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IDEX Reports Second Quarter EPS of 99 Cents; Reaffirms Full Year EPS Guidance of $3.70 -- $3.75

LAKE FOREST, Ill.--(BUSINESS WIRE)--Jul. 18, 2016-- IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended June 30, 2016.

Second Quarter 2016 Highlights

  • Orders and sales were up 5 and 7 percent, respectively
  • EPS of 99 cents was up 10 cents, or 11 percent
  • Completed a $200 million private placement of senior notes
  • Acquired AWG Fittings for €46 million on July 1st

Second Quarter 2016

Orders of $529 million were up 5 percent (-2 percent organic, +8 percent acquisitions and -1 percent foreign currency translation) compared with the prior year period. Sales of $550 million were up 7 percent (-1 percent organic and +8 percent acquisitions) compared with the prior year period.

Gross margin of 44.4 percent was down 60 basis points from the prior year period, primarily due to a $3.6 million pre-tax inventory step-up charge related to the Akron Brass acquisition. Operating margin of 20.6 percent was down 70 basis points primarily due to the inventory step-up charge, partially offset by a $1.0 million pre-tax benefit from the reversal of the remaining contingent consideration related to a 2015 acquisition.

Operating income of $113 million drove EBITDA of $137 million which was 25 percent of sales and covered interest expense by more than 12 times.

Net income of $76 million increased 9 percent compared with the prior year period, while earnings per share of 99 cents increased 10 cents, or 11 percent, from the prior year period.

Cash from operations of $88 million resulted in free cash flow of $80 million which was 106 percent of net income.

“In the second quarter of 2016, orders and sales increased 5 and 7 percent, respectively. Our Water, Scientific Fluidics and Dispensing platforms continue to outperform, while the North American industrial market remains challenged compared with a year ago. Recently, we have seen signs that our North American industrial markets are stabilizing, and within our Energy platform large projects that had been delayed for several quarters shipped late in the second quarter. Operating margin of 20.6 percent decreased 70 basis points compared with the prior year period, mainly due to 60 basis points of pressure from the remaining fair value inventory step-up charge related to our Akron Brass acquisition. I’m very pleased with the team’s ability to execute in this difficult organic growth environment.

Total shareholder return remains our primary focus. In the first half of the year, we deployed over $270 million toward the strategic acquisitions of Akron Brass, and more recently, AWG. The addition of these two businesses to our fire and rescue operations establishes this platform as a global industry leader. Our acquisition pipeline is robust and we remain committed to investing in long-term organic growth opportunities, funding shareholder dividends and opportunistically repurchasing our stock.

Looking ahead, the long-term impact from the recent Brexit decision is relatively unknown, while the stabilization of the North American industrial market is encouraging. Considering these factors, along with the impact of incremental interest expense from our recent private placement and the expected impact from the AWG fair value inventory step-up charge, we are holding our prior EPS guidance of $3.70 to $3.75 for the full year, with EPS of 90 to 92 cents in the third quarter. For the full year, we expect flat organic growth with operating margin between 20.5 and 21.0 percent.”

Andrew K. Silvernail
Chairman and Chief Executive Officer

Second Quarter 2016 Segment Highlights

Fluid & Metering Technologies

  • Sales of $222 million reflected a 3 percent increase compared to the second quarter of 2015 (+1 percent organic and +2 percent acquisitions).
  • Operating income of $54 million was $2 million higher than the prior year period, while operating margin of 24.3 percent represented a 20 basis point increase compared with the second quarter of 2015 primarily due to higher volume within our Energy platform.
  • EBITDA of $61 million resulted in an EBITDA margin of 27.7 percent, a 50 basis point increase compared with the second quarter of 2015.

Health & Science Technologies

  • Sales of $187 million reflected a 1 percent decrease compared to the second quarter of 2015 (-2 percent organic, +2 percent acquisitions and -1 percent foreign currency translation).
  • Operating income of $41 million was $1 million lower than the prior year period, while operating margin of 22.0 percent represented a 30 basis point decrease compared with the second quarter of 2015 primarily due to lower volume in the more industrially-exposed portions of the segment.
  • EBITDA of $53 million resulted in an EBITDA margin of 28.4 percent, a 90 basis point increase compared with the second quarter of 2015.

Fire & Safety/Diversified Products

  • Sales of $142 million reflected a 27 percent increase compared to the second quarter of 2015 (-1 percent organic and +28 percent acquisition).
  • Operating income of $34 million was $3 million higher than the prior year period, while operating margin of 24.1 percent represented a 400 basis point decrease compared with the second quarter of 2015 primarily due to the fair value inventory step-up charge related to the Akron Brass acquisition.
  • EBITDA of $38 million resulted in an EBITDA margin of 26.9 percent, a 260 basis point decrease compared with the second quarter of 2015.

For the second quarter of 2016, Fluid & Metering Technologies contributed 40 percent of sales, 42 percent of operating income and 40 percent of EBITDA; Health & Science Technologies accounted for 34 percent of sales, 32 percent of operating income and 35 percent of EBITDA; and Fire & Safety/Diversified Products represented 26 percent of sales, 26 percent of operating income and 25 percent of EBITDA.

Non-U.S. GAAP Measures of Financial Performance

The Company supplements certain U.S. GAAP financial performance metrics with non-U.S. GAAP financial performance metrics in order to provide investors with better insight and increased transparency while also allowing for a more comprehensive understanding of the financial information used by management in its decision making. Reconciliations of non-U.S. GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP. There were no adjustments to U.S. GAAP financial performance metrics other than the items noted below.

  • Organic orders and sales are calculated according to U.S. GAAP excluding amounts from acquired or divested businesses during the first twelve months of ownership or divestiture and the impact of foreign currency translation.
  • EBITDA is calculated as net income plus interest expense plus provision for income taxes plus depreciation and amortization. We reconciled EBITDA to net income on a consolidated basis as we do not allocate consolidated interest expense or consolidated provision for income taxes to our segments.
  • Free cash flow is calculated as cash flow from operating activities less capital expenditures.

Table 1: Reconciliations of Net Sales to Organic Sales

               
For the Three Months Ended June 30, 2016 For the Six Months Ended June 30, 2016
FMT   HST   FSDP   IDEX FMT   HST   FSDP   IDEX
Change in net sales 3% (1%) 27% 7% 0% 2% 13% 3%
- Net Impact from acquisitions/divestitures 2% 2% 28% 8% 3% 3% 17% 6%
- Impact from FX 0% (1%) 0% 0% (1%) (1%) (1%) (1%)
Organic Sales 1% (2%) (1%) (1%) (2%) 0% (3%) (2%)
 

Table 2: Reconciliations of EBITDA to Net Income (in thousands)

           
For the Three Months Ended June 30,
2016 2015
    Corporate Total Corporate Total
FMT   HST   FSDP   Office   IDEX FMT   HST   FSDP   Office   IDEX
Operating income (loss) $ 53,865 $ 41,125 $ 34,116 $ (16,130 ) $ 112,976 $ 51,857 $ 42,060 $ 31,482 $ (15,490 ) $ 109,909
- Other (income) expense - net (47 ) (757 ) (754 ) (316 ) (1,874 ) (10 ) 661 18 158 827
+ Depreciation and amortization   7,587     11,020     3,250     318     22,175     6,649     10,487     1,529     422     19,087  
EBITDA 61,499 52,902 38,120 (15,496 ) 137,025 58,516 51,886 32,993 (15,226 ) 128,169
- Interest expense 11,205 10,584
- Provision for income taxes 27,886 28,913
- Depreciation and amortization   22,175     19,087  
Net income $ 75,759   $ 69,585  
 
Net sales (eliminations) $ 221,810 $ 186,568 $ 141,611 $ (293 ) $ 549,696 $ 215,293 $ 188,405 $ 111,941 $ (758 ) $ 514,881
 
Operating margin 24.3 % 22.0 % 24.1 % n/m 20.6 % 24.1 % 22.3 % 28.1 % n/m 21.3 %
EBITDA margin 27.7 % 28.4 % 26.9 % n/m 24.9 % 27.2 % 27.5 % 29.5 % n/m 24.9 %
 
 
For the Six Months Ended June 30,
2016 2015
Corporate Total Corporate Total
FMT   HST   FSDP   Office   IDEX FMT   HST   FSDP   Office   IDEX
Operating income (loss) $ 105,266 $ 81,824 $ 59,520 $ (31,077 ) $ 215,533 $ 107,755 $ 79,517 $ 58,644 $ (34,250 ) $ 211,666
- Other (income) expense - net (214 ) (1,130 ) (844 ) (430 ) (2,618 ) (812 ) 530 (844 ) 230 (896 )
+ Depreciation and amortization   14,843     21,881     4,732     676     42,132     13,010     20,695     3,061     831     37,597  
EBITDA 120,323 104,835 65,096 (29,971 ) 260,283 121,577 99,682 62,549 (33,649 ) 250,159
- Interest expense 21,694 21,181
- Provision for income taxes 52,568 55,842
- Depreciation and amortization   42,132     37,597  
Net income $ 143,889   $ 135,539  
 
Net sales (eliminations) $ 433,653 $ 372,911 $ 246,229 $ (525 ) $ 1,052,268 $ 433,541 $ 367,525 $ 218,563 $ (2,550 ) $ 1,017,079
 
Operating margin 24.3 % 21.9 % 24.2 % n/m 20.5 % 24.9 % 21.6 % 26.8 % n/m 20.8 %
EBITDA margin 27.7 % 28.1 % 26.4 % n/m 24.7 % 28.0 % 27.1 % 28.6 % n/m 24.6 %
 

Table 3: Reconciliations of Free Cash Flow (in thousands)

 
For the Three Months Ended
June 30,     Mar 31,
2016   2015 2016
 
Cash flow from operating activities $ 88,478 $ 99,024 $ 70,365
- Capital expenditures 8,402 13,749 8,650
+ Excess tax benefit from share-based compensation *   -   863   -
Free cash flow $ 80,076 $ 86,138 $ 61,715
 

* The Company early adopted ASU 2016-09 effective in the first quarter of 2016. This ASU issued in March of 2016 simplifies the accounting for share-based payments, including the presentation of the excess tax benefit on the statement of cash flows.

 

Conference Call to be Broadcast over the Internet

IDEX will broadcast its second quarter earnings conference call over the Internet on Tuesday, July 19, 2016 at 9:30 a.m. CT. Chairman and Chief Executive Officer Andy Silvernail and Senior Vice President and Chief Financial Officer Heath Mitts will discuss the Company’s recent financial performance and respond to questions from the financial analyst community. IDEX invites interested investors to listen to the call and view the accompanying slide presentation, which will be carried live on its website at www.idexcorp.com. Those who wish to participate should log on several minutes before the discussion begins. After clicking on the presentation icon, investors should follow the instructions to ensure their systems are set up to hear the event and view the presentation slides, or download the correct applications at no charge. Investors will also be able to hear a replay of the call by dialing 877.660.6853 (or 201.612.7415 for international participants) using the ID #13620006.

Forward-Looking Statements

This news release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, capital expenditures, acquisitions, cost reductions, cash flow, revenues, earnings, market conditions, global economies and operating improvements, and are indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the company believes,” “the company intends,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this news release. The risks and uncertainties include, but are not limited to, the following: economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors, and levels of capital spending in certain industries – all of which could have a material impact on order rates and IDEX’s results, particularly in light of the low levels of order backlogs it typically maintains; its ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the company operates; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K filed with the SEC and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this news release, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

About IDEX

IDEX Corporation is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to its customers’ exacting specifications. Its products are sold in niche markets to a wide range of industries throughout the world. IDEX shares are traded on the New York Stock Exchange and Chicago Stock Exchange under the symbol “IEX”.

For further information on IDEX Corporation and its business units, visit the company’s website at www.idexcorp.com.

(Financial reports follow)

       
IDEX CORPORATION
Condensed Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
    2016   2015   2016   2015
 
Net sales $ 549,696 $ 514,881 $ 1,052,268 $ 1,017,079
Cost of sales     305,638       283,266     584,875       559,423  
Gross profit 244,058 231,615 467,393 457,656
Selling, general and administrative expenses     131,082       121,706     251,860       245,990  
Operating income 112,976 109,909 215,533 211,666
Other (income) expense - net (1,874 ) 827 (2,618 ) (896 )
Interest expense     11,205       10,584     21,694       21,181  
Income before income taxes 103,645 98,498 196,457 191,381
Provision for income taxes     27,886       28,913     52,568       55,842  
Net income   $ 75,759     $ 69,585   $ 143,889     $ 135,539  
 
 
Earnings per Common Share (a):
Basic earnings per common share $ 1.00 $ 0.89 $ 1.89 $ 1.74
Diluted earnings per common share $ 0.99 $ 0.89 $ 1.87 $ 1.72
 
 
Share Data:
 
Basic weighted average common shares outstanding 75,690 77,466 75,719 77,731
 
Diluted weighted average common shares outstanding 76,674 78,297 76,687 78,576
 
 
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, December 31,
            2016   2015
 
Assets
Current assets
Cash and cash equivalents $ 361,488 $ 328,018
Receivables - net 296,481 260,000
Inventories 257,659 239,124
Other current assets             53,656       35,542  
Total current assets 969,284 862,684
Property, plant and equipment - net 250,904 240,945
Goodwill and intangible assets 1,870,638 1,684,366
Other noncurrent assets             18,530       17,448  
Total assets           $ 3,109,356     $ 2,805,443  
 
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable $ 129,164 $ 128,911
Accrued expenses 141,408 153,672
Short-term borrowings 1,233 1,087
Dividends payable             25,908       25,927  
Total current liabilities 297,713 309,597
Long-term borrowings 1,054,325 839,707
Other noncurrent liabilities             260,388       212,848  
Total liabilities 1,612,426 1,362,152
Shareholders' equity             1,496,930       1,443,291  
Total liabilities and shareholders' equity           $ 3,109,356     $ 2,805,443  
   
IDEX CORPORATION
Condensed Consolidated Statements of Cash Flow
(in thousands)

(unaudited)

 
Six Months Ended June 30,
    2016   2015
 
Cash flows from operating activities
Net income $ 143,889 $ 135,539
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 18,986 17,460
Amortization of intangible assets 23,146 20,137
Amortization of debt issuance costs 758 860
Share-based compensation expense 11,603 11,802
Deferred income taxes 3,669 524
Excess tax benefit from share-based compensation - (4,083 )
Non-cash interest expense associated with forward starting swaps 3,443 3,539
Changes in (net of the effect from acquisitions):
Receivables (22,625 ) (15,274 )
Inventories 11,386 (10,473 )
Other current assets (17,233 ) (630 )
Trade accounts payable (3,367 ) 4,158
Accrued expenses (12,675 ) (15,886 )
Other — net     (2,137 )     755  
Net cash flows provided by operating activities 158,843 148,428
Cash flows from investing activities
Purchases of property, plant and equipment (17,052 ) (23,826 )
Acquisition of businesses, net of cash acquired (221,556 ) (173,333 )
Other — net     27       (105 )
Net cash flows used in investing activities (238,581 ) (197,264 )
Cash flows from financing activities
Borrowings under revolving facilities 280,391 350,342
Proceeds from 3.20% Senior Notes 100,000 -
Proceeds from 3.37% Senior Notes 100,000 -
Payments under revolving facilities (266,203 ) (240,586 )
Payment of 2.58% Senior Euro Notes - (88,420 )
Debt issuance costs (92 ) (1,323 )
Dividends paid (51,430 ) (46,910 )
Proceeds from stock option exercises 16,934 13,459
Excess tax benefit from share-based compensation - 4,083
Purchase of common stock (55,971 ) (113,592 )
Unvested shares surrendered for tax withholding     (4,830 )     (3,202 )
Net cash flows provided by (used in) financing activities 118,799 (126,149 )
Effect of exchange rate changes on cash and cash equivalents     (5,591 )     (22,657 )
Net increase (decrease) in cash 33,470 (197,642 )
Cash and cash equivalents at beginning of year     328,018       509,137  
Cash and cash equivalents at end of period   $ 361,488     $ 311,495  
         
IDEX CORPORATION
Company and Segment Financial Information
(dollars in thousands)
(unaudited)
 
 
Three Months Ended Six months Ended
June 30, (b) June 30, (b)
    2016   2015   2016   2015
 
 
Fluid & Metering Technologies
Net sales $ 221,810 $ 215,293 $ 433,653 $ 433,541
Operating income (c) 53,865 51,857 105,266 107,755
Operating margin 24.3 % 24.1 % 24.3 % 24.9 %
EBITDA $ 61,499 $ 58,516 $ 120,323 $ 121,577
EBITDA margin 27.7 % 27.2 % 27.7 % 28.0 %
Depreciation and amortization $ 7,587 $ 6,649 $ 14,843 $ 13,010
Capital expenditures 4,323 8,555 7,613 13,524
 
Health & Science Technologies
Net sales $ 186,568 $ 188,405 $ 372,911 $ 367,525
Operating income (c) 41,125 42,060 81,824 79,517
Operating margin 22.0 % 22.3 % 21.9 % 21.6 %
EBITDA $ 52,902 $ 51,886 $ 104,835 $ 99,682
EBITDA margin 28.4 % 27.5 % 28.1 % 27.1 %
Depreciation and amortization $ 11,020 $ 10,487 $ 21,881 $ 20,695
Capital expenditures 2,868 2,677 7,005 5,562
 
Fire & Safety/Diversified Products
Net sales $ 141,611 $ 111,941 $ 246,229 $ 218,563
Operating income (c) 34,116 31,482 59,520 58,644
Operating margin 24.1 % 28.1 % 24.2 % 26.8 %
EBITDA $ 38,120 $ 32,993 $ 65,096 $ 62,549
EBITDA margin 26.9 % 29.5 % 26.4 % 28.6 %
Depreciation and amortization $ 3,250 $ 1,529 $ 4,732 $ 3,061
Capital expenditures 1,164 1,790 2,271 3,112
 
Corporate Office and Eliminations
Intersegment sales eliminations $ (293 ) $ (758 ) $ (525 ) $ (2,550 )
Operating income (loss) (c) (16,130 ) (15,490 ) (31,077 ) (34,250 )
EBITDA (15,496 ) (15,226 ) (29,971 ) (33,649 )
Depreciation and amortization 318 422 676 831
Capital expenditures 47 727 163 1,628
 
Company
Net sales $ 549,696 $ 514,881 $ 1,052,268 $ 1,017,079
Operating income 112,976 109,909 215,533 211,666
Operating margin 20.6 % 21.3 % 20.5 % 20.8 %
EBITDA $ 137,025 $ 128,169 $ 260,283 $ 250,159
EBITDA margin 24.9 % 24.9 % 24.7 % 24.6 %
Depreciation and amortization (d) $ 22,175 $ 19,087 $ 42,132 $ 37,597
Capital expenditures 8,402 13,749 17,052 23,826
 
                         
 
(a) Calculated by applying the two-class method of allocating earnings to common stock and participating securities as required by ASC 260, Earnings Per Share.
(b) Three and six month data includes acquisition of Alfa Valvole (June 2015) in the Fluid & Metering Technologies segment, Novotema (June 2015) and CiDRA Precision Services (July 2015) in the Health & Science Technologies segment and Akron Brass (March 2016) in the Fire & Safety/Diversified segment from the date of acquisition. Three and six month data for 2015 includes the results of Ismatec through the date of disposition (July 2015).
(c) Segment operating income excludes unallocated corporate operating expenses which are included in Corporate Office and Eliminations.
(d) Depreciation and amortization excludes amortization of debt issuance costs.

Source: IDEX Corporation

IDEX Corporation
Investor Contact:
Heath Mitts
Senior Vice President and Chief Financial Officer
(847) 498-7070