CSW Industrials Reports Fiscal Fourth Quarter and Full Year 2020 Results

DALLAS, May 20, 2020 (GLOBE NEWSWIRE) -- CSW Industrials, Inc. (Nasdaq: CSWI) today reported results for the 2020 fiscal fourth quarter and fiscal full-year ended March 31, 2020.

Company Highlights

• Management responding decisively to the global pandemic, acting in the best interest of all stakeholders
• Operations deemed essential with minimal disruption and enhanced safeguards for employees
• Reported 10.2% and 9.3% growth in revenue and operating income, respectively, in fiscal year 2020, as compared to fiscal year 2019
• Reported fiscal year 2020 earnings per share of $2.95 as compared to fiscal year 2019 EPS of $2.96, with adjusted EPS of $3.20 compared to $2.77, respectively
• Demonstrated continued commitment to disciplined capital allocation strategy with $26.5 million of shares repurchased, $20.6 million in net debt repayments, and $8.1 million in dividend payments to shareholders in fiscal year 2020
• Strong balance sheet and liquidity position, with $18.3 million of cash and fully available $250.0 million revolving credit facility at fiscal year-end
• Net cash provided by operating activities from continuing operations increased to $71.4 million, compared to $68.2 million in the prior year

Joseph B. Armes, CSW Industrials’ Chairman, President, and Chief Executive Officer, commented, “Our sustainable business model drove strong results in fiscal 2020, with outstanding top and bottom-line growth resulting from increased volumes across both segments and contributions from our recent acquisitions. Impressive cash flow generated by continuing operations enabled us to return $34.6 million to shareholders through share repurchases and dividends during the year, and to end the year with $18.3 million of cash and the full revolver capacity available.”

“Our strong financial results in fiscal 2020 are directly attributable to the diligence and professionalism of each of the over 700 employees of CSWI,” Armes continued. “We recognize the challenges that the pandemic has posed to all of our stakeholders, including our employees, customers, and suppliers, and our focus has been on safety, continuity of service, and support throughout a changing environment for our businesses.

“We are committed to our strong, employee-centric culture, where the safety and wellbeing of our employees are top priorities, and we redoubled our efforts in this regard as the pandemic unfolded. A few examples of our actions include procuring and requiring the use of additional personal protective equipment, ensuring incremental cleaning and sanitizing of our work sites, and modifying work schedules and processes. Our employees deserve our utmost respect and sincere gratitude as they have shown tremendous resiliency and courage in maintaining business continuity throughout this period, as we continue to support our customers and the critical infrastructure needs of our economy.”

Armes discussed, “As we look ahead to fiscal year 2021, most of the end markets we serve expect to experience temporary, but significant, demand degradation resulting from COVID-19 pandemic disruptions. We expect this will cause declines in demand for our products and services. While visibility is limited, we currently expect revenue and earnings in the first half of our fiscal year to be meaningfully lower than the prior year, with some recovery expected in the second half, assuming a successful reopening of the economy. We are monitoring demand through both macroeconomic data and, more importantly, direct conversations with our customers.”

“We have initiated several prudent cost control measures across the Company to manage short-term pressures,” Armes concluded, “but we do not anticipate these actions will fully offset the impact from expected revenue declines in the near term. Our highly experienced management team and Board of Directors, comprised of accomplished leaders adept at managing through economic cycles, are focused on the factors we can control, and supported by our strong balance sheet, we remain dedicated to long-term value creation.”

In concert with an affirmation of its core values, and commitment to its capital allocation strategy, CSWI outlined four objectives to ensure effective stewardship for its stakeholders:

• We will treat our employees well
• We will serve our customers well
• We will manage our supply chains effectively
• We will position our businesses for sustainable, long-term growth and profitability

Fiscal Fourth Quarter Results of Operations

Fiscal fourth quarter consolidated revenue from continuing operations was $98.5 million, representing 7.7% growth, as compared to $91.5 million in the prior year period, driven by increased sales in both the Industrial Products and Specialty Chemicals segments. Organic revenue growth accounted for 3.7% of the total 7.7% growth, with the remainder due to acquisition related revenue generated within the first twelve months of ownership. Organic sales growth, as compared to the prior year quarter, was predominantly driven by the heating, ventilation, air conditioning, and refrigeration (HVAC/R), and general industrial end markets; and was partially offset by declines in the energy, rail, and architecturally-specified building products end markets.

Consolidated gross profit increased 4.4% to $44.7 million, compared to $42.8 million in the prior year period. Higher profit was primarily a result of the positive impact of recent acquisitions, and increased sales volumes that were partially offset by a sales decline in the energy end market. Gross margin as a percentage of sales was 45.4%, compared to 46.8% in the prior year period, with the decline primarily due to an increase in cost of goods sold.

Consolidated operating expenses in the current quarter were $29.6 million, or 30.0% of sales, compared to the prior year level of $26.8 million, or 29.3% of sales. The increases in both total operating expenses and operating expenses as a percentage of sales were primarily driven by a trademark impairment, additional personnel related expenses, and selling, general and administrative costs related to acquired businesses.

GAAP operating income from continuing operations in the fiscal fourth quarter of 2020 was $15.1 million, a $1.0 million decrease over the prior year period, as the $1.9 million increase in gross profit from higher sales volumes was offset by $2.8 million increase in operating expenses as discussed above. Fiscal fourth quarter adjusted operating income, primarily adjusted for the exclusion of the trademark impairment, was $16.3 million, a $0.2 million increase over the prior year period.

GAAP net income from continuing operations in the fiscal fourth quarter of 2020 was $13.4 million, or $0.88 per diluted share, compared to $13.6 million, or $0.90 per diluted share, in the prior year period. After adjusting both quarters to exclude one-time items and to apply a normalized tax rate, adjusted net income from continuing operations improved 9.2% to $12.5 million, or $0.83 per diluted share, compared to adjusted net income from continuing operations of $11.5 million, or $0.75 per diluted share, in the prior year period.

Industrial Products segment revenue increased 11.9% (5.3% organic) to $60.1 million, compared to $53.7 million in the prior year period. Sales volumes in the HVAC/R and rail end markets drove most of the strong organic revenue growth, partially offset by declines in the general industrial and architecturally-specified building products end markets. GAAP segment operating income increased 7.7% to $13.6 million, compared to $12.7 million in the prior year period. The increased profits were driven by acquisitions and higher sales. There were no adjustments to GAAP results in the current or prior year periods.

Specialty Chemicals segment revenue improved 1.6%, all of which was organic, to $38.4 million, compared to $37.8 million in the prior year period. Growth was primarily driven by increased sales in the general industrial and architecturally specified building products end markets, partially offset by declines in the energy and rail end markets. GAAP segment operating income margin was $5.5 million, compared to $6.7 million in the prior year period. After adjusting for the trademark impairment, adjusted segment operating income was $6.5 million in the current fiscal quarter.

During the fourth quarter, CSWI repurchased $25.7 million of its shares in the open market and has $36.3 million remaining under its $75.0 million program authorization. Following quarter end, CSWI declared its fifth consecutive quarterly regular cash dividend of $0.135 per share, which was paid on May 13, 2020, to shareholders of record on May 1, 2020.

Fiscal Full Year 2020 Results of Operations

Consolidated revenue from continuing operations increased 10.2% to $385.9 million, compared with prior year revenue of $350.2 million. Organic revenue growth accounted for 5.9% of the total 10.2% growth, with higher organic sales growth in all end markets.

Consolidated gross profit increased 9.7% to $177.1 million, compared to $161.4 million in gross profit the prior year. Higher gross profit was driven by recent acquisitions and increased sales volumes, partially offset by a net reduction in gains on sales of property. Gross margin as a percentage of sales declined 20 basis points to 45.9%, compared to 46.1% in the prior year.

Consolidated operating expenses were $111.0 million, compared to the prior year of $100.9 million, or 28.8% of sales in each year. The increase in operating expenses was primarily attributable to selling, general and administrative costs related to acquired businesses, the trademark impairment, and increased compensation.

GAAP operating income from continuing operations in fiscal 2020 was $66.1 million, a 9.3% increase over the prior year period of $60.4 million. The $5.6 million increase was driven by the $15.7 million increase in gross profit from higher sales volumes, which was partially offset by the $10.1 million increase in operating expenses. Fiscal 2020 adjusted operating income, adjusted primarily for the trademark impairment and to exclude an $0.8 million gain on the sale of a building, was $66.4 million, representing a 13.4%, or $7.8 million, increase over the prior year adjusted operating income of $58.6 million.

GAAP net income from continuing operations was $44.8 million, or $2.95 per diluted share, compared to $46.1 million, or $2.96 per diluted share in the prior year. After adjusting the fiscal year to exclude one-time items, the most significant being the charge in the fiscal second quarter to terminate the U.S. qualified pension plan ($5.0 million after-tax, or $0.32 per diluted share), trademark impairment, gain on sale, and a normalized tax rate, adjusted net income from continuing operations improved 13.3% over the prior year period to $48.7 million, or $3.20 per diluted share. In the prior year, adjusted net income from continuing operations, adjusted to exclude one-time items and applying a normalized tax rate, net income from continuing operations was $43.0 million, or $2.77 per diluted share.

The effective tax rate on continuing operations for the quarter ended March 31, 2020 was 16.7%, and was 22.2% for the fiscal year ended March 31, 2020, due to the release of a reserve for uncertain tax positions, offset by adjustments for prior tax returns and state tax expense, net of federal benefit.

The Company’s effective tax rate for fiscal 2021 is expected to be in a range of 25% to 27%.

In fiscal year 2020, the Industrial Products segment revenue increased 14.1% (6.7% organic) to $234.9 million, compared to $205.9 million in the prior year. Sales volumes in the HVAC/R and plumbing end markets drove most of the strong organic revenue growth, partially offset by a modest decline in general industrial and rail end markets. GAAP segment operating income increased 14.2% to $55.7 million, compared to $48.8 million in the prior year. There were no adjustments to segment operating income in fiscal year 2020. In the prior fiscal year, adjusted segment operating income was $48.6 million after adjusting for a $0.5 million gain on the sale of property, partially offset by personnel related expenses. Adjusted segment operating margin remained strong at 23.7% in fiscal year 2020, flat to the prior year.

Specialty Chemicals segment revenue increased 4.7%, all of which was organic, to $151.0 million, compared to $144.2 million in the prior year. The increase in revenue was driven by higher sales of consumable products into all end markets. Reported segment operating income increased 3.2% to $24.7 million, compared to $23.9 million in the prior year. Current fiscal year segment adjusted operating income was $24.9 million, adjusted to exclude the gain a building sale, and the trademark impairment, representing an 11.3% increase over prior year segment adjusted operating income period, due to leverage on the increased sales.

Operating cash flow from continuing operations for the fiscal year ended March 31, 2020, increased to $71.4 million, compared to $68.2 million in the prior fiscal year. Adjusted to exclude a one-time deferred tax benefit of $10.4 million recognized in fiscal 2019, operating cash flow from continuing operations for the fiscal year ended March 31, 2020 increased 23.5%.

All percentages are calculated based upon the attached financial statements and reconciliations of non-GAAP financial measures.

Conference Call Information

The company will host a conference call today at 10:00 a.m. ET to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at https://cswindustrials.gcs-web.com/. To access the call, participants may dial toll-free at 1-877-407-0784 or 1-201-689-8561 (international) and request to join the CSW Industrials earnings call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or 1-412-317-6671 (international) and enter confirmation code 13703347. The telephonic replay will be available beginning at 1:00 p.m. ET on Wednesday, May 20, 2020, and will last through 11:59 p.m. ET on Wednesday, June 3, 2020. The call will also be available for replay via the webcast link on CSW Industrials’ Investor Relations website.

Safe Harbor Statement

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, effective tax rate, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations, and financial performance and condition.

The forward-looking statements included in this press release are based on our current expectations, projections, estimates, and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K.

All forward-looking statements included in this press release are based on information currently available to us, and we assume no obligation to update any forward-looking statement except as may be required by law.

Non-GAAP Financial Measures

This press release includes an analysis of adjusted earnings per share, adjusted net income, and adjusted operating income, which are non-GAAP financial measures of performance. For a reconciliation of these measures to the most directly comparable GAAP measures and for a discussion of why we consider these non-GAAP measures useful, see the “Reconciliation of Non-GAAP Measures” section of this release.

About CSW Industrials, Inc.

CSWI is a diversified industrial growth company with well-established, scalable platforms and domain expertise across two segments: Industrial Products and Specialty Chemicals. CSWI's broad portfolio of leading products provides performance optimizing solutions to its customers. CSWI's products include mechanical products for HVAC/R applications, building products, sealants, and high-performance specialty lubricants. Markets that CSWI serves include: HVAC/R, architecturally-specified building products, general industrial, plumbing, rail, energy, and mining. For more information, please visit www.cswindustrials.com.

Investor Relations

Adrianne D. Griffin
Vice President, Investor Relations, & Treasurer
214-489-7113
adrianne.griffin@cswi.com

Reconciliation of Non-GAAP Measures

We use adjusted earnings per share, adjusted net income and adjusted operating income, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, operating expense, operating income and net income, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. We also believe these measures are useful for investors to assess the operating performance of our business without the effect of non-operating items.