Air Bag Maker Sequa Posts Higher Results for Third Quarter and Nine Months of 2004
NEW YORK--Nov. 9, 2004--Paced by sharp advances at operations serving the aerospace and automotive industries and with a sustained high level of performance at metal coating and specialty chemicals businesses, Sequa Corporation generated a 24 percent increase in sales and a 48 percent advance in operating income for the third quarter of 2004.Sales for the quarter ended September 30 totaled $493.1 million, up from $396.7 million in the year-ago quarter. Operating income rose more sharply to $27.1 million in the third quarter of 2004 from $18.4 million in the same period of 2003. The improved performance reflects a combination of factors, including: overall strengthening of the commercial aerospace aftermarket and the benefit of sales added at the company's aerospace unit through a growing number of engine component repair contracts with major airlines; the benefit of higher volumes and improved efficiencies at the automotive operations; the benefit of lower pension costs; the favorable effect of translating foreign currency results into US dollars; and the ongoing contribution of across-the-board Six Sigma and Operational Excellence initiatives.
Income from continuing operations after tax rose to $8.6 million or 77 cents per share in the third period of 2004 from $2.0 million or 14 cents per share a year earlier. After including the results of discontinued operations, (a loss of $272,000 in the 2004 third quarter and income of $2.7 million in the 2003 third quarter), net income totaled $8.3 million or 74 cents per share in the third quarter of 2004, compared with net income of $4.7 million or 40 cents per share in the same period last year. It should be noted that results for the third quarter - and the nine months - of 2003 have been restated to account for a unit of the aerospace segment, TurboCombustor Technologies (TCT), as a discontinued operation. TCT was sold in April 2004 for cash proceeds of $32 million and at an after-tax gain of approximately $2.4 million.
Outlook for 2004 Fourth Quarter
Sequa cautions that the strong third-quarter performance should not be regarded as a template for the year's final quarter. Though operating income is presently expected to exceed the fourth quarter of 2003, a combination of factors is likely to curtail performance and could push after-tax income from continuing operations into the negative. Among the factors likely to influence fourth-quarter results are: lower overall production of cars and trucks and potential charges at the company's automotive segment stemming from reduced sales to an overseas customer; higher prices for natural gas and weather-related softness in customer demand, both of which affect the metal coating operation; and continued high corporate expense due to implementation of Sarbanes-Oxley requirements. It should be noted that fourth-quarter net income will include a net gain of approximately $1.5 million from the disposition of two operations. In October, the company sold a second aerospace unit, the Turbine Airfoils Division, for cash proceeds of $1.0 million and $7.0 million in notes receivable and, in early November, completed the sale of Sequa Can Machinery for cash proceeds of approximately $41 million.
Summary of Segment Results
Aerospace: Chromalloy Gas Turbine, the sole business in the aerospace segment, provides the airline industry and the marine and industrial turbine sectors with a broad range of aftermarket services. Despite the ongoing difficulties of the airline industry, Chromalloy posted a 51 percent increase in sales and a 65 percent advance in operating income for the third quarter. The advances reflect progress under new multi-year agreements with a number of airline customers to provide engine maintenance, component repair and replacement parts for specific engines and auxiliary power units in each airline's fleet. With a growing number of new service agreements in place, Chromalloy can be expected to continue gaining momentum.
Automotive: Both ARC Automotive and Casco Products posted higher results for the third quarter and contributed to the segment's 23 percent sales gain and substantial increase in operating income, which rose to $8.2 million from $3.0 million in the same period of 2003. ARC Automotive experienced higher demand for driver- and passenger-side inflators, while Casco Products benefited from both a focus on newer products - power outlets and electronic devices - and the addition of a Canadian sensor supplier acquired earlier in the year. Results of the automotive operations also reflect the benefit of Operational Excellence initiatives and the favorable effect of translating foreign currency results into US dollars.
Metal Coating: Sales of Precoat Metals were unchanged for the third quarter, a reflection largely of tightening conditions in the domestic steel market. Despite the strictures in the marketplace and the impact of higher natural gas costs (both of which are expected to continue), Precoat Metals generated higher profits for the quarter, chiefly as a result of operating efficiencies gained through Six Sigma.
Specialty Chemicals: The sales and income posted by UK-based Warwick International reflect the benefit of translating into US dollars results denominated in British pounds. In the third quarter, Warwick experienced a slight drop in demand for the detergent chemical, TAED, though the effect of the decline was mitigated by increases at a network of international chemicals marketing units and by the benefit of ongoing Six Sigma initiatives.
Other Products: Results of the three businesses in the segment were mixed for the third quarter. MEGTEC Systems, the largest operation in the segment, posted lower results for the period, the result of reduced equipment shipments and higher steel prices. After Six, the smallest unit in the segment, had lower sales for the third quarter but narrowed its loss due to the benefit of cost-saving initiatives instituted earlier in the year. Sequa Can Machinery, which was divested on November 4, contributed higher sales in the third quarter of 2004 ($11.1 million compared with $10.2 million in the same period of 2003) and moved to a profit from a loss over the period (income of $630,000 in the 2004 quarter; a loss of $1.2 million a year ago).
Summary of Nine-Month Results
For the nine months of 2004, Sequa's sales rose 18 percent, with increases at the company's four principal segments - aerospace, automotive, metal coating and specialty chemicals. Operating income increased 66 percent, rising to $66.3 million from $40.0 million in the same period of 2003. Income from continuing operations after tax totaled $12.0 million or $1.00 per share in the current year's nine months, compared with income from continuing operations of $547,000, which equaled a loss of 10 cents per share, in the nine months of 2003. Income from discontinued operations after tax (TurboCombustor Technologies and, for the 2003 period, ARC Propulsion) increased net income by $3.1 million or 30 cents per share for the nine months of 2004 and by $6.5 million or 62 cents per share for the same period of 2003.
Sequa Corporation and Subsidiaries
Consolidated Statement of Income
Report for the Three Months and Nine Months Ended September 30,
(Amounts in thousands, except per share)
(Unaudited)
Three Months Nine Months
2004 2003(a) 2004 2003(a)
--------- --------- ----------- -----------
Sales $493,068 $396,688 $1,417,079 $1,196,170
Costs and expenses 465,920 378,336 1,350,783 1,156,211
--------- --------- ----------- -----------
Operating income 27,148 18,352 66,296 39,959
Other income (expense)
Interest expense (18,059) (17,969) (53,904) (50,292)
Interest income 1,093 354 2,843 1,749
Other, net 482 2,138 372 9,131
--------- --------- ----------- -----------
Income from continuing
operations before income
taxes 10,664 2,875 15,607 547
Income tax provision (2,100) (900) (3,600) -
--------- --------- ----------- -----------
Income from continuing
operations 8,564 1,975 12,007 547
(Loss) income from
discontinued operations,
net of income taxes (272) 2,726 3,113 6,503
--------- --------- ----------- -----------
Net income 8,292 4,701 15,120 7,050
Preferred dividends (516) (516) (1,548) (1,548)
--------- --------- ----------- -----------
Net income available to
common stock $7,776 $4,185 $13,572 $5,502
========= ========= =========== ===========
Basic and diluted income
per share
Income (loss) from
continuing operations $0.77 $0.14 $1.00 $(0.10)
(Loss) income from
discontinued operations (0.03) 0.26 0.30 0.62
--------- --------- ----------- -----------
Net income $0.74 $0.40 $1.30 $0.52
========= ========= =========== ===========
Results by Business Segment
---------------------------
(Amounts in thousands)
Three Months Nine Months
2004 2003(a) 2004 2003(a)
--------- --------- ----------- -----------
Sales
-----
Aerospace $220,550 $145,861 $602,649 $458,681
Automotive 87,338 70,781 262,299 209,406
Metal Coating 74,113 74,174 205,884 195,557
Specialty Chemicals 53,293 48,043 163,616 145,948
Other Products 57,774 57,829 182,631 186,578
--------- --------- ----------- -----------
Total $493,068 $396,688 $1,417,079 $1,196,170
========= ========= =========== ===========
Operating Income (Loss)
-----------------------
Aerospace $13,010 $7,884 $29,285 $15,882
Automotive 8,222 3,022 19,945 2,061
Metal Coating 9,822 8,427 22,881 20,238
Specialty Chemicals 6,937 5,722 20,555 18,064
Other Products 1,717 1,260 6,429 6,341
Corporate (12,560) (7,963) (32,799) (22,627)
--------- --------- ----------- -----------
Total $27,148 $18,352 $66,296 $39,959
========= ========= =========== ===========
(a) Restated to classify ARC propulsion and TurboCombustor
Technologies as discontinued operations.