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Enpro Industries Inc. has a market cap of $710 million; its shares were traded at around $34.27 with a P/E ratio of 14.7 and P/S ratio of 0.8.
Highlight of Business Operations:Sales of $300.8 million in the third quarter of 2011 increased 55% from $194.5 million in the same quarter of 2010. Sales from acquisitions completed since the third quarter of 2010 contributed about 27 percentage points to the increase. In addition, sales increased as a result of higher volumes in the Sealing Products and Engineered Products segments as we have taken advantage of the improvements in our customer markets and are actively pursuing increased market share. Selected price increases we have instituted also contributed to the increase in sales compared to last year. Sales in the Engine Products and Services segment jumped 53% primarily due to shipping six engines in the third quarter of 2011, as planned, versus only one engine shipped in the third quarter of 2010. Changes in foreign exchange rates added four percentage points to the sales increase.
We recorded an income tax expense of $8.4 million on pre-tax income from continuing operations of $22.6 million in the third quarter of 2011, resulting in an effective tax rate (“ETR”) for the quarter of 36.8%. During the third quarter of 2010, our ETR was 33.1% as we recorded an income tax expense of $2.4 million on pre-tax income from continuing operations of $7.3 million. The increase in the ETR in the third quarter of 2011 compared to the third quarter of 2010 was primarily caused by more of our foreign earnings being subject to U.S. tax, with limited foreign tax credit relief. Our estimated ETR for the full year of 2011 continues to be lower than the U.S. statutory rates primarily due to the earnings in lower rate foreign jurisdictions. We also benefit from certain tax incentives in the U.S., such as the deduction for domestic production activities, and credits for research and development.
Segment profit of $22.5 million in the third quarter of 2011 increased 45% compared to the $15.5 million reported in the third quarter of 2010. Garlock earnings increased significantly due to the higher volumes, price increases, and some contribution from the acquisitions partially offset by cost increases mainly in SG&A. Earnings at Technetics increased compared to the third quarter of 2010, but the increase was slower than the improvement in sales as cost increases mostly offset net price increases, and because the incremental earnings at the acquired businesses are still developing. Stemco reported an increase in profit in connection with its higher volume, including its acquired businesses, and price increases, which partially offset cost increases in manufacturing and SG&A. Earnings from the Stemco acquisition grew at a slower rate than the related sales. Operating margins for the segment decreased to 15.6% in the third quarter of 2011 from 18.8% in the third quarter of 2010.
The segment reported a profit of $6.5 million in the third quarter of 2011 compared to $8.8 million in the third quarter of 2010. Earnings from the quarter-over-quarter increase in engine shipments were more than offset by the decrease in earnings on the lower parts and services activity. In addition, the segment recorded a $1.4 million estimated warranty expense to repair a specific engine component in a series of U.S. Navy ships. The segment also recorded a $3 million estimated loss on an engine contract. The expected contract loss is a result of detrimental changes to the market for nuclear power plant back-up power engines after the tsunami in Japan, which has caused costs per nuclear-related engine to be higher than expected, and the original engine costs for the program were underestimated. These large costs were partially offset by: expected cost reimbursements related to the canceled South Texas Project, of approximately $1.8 million, which reduced expenses in the third quarter of 2011; the favorable resolution of a legal matter, which reduced the estimated legal liability by $0.5 million; and approximately $0.6 million of incremental profit related to the use of percentage-of-completion accounting beginning in the third quarter of 2011. Operating margins dropped from 22.9% in the third quarter of 2010 to 11.1% in the same quarter this year.
Sales increased 24% from $673.5 million in the first nine months of 2010 to $834.1 million in the first nine months of 2011. Segment profit increased 15% from $100.6 million in the first nine months of 2010 to $115.7 million in the first nine months of 2011. The factors contributing to the sales and segment profit increases were essentially the same as those affecting the comparison of the results between the third quarters of 2011 and 2010. Segment margins fell to 13.9% this year compared to 14.9% in the first nine months of 2010.
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