Kaydon Corp. Reports Operating Results (10-Q)
Kaydon Corporation is a leading designer and manufacturer of custom-engineered critical performance products for a broad and diverse customer base.The Company's principal products include bearing systems and components and filters and filter housings but also custom rings shaft seals specialty retaining rings specialty balls hydraulic cylinders slip-rings fuel cleansing systems industrial presses and metal alloy products. Kaydon Corp. has a market cap of $1.18 billion; its shares were traded at around $35.54 with a P/E ratio of 24 and P/S ratio of 2.3. The dividend yield of Kaydon Corp. stocks is 2%. Kaydon Corp. had an annual average earning growth of 1.3% over the past 10 years. Highlight of Business Operations:Net sales for the third quarter of 2009 decreased $3.2 million, or 2.5 percent, compared to the third quarter of 2008. During the third quarter of 2009, price declines aggregating $2.8 million and the effects of adverse currency exchange rate changes of $1.5 million more than offset increased sales attributable to increased volumes of $1.2 million. Price declines were primarily attributable to contractual adjustments associated with the pass-through of lower material costs. The effects of unfavorable currency exchange rate changes were principally attributable to a stronger U.S. dollar relative to the Euro and British pound. Sales growth attributable to increased volumes was $1.2 million as a $22.6 million volume increase to wind energy customers offset $21.4 million in volume decreases across the rest of our end markets, especially industrial markets, as a result of the global economic slowdown. Wind energy sales in the third quarter of 2009 were $41.0 million, an increase of $19.4 million or 90 percent, compared to the third quarter of 2008, as the improved volume significantly exceeded the impact of the aforementioned contractual pricing adjustments.
Net sales for the first three quarters of 2009 equaled $332.3 million, a decrease of 14.8 percent, compared with the same period of 2008. Sales declines for the first three quarters of 2009 attributable to reduced volumes totaled $51.1 million, or 13.1 percent, compared to the first three quarters of 2008 as $75.7 million in volume decreases across our non-wind end markets, principally industrial markets, more than offset higher sales associated with a $24.6 million increase in volume to wind energy customers. Improved pricing yielded an increase of $3.1 million and was primarily attributable to price increases on our core products, and to a lesser extent, contractual adjustments associated with the pass-through of material cost changes on a year-to-date basis. Finally, the adverse effects of currency exchange rate changes had a $9.7 million, or 2.5 percent, unfavorable impact on sales. This decrease was principally attributable to a stronger U.S. dollar relative to the Euro and British Pound on a year-over-year basis.
Net income for the first three quarters of 2009 was $34.6 million, or $1.03 per share on a diluted basis, compared to the adjusted net income for the first three quarters of 2008 of $51.3 million, or $1.65 per share on a diluted basis. The first three quarters 2008 results have been adjusted to reflect the required retrospective application of new accounting guidance related to convertible debt and earnings per share, which were effective January 1, 2009, resulting in the recording of additional non-cash interest expense of $3.1 million, $2.0 million net of tax. These required adjustments reduced previously reported first three quarters 2008 basic earnings per share by $0.10 and diluted earnings per share by $0.02.
Sales in our Friction Control Products reporting segment were $223.5 million during the first three quarters of 2009 compared to $240.2 million in the first three quarters of 2008, reflecting a decrease of $16.7 million or 6.9 percent. Excluding sales gains to wind energy customers of $25.2 million, sales to all other markets in the first three quarters of 2009 decreased by $41.9 million from the comparable period last year. This decline was due to the effects of volume declines of $38.7 million and the adverse effects of currency exchange rate changes of $5.4 million, which were only partially offset by a $2.2 million effect of increased pricing.
Operating income from the Friction Control Products reporting segment during the first three quarters of 2009 totaled $37.6 million compared to $56.1 million in the first three quarters of 2008. The $18.5 million decrease in operating income was due to a $14.9 million adverse effect of lower sales volumes and lower production volumes, a $2.8 million adverse effect of product mix resulting from lower sales to higher margin industrial markets, with the remaining $0.8 million of the decrease resulting from higher costs net of pricing gains. The higher costs include increased depreciation associated with our investment in capacity to support the wind energy growth initiative, increased pension expense, and severance and redundancy costs incurred during the first three quarters of 2009.
Net cash from operating activities during the first three quarters of 2009 equaled $44.1 million, compared to net cash from operating activities of $49.7 million during the first three quarters of 2008. The year-over-year decline in net cash from operating activities was principally due to the decline of $16.7 million in net income and $14.8 million in increased contributions to our qualified pension plans, offset by a $23.5 million net reduction in the use of receivables, inventory, and trade payables, and $2.8 million in increased depreciation primarily associated with our investments in wind energy manufacturing capacity.
Read the The complete ReportKDN is in the portfolios of John Keeley of Keeley Fund Management, Ron Baron of Baron Funds.