicated team, allocated resources, and advanced product offerings. Fiber cement demand in North America alone is forecast to rise 8.5% annually through 2017, driven by recovery in residential construction. Global growth also is benefiting from a shift from asbestos based production to fiber cement based production. Global demand for nonwovens is forecasted to rise at least 5.4% annually and demand in developing countries is forecasted to increase even higher at 7.2% annually through 2017.
2014 Full Year Adjusted EBITDA guidance of $116 - $120 million remains on track
The Company is reducing its costs at the same time that it repositions its commercial programs and capacities to mirror growth opportunities geographically and by product. These plans are on track and are back-end loaded in 2014. We see the same amount of upside and downside to our business. Furthermore, we expect to pay down some debt in the second half of 2014.
Harold Bevis, Xerium's CEO and President, said:
"Xerium's growth story remains the same - we intend to grow in Asia, the Americas and in Europe. We are putting in place the machines and people to grow in new non-paper product areas. Already, mechanical services alone are almost 9% of our sales and growing. Our sales of non-paper products are already over $100 million of our sales profile, and we are investing heavily to increase this proportion. We are also investing to deepen and expand the value we bring to the paper market. The declining printing & writing segment of the market gets a lot of attention and has a tendency to be both exaggerated and extrapolated to the rest of the market. But, approximately 77% of the global pulp & paper market is healthy and growing. We intend to remain a strong participant in this market over the long term. The first major investment program aimed at sales growth will begin in the second half of 2014 when the ~$10 million expansion of our Gloggnitz press felt plant is completed. The primary machine for this project was ordered in the first quarter of 2013. Sales growth in our markets is long-cycle while cost reduction is shorter cycle. The Company expects to again achieve year-over-year sales growth in 2014 as well as in 2015 and in 2016. In addition, Xerium will be very cash generative as we exit this expensive repositioning program and we will continue to pay down debt."
Cliff Pietrafitta, Xerium's EVP and Chief Financial Officer, said:
"Q1 2014 sales were 4.6% below a strong Q1 2013. Constant currency rolls sales lagged behind machine clothing sales, declining 11.3%. This reduction was primarily driven by decreases in North America of 5.0%, and Europe of 6.0%, due to weaker industry demand in both regions. Machine clothing sales declined 0.9%, on a constant currency basis. Geographically, sales increased in South America by 4.4% or $0.5 million, while sales declined in North America by 5.0% or $2.6 million, Europe by 6.0% or $2.9 million and Asia by 5.0% or $1.4 million." See "Segment Information" below.
"Operating income in Q1 2014 declined by $4.9 million, due to lower sales volume and higher restructuring costs, partially offset by decreased SG&A costs, increased gross margins and the impact of favorable foreign currency exchange rates. Reductions in SG&A costs and improved gross margins were largely a result of our restructuring initiatives. Adjusted EBITDA in Q1 2014 was $25.7 million, or 19.3% of sales, but was 11.7% below Q1 2013 Adjusted EBITDA of $29.1 million, primarily due to lower sales volume." See "Non-GAAP Financial Measures" below.
"Q1 2014 was a successful quarter related to cost-out actions. The Company spent approximately $13 million of cash on capital expenditures and restructuring costs in Q1 2014. For the full year we expect to spend $68 million, or a similar amount to 2013, to generate approximately $25 million of cost reduction savings in 2014. In addition, in 2014, we have more spending related to longer payback projects (such as the China machine clothing plant), which will not result in incremental savings or earnings in 2014. While cost-out and restructuring savings initiatives are the centerpiece of Xerium's 2014 business plan, the Company still expects that current market conditions, inflation and negative price/mix will combine to limit growth in Adjusted EBITDA to approximately $116 - $120 million, assuming the current foreign exchange rate outlook and market demand."
"As of Q1 2014, we had an aggregate of $42.6 million available for additional borrowings under our Credit Facility and smaller lines of credit and our cash balances totaled $18.0 million. Q1 2014 free cash flow (defined as cash-flow from operations less capital expenditures) declined to $(7.7) million from $6.6 million as capital expenditures increased $6.8 million to $10.5 million and trade working capital increased due to an increase in sales late in the quarter and its impact on accounts receivables as well as temporary inventory builds in our machine clothing business. However, we expect our free cash flow to improve in the second half of the year which will allow us to pay down approximately $6 - $8 million of debt by year-end."
"Capital expenditures and cash restructuring payments in Q1 2014 totaled $10.5 million and $2.6 million. Capital expenditures primarily related to longer term payback projects, such as the new plant in Ba Cheng, China. Restructuring payments primarily related to headcount reductions and the elimination of machine clothing production in Argentina."
"Trade working capital increased to $149.1 million in Q1 2014 from $136.4 million in Q4 2013. This increase was primarily the result of an increase of $7.3 million in accounts receivable due to an increase in sales late in the quarter. Day's sales outstanding, however, were slightly favorable compared to Q4 2013. In addition, inventory increased by $4.4 million due to increased levels of European produced machine clothing caused by lower sales volumes in Q1 2014, while accounts payable remained essentially the same from year-end." See "Trade Working Capital" below.
"Net debt increased to $430.5 million in Q1 2014 from $417.4 million in Q4 2013, primarily as a result of increased trade working capital, higher capital expenditures and the execution of a capital lease on our corporate headquarters. In addition, our net debt leverage ratio increased to 4.15x in Q1 2014 from 3.9x in Q4 2013."
"Our effective income tax rate for Q1 2014 was 61.9% compared to 31.3% in 2013. Excluding the effects of restructuring, our effective tax rate was 40.0%. This overall effective tax rate reflects the fact that we have losses in certain jurisdictions where we receive no tax benefit, including losses related to restructuring."
"We are off to a great start in our 2014 restructuring initiatives, and are underway with a program to restructure our plant network. As part of this plan, we are in the final stages of four plant closures, in the middle of a fifth plant closure and in process with a plant opening in China. This large-scale restructuring effort is a multi-year endeavor, and we see a continuous stream of operational improvement opportunities."
The following table presents net sales for Q1 2014 and Q1 2013 by segment and the effect of currency on Q1 2013 net sales (dollars in thousands):
Net Sales For The Quarter
Currency Effect of $
% Change Excluding
TRADE WORKING CAPITAL
The following table presents trade working capital as of March 31, 2014 and December 31, 2013 (in thousands):
Trade Receivables, Net (1)
Trade Accounts Payable (2)
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $726 and $1,368 at March 31, 2014 and December 31, 2013, respectively.
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received and Other Payables of $4,743 and $8,108 at March 31, 2014 and December 31, 2013, respectively.
The Company plans to hold a conference call on the following morning:
Date: Friday, May 9, 2014
Start Time: 9:00 a.m. Eastern Time
Domestic Dial-In: +1-866-515-2915
International Dial-In: +1-617-399-5129
To participate on the call, please dial in at least 10 minutes prior to the scheduled start. A live audio webcast and replay of the call may be found in the investor relations section of the Company's website at www.xerium.com.
NON-GAAP FINANCIAL MEASURES
This press release includes measures of performance that differ from the Company's financial results as reported under generally accepted accounting principles ("GAAP"). The Company uses supplementary non-GAAP measures, including EBITDA, Adjusted EBITDA, currency effects on Net Sales and Trade Working Capital to assist in evaluating its liquidity and financial performance. EBITDA and Adjusted EBITDA are specifically used in evaluating the ability to service indebtedness and to fund ongoing capital expenditures. Neither Adjusted EBITDA nor EBITDA should be considered in isolation or as a substitute for income (loss) or cash flows from operations (as determined in accordance with GAAP).
For additional information regarding non-GAAP financial measures and a reconciliation of such measures to the most comparable financial measures under GAAP, please see "Segment Information" and "Trade Working Capital" above and our Selected Financial Data below. In addition, the information in this press release should be read in conjunction with the corresponding exhibits, financial statements and footnotes contained in our Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 4, 2014 and our Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 8, 2014.
About Xerium Technologies
Xerium Technologies, Inc. (NYSE:XRM) is a leading global provider of industrial consumable products and services. Xerium, which operates around the world under a variety of brand names, utilizes a broad portfolio of patented and proprietary technologies to provide customers with tailored solutions and products integral to production, all designed to optimize performance and reduce operational costs. With 28 manufacturing facilities in 12 countries around the world, Xerium has approximately 3,200 employees.
This press release contains forward-looking statements. The words "believe," "estimate," "expect," "intend," "anticipate," "goals," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding our full year Adjusted EBITDA performance, anticipated sales performance, capital expenditures, cost savings measures, future efforts to improve overall performance and backlog. Forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by us, as well as from risks and uncertainties beyond our control. These risks and uncertainties include the following items: (1) we may not realize the Adjusted EBITDA performance we are projecting (2) our expected sales performance and our backlog of sales may not be fully realized; (3) our cost reduction efforts, including our restructuring activities, may not have the positive impacts we anticipate; (4) we are subject to execution risk related to the startup of our proposed new facility in China; (5) our plans to develop and market new products, enhance operational efficiencies and reduce costs may not be successful; (6) market improvement in our industry may occur more slowly than we anticipate, may stall or may not occur at all; (7) variations in demand for our products, including our new products, could negatively affect our revenues and profitability; (8) our manufacturing facilities may be required to quickly increase or decrease production, which could negatively affect our production facilities, customer order lead time, product quality, labor relations or gross margin; and (9) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2013 filed on March 4, 2014 and our other SEC filings. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this press release reflects our current views with respect to future events. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise. As discussed above, we are subject to substantial risks and uncertainties related to current economic conditions, and we encourage investors to refer to our SEC filings for additional information. Copies of these filings are available from the SEC and in the investor relations section of our website at www.xerium.com.
Selected Financial Data Follows
Xerium Technologies, Inc.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter ended March 31,
Costs and expenses:
Cost of products sold
General and administrative
Research and development
Income from operations
Interest expense, net
Foreign exchange loss
Income before provision for income taxes
Provision for income taxes
Net income per share:
Shares used in computing net income per share:
Consolidated Selected Financial Data
Cash Flow Data: (in thousands)
Quarter ended March 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used) in financing activities
Other Financial Data: (in thousands)
Depreciation and amortization
Capital expenditures, gross
Balance Sheet Data: (in thousands)
March 31, 2014
December 31, 2013
Cash and cash equivalents
Total stockholders' deficit
EBITDA and Adjusted EBITDA Non-GAAP Measures
Non-GAAP Financial Measures
We use EBITDA and Adjusted EBITDA (as defined in our credit facility) as supplementary non-GAAP liquidity measures to assist us in evaluating our liquidity and financial performance, specifically our ability to service indebtedness and to fund ongoing capital expenditures. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for income (loss) or cash flows from operations (as determined in accordance with GAAP).
EBITDA is defined as net income (loss) before interest expense, income tax provision (benefit) and depreciation (including non-cash impairment charges) and amortization.
"Adjusted EBITDA" means, with respect to any period, the total of (A) the consolidated net income for such period, plus (B) without duplication, to the extent that any of the following were deducted in computing such consolidated net income for such period: (i) provision for taxes based on income or profits, including, without limitation, federal, state, provincial, franchise and similar taxes, including any penalties and interest relating to any tax examinations, (ii) consolidated interest expense, (iii) consolidated depreciation and amortization expense, (iv) reserves for inventory in connection with plant closures, (v) consolidated operational restructuring costs, subject to annual limitations provided for in our credit facility, (vi) noncash charges resulting from the application of purchase accounting, including push-down accounting, (vii) non-cash expenses resulting from the granting of common stock, stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to common stock, and cash expenses for compensation mandatorily applied to purchase common stock, (viii) non-cash items relating to a change in or adoption of accounting policies, (ix) non-cash expenses relating to pension or benefit arrangements, (x) expenses incurred as a result of the repurchase, redemption or retention of common stock earned under equity compensation programs solely in order to make withholding tax payments, (xi) amortization or write-offs of deferred financing costs, (xii) any non-cash losses resulting from mark to market hedging obligations (to the extent the cash impact resulting from such loss has not been realized in such period) and (xiii) other non-cash losses or charges (excluding, however, any non-cash loss or charge which represents an accrual of, or a reserve for, a cash disbursement in a future period), minus (C) without duplication, to the extent any of the following were included in computing consolidated net income for such period, (i) non-cash gains with respect to the items described in clauses (vi), (vii), (ix), (xi), (xii) and (xiii) (other than, in the case of clause (xiii), any such gain to the extent that it represents a reversal of an accrual of, or reserve for, a cash disbursement in a future period) of clause (B) above and (ii) provisions for tax benefits based on income or profits. Notwithstanding the foregoing, Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.
Consolidated net income is defined as net income (loss) determined on a consolidated basis in accordance with GAAP; provided, however, that the following, without duplication, shall be excluded in determining consolidated net income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) any fees and expenses incurred during such period in connection with the issuance or repayment of indebtedness, any refinancing transaction or amendment or modification of any debt instrument, in each case, as permitted under the credit facility and (iv) any cancellation of indebtedness income.
The following table provides reconciliation from net income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
Three Months Ended
Amortization of intangibles
Deferred financing cost amortization
Foreign exchange loss on revaluation of debt
(Loss) Gain on disposition of property and equipment
Net change in operating assets and liabilities
Net cash provided by operating activities
Interest expense, excluding amortization
Net change in operating assets and liabilities
Current portion of income tax expense
Foreign exchange loss on revaluation of debt
Loss on disposition of property and equipment
Operational restructuring expenses
Non-restructuring impairment expense
Plant startup costs
CONTACT: Phillip B. Kennedy
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