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Welbilt Reports Third Quarter Operating Results

November 5, 2019

NEW PORT RICHEY, Fla.--(BUSINESS WIRE)--Nov 5, 2019--

Welbilt, Inc. (NYSE:WBT), today announced financial results for its 2019 third quarter.

2019 Third Quarter Highlights(1)

2019 Third Quarter Year-to-date Highlights(1)

(1) Definitions and reconciliations of the non-GAAP measures used herein are included in the schedules accompanying this release.

The net sales decline of 0.6 percent was primarily driven by a decrease in the EMEA segment primarily due to the negative impact of foreign currency translation; this was partially offset by growth in the APAC segment. Organic Net Sales increased 5.2 percent in the APAC segment and increased 0.1 percent in the Americas segment with higher general market sales offsetting lower sales to large chains in both segments. Organic Net Sales decreased 0.5 percent in the EMEA segment primarily driven by lower general market sales.

Adjusted Operating EBITDA margin decreased 100 basis points from the prior year primarily due to unfavorable manufacturing variances driven by softer sales in the quarter and from inefficiencies in certain plants that are currently part of the Business Transformation Program (“Transformation Program”). These inefficiencies occurred during the transition to new production layouts and during the process of replacing existing fabrication equipment at these plants. These unfavorable manufacturing variances were partially offset by positive net pricing and lower material costs and tariffs compared to last year’s third quarter. The year-over-year comparison was also impacted by the non-repeat of last year’s favorable $3.7 million adjustment for compensation expense related to the departure of the former CEO.

Our Transformation Program remains on track to deliver run-rate savings of $30 million by the second half of 2020 and in excess of $75 million by the second half of 2021. Our Wave 1 plants, while in the midst of disruptive implementations that have short-term cost impacts, are ahead of schedule and confident in their glide paths to their savings targets. We are also ahead of schedule on the planned procurement activities as we have accelerated the launching of requests for quotations related to our parts spend. We have moved to Wave 2 now as our third manufacturing plant has started its transformation activities. In addition, we announced the consolidation of the Shanghai plant into another of our existing facilities in China which is expected to deliver savings in 2021. Finally, we have moved up KitchenCare into Wave 2 (it was originally scheduled to be in Wave 3) and it has begun its transformation activities.

Income tax expense was $9.4 million in the third quarter, reflecting a 31.9 percent effective tax rate, compared to $12.7 million, or a 32.2 percent effective tax rate, in last year’s third quarter. The $3.3 million decrease in the income tax provision for the three months ended September 30, 2019 is attributable to the decreased earnings before income taxes and changes in both discrete tax items and the relative weighting of jurisdictional income as compared to the same period of the prior year.

Liquidity and Debt

Net cash provided by operating activities in the third quarter was $61.5 million compared to a usage of $109.0 million in last year’s third quarter. Net cash used in investing activities in the third quarter was $7.0 million compared to $146.9 million of net cash provided by investing activities in last year’s third quarter. This year’s net cash used in investing activities includes capital spending of $7.3 million in the third quarter. Last year’s net cash provided by investing activities includes proceeds from the collection of beneficial interest in sold receivables, netted against capital spending of $6.0 million in the third quarter of 2018. Free Cash Flow was $54.2 million in the quarter versus $40.4 million in last year’s third quarter, with the increase primarily driven by working capital improvements (net of cash receipts on beneficial interest in sold accounts receivable in last year’s third quarter).

During the quarter, total debt and finance leases (including the current portion) decreased by $23.3 million. Our ending cash and cash equivalents was $117.8 million, an increase of $28.5 million in the quarter. Nearly all of our cash and cash equivalents were held by our international subsidiaries as of September 30, 2019.

2019 Guidance

Management Commentary

“Despite experiencing softer than expected end market conditions in the Americas and EMEA in the third quarter, we are generally pleased with our operating performance,” said Bill Johnson, Welbilt’s President and CEO. “We saw delays in some projects by large chain customers in the Americas while the general market in EMEA softened through the quarter. APAC grew again this quarter with strong general market sales. Operationally, our Adjusted Operating EBITDA margin decreased 100 basis points year-over-year from a combination of isolated manufacturing cost inefficiencies in our plants currently implementing the Transformation Program and the negative comparison due to last year’s $3.7 million favorable adjustment for compensation expense related to the departure of the former CEO.”

“We are continuing to make great strides in our Transformation Program. Our Wave 1 plants, while in the midst of disruptive implementations that have short-term cost impacts, are ahead of schedule and confident in their glide paths to their savings targets. We are also ahead of schedule on the planned procurement activities as we have accelerated the launching of requests for quotations related to our parts spend. We have moved to Wave 2 now as our third manufacturing plant has started its transformation activities. In addition, we announced the consolidation of the Crem Shanghai plant into another of our existing facilities in China which is expected to deliver savings in 2021. Finally, we have moved up KitchenCare into Wave 2 (it was originally scheduled to be in Wave 3) and it has begun its transformation activities. We remain very confident in our ability to deliver in excess of $75 million of run-rate savings by the second half of 2021.”

“We adjusted our Organic Sales guidance to reflect the delays in large customer sales in the Americas and for softer market conditions in EMEA. We also adjusted our 2019 Adjusted Operating EBITDA margin expectations slightly to reflect the impact of lower sales. We are implementing cost reduction actions across the business to limit the impact from the softer end markets while we continue to push ahead aggressively with the Transformation Program to permanently improve our cost structure. Finally, we revised our Adjusted Diluted Net Earnings Per Share guidance for our updated operating expectations and for a higher expected effective tax rate,” concluded Johnson.

Conference Call and Webcast

Welbilt will host a live conference call to discuss its 2019 third quarter earnings on Tuesday, November 5, 2019 at 10:00 am ET. A live webcast, supplemental presentation slides and replay of the call can be accessed on the Investor Relations page at www.welbilt.com. The webcast replay will be available for 30 days from Tuesday, November 5, 2019 at 1:00 pm ET. The information on our website is not a part of this release.

About Welbilt, Inc.

Welbilt, Inc. provides the world’s top chefs, premier chain operators and growing independents with industry-leading equipment and solutions. Our innovative products and solutions are powered by our deep knowledge, operator insights, and culinary expertise. Our portfolio of award-winning product brands includes Cleveland™, Convotherm ®, Crem ®, Delfield ®, Frymaster ®, Garland ®, Kolpak ®, Lincoln™, Manitowoc ® Ice, Merco ®, Merrychef ® and Multiplex ®. These product brands are supported by two service brands: FitKitchen ®, our fully-integrated kitchen systems brand, and KitchenCare ®, our aftermarket parts and service brand. Headquartered in the Tampa Bay region of Florida and operating 20 manufacturing facilities throughout the Americas, Europe and Asia, we sell through a global network of over 5,000 distributors, dealers, buying groups and manufacturers’ representatives in over 100 countries. We have approximately 5,400 employees and generated sales of $1.6 billion in 2018. For more information, visit www.welbilt.com.

Forward-looking Statements

Certain statements in this press release constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements contained in this press release that are not historical facts are forward-looking statements and include, for example, our expectations regarding future results, our full-year financial outlook, descriptions of the Transformation Program, including anticipated costs, completion dates and targeted annualized savings; expected impact of restructuring and other operating and strategic plans and any assumptions on which those expectations, outlook, descriptions, targets or plans are based. Certain of these forward-looking statements can be identified by using words such as “anticipates,” “believes,” “intends,” “estimates,” “targets,” “expects,” “endeavors,” “forecasts,” “could,” “will,” “may,” “plans,” “projects,” “assumes,” “should” or other similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially from future results expressed or implied in these forward-looking statements. The forward-looking statements included in this release are based on our current beliefs and expectations of our management as of the date of this release. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, risks related to our ability to timely and efficiently execute on manufacturing strategies; our ability to realize anticipated or targeted earnings enhancements, cost savings, strategic options and other synergies (through the Transformation Program or otherwise) and the anticipated timing to realize those enhancements, savings, synergies, and options; acquisitions, including our ability to realize the benefits of acquisitions in a manner consistent with our expectations and general integration risks; our substantial levels of indebtedness; actions by competitors including competitive pricing; consumer and customer demand for products; the successful development and market acceptance of innovative new products; world economic factors and ongoing economic and political uncertainty; our ability to source raw materials and commodities on favorable terms and successfully respond to and manage related price volatility; our ability to generate cash and manage working capital consistent with our stated goals; costs of litigation and our ability to defend against lawsuits and other claims and to protect our intellectual property rights; unanticipated environmental liabilities; the ability to obtain and maintain adequate insurance coverage; data security and technology systems; our labor relations and the ability to recruit and retain highly qualified personnel; product quality and reliability, including product liability claims; changes in the interest rate environment and currency fluctuations; compliance with, or uncertainty created by, existing, evolving or new laws and regulations, including recent changes in tax laws, tariffs and trade regulations and enforcement of such laws around the world, and any customs duties and related fees we may be assessed retroactively for failure to comply with U.S. customs regulations; our ability to comply with evolving and complex accounting rules, many of which involve significant judgment and assumptions; the possibility that additional information may arise, that would require us to make further adjustments or revisions to our historical financial statements or delay the filing of our current financial statements; our ability to successfully remediate the material weaknesses identified in our internal controls over financial reporting included in our Annual Report on Form 10-K for the year ended December 31, 2018; actions of activist shareholders; and those additional risks, uncertainties and factors described in more detail under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, our Form 10-Q for the quarterly periods ended March 31, 2019, June 30, 2019 and September 30, 2019 and in our other filings with the Securities and Exchange Commission (“SEC”). We do not intend, and, except as required by law, we undertake no obligation, to update any of our forward-looking statements after the date of this release to reflect any future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

 

WELBILT, INC.

Consolidated Statements of Operations

(In millions, except share and per share data, unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net sales

 

$

410.5

 

 

$

412.9

 

 

$

1,212.1

 

 

$

1,184.0

 

Cost of sales

 

259.6

 

 

259.8

 

 

778.4

 

 

755.4

 

Gross profit

 

150.9

 

 

153.1

 

 

433.7

 

 

428.6

 

Selling, general and administrative expenses

 

86.7

 

 

71.7

 

 

262.8

 

 

231.1

 

Amortization expense

 

9.4

 

 

9.9

 

 

28.8

 

 

27.2

 

Restructuring (recovery) expense

 

(0.2

)

 

3.9

 

 

5.4

 

 

5.7

 

Loss (gain) from disposal of assets — net

 

0.2

 

 

(0.1

)

 

0.2

 

 

(0.3

)

Earnings from operations

 

54.8

 

 

67.7

 

 

136.5

 

 

164.9

 

Interest expense

 

22.4

 

 

23.3

 

 

70.9

 

 

66.7

 

Other expense — net

 

2.9

 

 

4.9

 

 

11.5

 

 

28.7

 

Earnings before income taxes

 

29.5

 

 

39.5

 

 

54.1

 

 

69.5

 

Income taxes

 

9.4

 

 

12.7

 

 

16.6

 

 

18.3

 

Net earnings

 

$

20.1

 

 

$

26.8

 

 

$

37.5

 

 

$

51.2

 

Per share data:

 

 

 

 

 

 

 

 

Earnings per share — Basic

 

$

0.14

 

 

$

0.19

 

 

$

0.27

 

 

$

0.37

 

Earnings per share — Diluted

 

$

0.14

 

 

$

0.19

 

 

$

0.27

 

 

$

0.36

 

Weighted average shares outstanding — Basic

 

141,072,179

 

 

140,154,735

 

 

140,893,966

 

 

139,955,166

 

Weighted average shares outstanding — Diluted

 

141,532,790

 

 

141,349,185

 

 

141,455,493

 

 

141,282,068

 

 

WELBILT, INC.

Consolidated Balance Sheets

(In millions, except share and per share data)

 

 

 

September 30,

 

December 31,

 

2019

 

2018

 

 

(Unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

117.8

 

 

$

70.4

 

Restricted cash

 

 

 

2.8

 

Short-term investment

 

 

 

32.0

 

Accounts receivable, less allowance of $4.1 and $3.9, respectively

 

200.4

 

 

112.5

 

Inventories — net

 

197.6

 

 

190.6

 

Prepaids and other current assets

 

39.3

 

 

32.2

 

Total current assets

 

555.1

 

 

440.5

 

Property, plant and equipment — net

 

119.8

 

 

119.0

 

Operating lease right-of-use assets

 

39.3

 

 

 

Goodwill

 

929.5

 

 

935.6

 

Other intangible assets — net

 

508.5

 

 

546.7

 

Other non-current assets

 

28.1

 

 

33.2

 

Total assets

 

$

2,180.3

 

 

$

2,075.0

 

Liabilities and equity

 

 

 

 

Current liabilities:

 

 

 

 

Trade accounts payable

 

$

111.8

 

 

$

151.0

 

Accrued expenses and other liabilities

 

179.7

 

 

183.7

 

Short-term borrowings and current portion of finance leases

 

1.3

 

 

16.1

 

Product warranties

 

31.4

 

 

27.9

 

Total current liabilities

 

324.2

 

 

378.7

 

Long-term debt and finance leases

 

1,425.9

 

 

1,321.8

 

Deferred income taxes

 

102.5

 

 

104.3

 

Pension and postretirement health plans liabilities

 

34.5

 

 

39.2

 

Operating lease liabilities

 

28.1

 

 

 

Other long-term liabilities

 

34.4

 

 

44.6

 

Total non-current liabilities

 

1,625.4

 

 

1,509.9

 

Commitments and contingencies

 

 

 

 

Total equity:

 

 

 

 

Common stock ($0.01 par value, 300,000,000 shares authorized, 141,112,586 shares and

140,252,693 shares issued and outstanding as of September 30, 2019 and December 31,

2018, respectively)

 

1.4

 

 

1.4

 

Additional paid-in capital (deficit)

 

(32.3

)

 

(41.5

)

Retained earnings

 

306.1

 

 

268.4

 

Accumulated other comprehensive loss

 

(44.1

)

 

(41.6

)

Treasury stock, at cost, 57,583 shares and 53,308 shares, respectively

 

(0.4

)

 

(0.3

)

Total equity

 

230.7

 

 

186.4

 

Total liabilities and equity

 

$

2,180.3

 

 

$

2,075.0

 

 

WELBILT, INC.

Consolidated Statements of Cash Flows

(In millions, unaudited)

 

 

 

Nine Months Ended September 30,

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

Net earnings

 

$

37.5

 

 

$

51.2

 

Adjustments to reconcile net earnings to cash used in operating activities:

 

 

 

 

Depreciation expense

 

16.4

 

 

13.2

 

Amortization of intangible assets

 

28.8

 

 

27.2

 

Amortization of debt issuance costs

 

3.6

 

 

4.1

 

Deferred income taxes

 

0.5

 

 

(4.7

)

Stock-based compensation expense

 

6.2

 

 

4.7

 

Loss (gain) from disposal of assets — net

 

0.2

 

 

(0.3

)

Pension settlement

 

1.2

 

 

 

Loss on remeasurement of debt and other realized foreign currency derivative

 

0.3

 

 

21.9

 

Changes in operating assets and liabilities, excluding the effects of the business acquisition:

 

 

 

 

Accounts receivable

 

(371.1

)

 

(439.6

)

Inventories

 

(9.3

)

 

(34.6

)

Other assets

 

(2.1

)

 

(2.0

)

Trade accounts payable

 

(37.9

)

 

0.3

 

Other current and long-term liabilities

 

5.2

 

 

(21.4

)

Net cash used in operating activities

 

(320.5

)

 

(380.0

)

Cash flows from investing activities

 

 

 

 

Cash receipts on beneficial interest in sold receivables

 

280.7

 

 

420.2

 

Capital expenditures

 

(17.4

)

 

(14.0

)

Acquisition of intangible assets

 

 

 

(2.8

)

Purchase of short-term investment

 

 

 

(35.0

)

Proceeds from maturity of short-term investment

 

32.0

 

 

20.7

 

Business acquisition, net of cash acquired

 

 

 

(215.6

)

Settlement of foreign exchange contract

 

 

 

(10.0

)

Other

 

0.9

 

 

0.9

 

Net cash provided by investing activities

 

296.2

 

 

164.4

 

Cash flows from financing activities

 

 

 

 

Proceeds from long-term debt

 

355.0

 

 

276.0

 

Repayments on long-term debt and finance leases

 

(267.2

)

 

(139.5

)

Debt issuance costs

 

 

 

(0.4

)

Proceeds from short-term borrowings

 

 

 

30.0

 

Repayment of short-term borrowings

 

(15.0

)

 

 

Payment of contingent consideration

 

(0.8

)

 

 

Exercises of stock options

 

3.0

 

 

6.0

 

Payments on tax withholdings for equity awards

 

(2.2

)

 

(2.9

)

Net cash provided by financing activities

 

72.8

 

 

169.2

 

Effect of exchange rate changes on cash

 

(3.9

)

 

(0.7

)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

44.6

 

 

(47.1

)

Balance at beginning of period

 

73.2

 

 

108.8

 

Balance at end of period

 

$

117.8

 

 

$

61.7

 

 

(Continued)

WELBILT, INC.

Consolidated Statements of Cash Flows (Continued)

(In millions, unaudited)

 

 

 

Nine Months Ended September 30,

 

2019

 

2018

Supplemental disclosures of cash flow information:

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

27.3

 

 

$

33.5

 

Cash paid for interest, net of related hedge settlements

 

$

67.4

 

 

$

72.3

 

 

 

 

 

 

Supplemental disclosures of non-cash activities:

 

 

 

 

Non-cash investing activity: Beneficial interest obtained in exchange for securitized

receivables

 

$

238.6

 

 

$

555.8

 

Non-cash financing activity: Reassessments and modifications of right-of-use assets and

lease liabilities and assets obtained through leasing arrangements

 

$

12.2

 

 

$

 

Business Segments

(in millions, except percentage data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net sales:

 

 

 

 

 

 

 

 

Americas

 

$

318.2

 

 

$

322.8

 

 

$

929.2

 

 

$

931.2

 

EMEA

 

95.8

 

 

98.5

 

 

301.3

 

 

278.8

 

APAC

 

64.4

 

 

60.7

 

 

179.3

 

 

161.9

 

Elimination of intersegment sales

 

(67.9

)

 

(69.1

)

 

(197.7

)

 

(187.9

)

Total net sales

 

$

410.5

 

 

$

412.9

 

 

$

1,212.1

 

 

$

1,184.0

 

 

 

 

 

 

 

 

 

 

Segment Adjusted Operating EBITDA:

 

 

 

 

 

 

 

 

Americas

 

$

63.1

 

 

$

69.0

 

 

$

173.3

 

 

$

178.1

 

EMEA

 

18.7

 

 

16.3

 

 

55.3

 

 

52.8

 

APAC

 

11.4

 

 

8.4

 

 

26.7

 

 

21.4

 

Total Segment Adjusted Operating EBITDA

 

93.2

 

 

93.7

 

 

255.3

 

 

252.3

 

Corporate and unallocated expenses

 

(11.1

)

 

(7.0

)

 

(40.3

)

 

(34.8

)

Amortization expense

 

(9.4

)

 

(9.9

)

 

(28.8

)

 

(27.2

)

Depreciation expense

 

(5.3

)

 

(4.5

)

 

(16.2

)

 

(13.2

)

Transaction costs (1)

 

(0.3

)

 

(0.8

)

 

(0.9

)

 

(6.7

)

Other items (2)

 

 

 

 

 

(0.8

)

 

 

Transformation Program expense (3)

 

(12.3

)

 

 

 

(25.8

)

 

 

Separation expense

 

 

 

 

 

 

 

(0.1

)

Restructuring activities (4)

 

0.2

 

 

(3.9

)

 

(5.8

)

 

(5.7

)

(Loss) gain from disposal of assets — net

 

(0.2

)

 

0.1

 

 

(0.2

)

 

0.3

 

Earnings from operations

 

54.8

 

 

67.7

 

 

136.5

 

 

164.9

 

Interest expense

 

(22.4

)

 

(23.3

)

 

(70.9

)

 

(66.7

)

Other expense — net

 

(2.9

)

 

(4.9

)

 

(11.5

)

 

(28.7

)

Earnings before income taxes

 

$

29.5

 

 

$

39.5

 

 

$

54.1

 

 

$

69.5

 

(1) Transaction costs are associated with acquisition-related transaction and integration activities. Transaction costs recorded in "Cost of Sales" include $0.2 million related to inventory fair value purchase accounting adjustments for the nine months ended September 30, 2019 and $0.4 million and $1.9 million for the three and nine months ended September 30, 2018, respectively. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.3 million and $0.7 million for the three and nine months ended September 30, 2019, respectively, and $0.4 million and $4.8 million for the three and nine months ended September 30, 2018, respectively.

(2) Other items are costs which are not representative of our operational performance. For the nine months ended September 30, 2019, these costs include other professional fees of $0.8 million and are included in "Selling, general and administrative expenses" in the Company's Consolidated Statements of Operations.

(3) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program. For the three and nine months ended September 30, 2019, $1.1 million and $1.3 million of these expenses are included in "Cost of sales", respectively and $11.2 million and $24.5 million, respectively, are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

(4) Restructuring activities includes costs associated with actions to improve operating efficiencies and rationalization our cost structure. For the nine months ended September 30, 2019, these costs include inventory write-down and accelerated depreciation related to a plant consolidation of one of our manufacturing facilities of $0.4 million included in "Cost of sales" in the Consolidated Statements of Operations. For the three and nine months ended September 30, 2019, these costs include recoveries of $0.2 million and severance related costs of $5.4 million, respectively. Comparatively, for the three and nine months ended September 30, 2018, we incurred severance related costs of $3.9 million and $5.7 million, respectively. Severance and related costs are included in "Restructuring (recovery) expense" in the Consolidated Statements of Operations.

 

 

 

 

 

 

 

 

 

Adjusted Operating EBITDA % by segment (5):

 

 

 

 

 

 

 

 

Americas

 

19.8

%

 

21.4

%

 

18.7

%

 

19.1

%

EMEA

 

19.5

%

 

16.5

%

 

18.4

%

 

18.9

%

APAC

 

17.7

%

 

13.8

%

 

14.9

%

 

13.2

%

(5) Adjusted Operating EBITDA % in the section above is calculated by dividing Adjusted Operating EBITDA by net sales for each respective segment.

(in millions, except percentage data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net sales by geographic area (6):

 

 

 

 

 

 

 

 

United States

 

$

263.0

 

 

$

260.2

 

 

$

767.1

 

 

$

753.3

 

Other Americas

 

25.7

 

 

28.5

 

 

72.4

 

 

85.3

 

EMEA

 

73.2

 

 

77.8

 

 

238.1

 

 

218.5

 

APAC

 

48.6

 

 

46.4

 

 

134.5

 

 

126.9

 

Total net sales by geographic area

 

$

410.5

 

 

$

412.9

 

 

$

1,212.1

 

 

$

1,184.0

 

(6) Net sales in the section above are attributed to geographic regions based on location of customer.

NON-GAAP FINANCIAL MEASURES

In this release, we use certain non-GAAP financial measures discussed below to evaluate our results of operations, financial condition and liquidity. We believe that the presentation of these non-GAAP financial measures, when viewed as a supplement to our results prepared in accordance with U.S. GAAP, provides useful information to investors in evaluating the ongoing performance of our operating businesses, provides greater transparency into our results of operations and is consistent with how management evaluates operating performance and liquidity. In addition, these non-GAAP measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to similar data we make this data available to all investors. None of the non-GAAP measures presented should be considered as an alternative to net earnings, earnings from operations, net cash used in operating activities, net sales or any other measures derived in accordance with U.S. GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for financial measures presented in accordance with U.S. GAAP. Our use of these terms may vary from the use of similarly-titled measures by other companies due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. We do not provide reconciliations of our forward-looking Adjusted Operating EBITDA margin and Adjusted Diluted Net Earnings Per Share guidance, which are presented on a non-GAAP basis, to the most directly comparable GAAP financial measure because the combined impact and timing of certain potential charges or gains is inherently uncertain, outside of our control and difficult to predict. Accordingly, we cannot provide reconciliations without unreasonable effort and are unable to determine the probable significance of the unavailable information.

Free Cash Flow

In this release, we refer to Free Cash Flow, calculated as net cash used in operating activities less capital expenditures plus cash receipts on our beneficial interest in sold receivables and the related impact of terminating our accounts receivable securitization program during the first quarter of 2019. We believe this non-GAAP financial measure is useful to investors in measuring our ability to generate cash internally to fund our debt repayments, acquisitions, dividends and share repurchases. Free Cash Flow reconciles to net cash used in operating activities presented in our Consolidated Statements of Cash Flows presented in accordance with U.S. GAAP as follows:

(in millions)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net cash provided by (used in) operating activities

 

$

61.5

 

 

$

(109.0

)

 

$

(320.5

)

 

$

(380.0

)

Capital expenditures

 

(7.3

)

 

(6.0

)

 

(17.4

)

 

(14.0

)

Cash receipts on beneficial interest in sold receivables

 

 

 

155.4

 

 

280.7

 

 

420.2

 

Termination of accounts receivable securitization program (1)

 

 

 

 

 

96.9

 

 

 

Free Cash Flow

 

$

54.2

 

 

$

40.4

 

 

$

39.7

 

 

$

26.2

 

(1) Represents the increase in accounts receivable resulting from the termination of the accounts receivable securitization program during the first quarter of 2019, which is reflected in “Cash Flows from Operating Activities” in the Consolidated Statements of Cash Flows.

Adjusted Operating EBITDA

In addition to analyzing our operating results on a U.S. GAAP basis, management also reviews our results on an “Adjusted Operating EBITDA” basis. Adjusted Operating EBITDA is defined as net earnings before interest, income taxes, other income or expense, depreciation and amortization expense plus certain other items such as gain or loss from impairment of disposal of assets, restructuring activities, separation expense, Transformation Program expense, loss on modification or extinguishment of debt, acquisition-related transaction and integration costs and certain other items. Management uses Adjusted Operating EBITDA as the basis on which we evaluate our financial performance and make resource allocations and other operating decisions. Management considers it important that investors review the same operating information used by management.

The Company’s Adjusted Operating EBITDA reconciles to net earnings as presented in the Consolidated Statements of Operations in accordance with U.S. GAAP as follows:

(in millions, except percentage data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net earnings

 

$

20.1

 

 

$

26.8

 

 

$

37.5

 

 

$

51.2

 

Income taxes

 

9.4

 

 

12.7

 

 

16.6

 

 

18.3

 

Other expense — net

 

2.9

 

 

4.9

 

 

11.5

 

 

28.7

 

Interest expense

 

22.4

 

 

23.3

 

 

70.9

 

 

66.7

 

Earnings from operations

 

54.8

 

 

67.7

 

 

136.5

 

 

164.9

 

Loss (gain) from disposal of assets — net

 

0.2

 

 

(0.1

)

 

0.2

 

 

(0.3

)

Restructuring activities (1)

 

(0.2

)

 

3.9

 

 

5.8

 

 

5.7

 

Separation expense

 

 

 

 

 

 

 

0.1

 

Amortization expense

 

9.4

 

 

9.9

 

 

28.8

 

 

27.2

 

Depreciation expense

 

5.3

 

 

4.5

 

 

16.2

 

 

13.2

 

Transformation Program expense (2)

 

12.3

 

 

 

 

25.8

 

 

 

Transaction costs (3)

 

0.3

 

 

0.8

 

 

0.9

 

 

6.7

 

Other items (4)

 

 

 

 

 

0.8

 

 

 

Total Adjusted Operating EBITDA

 

$

82.1

 

 

$

86.7

 

 

$

215.0

 

 

$

217.5

 

 

 

 

 

 

 

 

 

 

Adjusted Operating EBITDA margin (5)

 

20.0

%

 

21.0

%

 

17.7

%

 

18.4

%

(1) Restructuring activities includes costs associated with actions to improve operating efficiencies and rationalization of our cost structure. For the nine months ended September 30, 2019, these costs include inventory write-down and accelerated depreciation related to a plant consolidation of one of our manufacturing facilities of $0.4 million included in “Cost of sales” in the Consolidated Statements of Operations. For the three and nine months ended September 30, 2019, these costs include recoveries of $0.2 million and severance related costs of $5.4 million, respectively. Comparatively, for the three and nine months ended September 30, 2018, we incurred costs of $3.9 million and $5.7 million, respectively. Severance and related costs are included in “Restructuring (recovery) expense” in the Consolidated Statements of Operations.

(2) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program. For the three and nine months ended September 30, 2019, $1.1 million and $1.3 million of these expenses are included in “Cost of sales”, respectively and $11.2 million and $24.5 million, respectively, are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

(3) Transaction costs are associated with acquisition-related transaction and integration activities. These costs include $0.2 million related to inventory fair value purchase accounting adjustments recorded in “Cost of sales” for the nine months ended September 30, 2019 and $0.4 million and $1.9 million for the three and nine months ended September 30, 2018, respectively. Professional services and other direct acquisition and integration costs of $0.3 million and $0.7 million were recorded in “Selling, general and administrative expenses” for the three and nine months ended September 30, 2019, respectively, and $0.4 million and $4.8 million for the three and nine months ended September 30, 2018, respectively.

(4) Other items are costs, which are not representative of our operational performance. These costs include other professional fees of $0.8 million recorded in “Selling, general and administrative expenses” for the nine months ended September 30, 2019.

(5) Adjusted Operating EBITDA margin in the section above is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales.

Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Share

We define Adjusted Net Earnings as net earnings before the impact of certain items, including gain or loss from impairment or disposal of assets, restructuring activities, separation expense, acquisition-related transaction and integration costs, Transformation Program expense, expenses associated with pension settlements, foreign currency transaction gain or loss, certain other items and the tax effect of the aforementioned adjustments, as applicable. Adjusted Diluted Net Earnings Per Share for each period represents Adjusted Net Earnings while giving effect to all potentially dilutive shares of common stock that were outstanding during the period. We believe these measures are useful to investors in assessing the ongoing performance of our underlying businesses before the impact of certain items.

The following tables present Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Share reconciled to net earnings and diluted net earnings per share, respectively, presented in accordance with U.S. GAAP:

(in millions, except share data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net earnings

 

$

20.1

 

 

$

26.8

 

 

$

37.5

 

 

$

51.2

 

Loss (gain) from disposal of assets — net

 

0.2

 

 

(0.1

)

 

0.2

 

 

(0.3

)

Restructuring activities (1)

 

(0.2

)

 

3.9

 

 

5.8

 

 

5.7

 

Separation expense

 

 

 

 

 

 

 

0.1

 

Transformation Program expense (2)

 

12.3

 

 

 

 

25.8

 

 

 

Transaction costs (3)

 

0.3

 

 

0.8

 

 

0.9

 

 

16.7

 

Other items (4)

 

 

 

 

 

0.8

 

 

 

Pension settlement (5)

 

 

 

 

 

1.2

 

 

 

Foreign currency transaction loss (gain) (6)

 

1.5

 

 

3.0

 

 

6.5

 

 

13.4

 

Tax Cuts and Jobs Act

 

 

 

2.6

 

 

 

 

2.6

 

Tax effect of adjustments (7)

 

(3.2

)

 

(1.8

)

 

(9.5

)

 

(4.3

)

Total Adjusted Net Earnings

 

$

31.0

 

 

$

35.2

 

 

$

69.2

 

 

$

85.1

 

 

 

 

 

 

 

 

 

 

Diluted net earnings

 

$

0.14

 

 

$

0.19

 

 

$

0.27

 

 

$

0.36

 

Loss (gain) from disposal of assets — net

 

 

 

 

 

 

 

 

Restructuring activities (1)

 

 

 

0.03

 

 

0.04

 

 

0.04

 

Separation expense

 

 

 

 

 

 

 

 

Transformation Program expense (2)

 

0.09

 

 

 

 

0.18

 

 

 

Transaction costs (3)

 

 

 

 

 

0.01

 

 

0.12

 

Other items (4)

 

 

 

 

 

0.01

 

 

 

Pension settlement (5)

 

 

 

 

 

0.01

 

 

 

Foreign currency transaction loss (gain) (6)

 

0.01

 

 

0.02

 

 

0.04

 

 

0.09

 

Tax Cuts and Jobs Act

 

 

 

0.02

 

 

 

 

0.02

 

Tax effect of adjustments (7)

 

(0.02

)

 

(0.01

)

 

(0.07

)

 

(0.03

)

Total Adjusted Diluted Net Earnings

 

$

0.22

 

 

$

0.25

 

 

$

0.49

 

 

$

0.60

 

(1) Restructuring activities includes costs associated with actions to improve operating efficiencies and rationalization of our cost structure. For the nine months ended September 30, 2019, these costs include inventory write-down and accelerated depreciation related to a plant consolidation of one of our manufacturing facilities of $0.4 million included in “Cost of sales” in the Consolidated Statements of Operations. For the three and nine months ended September 30, 2019, these costs include recoveries of $0.2 million and severance related costs of $5.4 million, respectively. Comparatively, for the three and nine months ended September 30, 2018, we incurred costs of $3.9 million and $5.7 million, respectively. Severance and related costs are included in “Restructuring (recovery) expense” in the Consolidated Statements of Operations.

(2) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program. For the three and nine months ended September 30, 2019, $1.1 million and $1.3 million of these expenses are included in “Cost of sales”, respectively and $11.2 million and $24.5 million, respectively, are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

(3) Transaction costs are associated with acquisition-related transaction and integration activities. These costs include $0.2 million related to inventory fair value purchase accounting adjustments recorded in “Cost of sales” for the nine months ended September 30, 2019 and $0.4 million and $1.9 million for the three and nine months ended September 30, 2018, respectively. Professional services and other direct acquisition and integration costs of $0.3 million and $0.7 million were recorded in “Selling, general and administrative expenses” for the three and nine months ended September 30, 2019, respectively, and $0.4 million and $4.8 million for the three and nine months ended September 30, 2018, respectively. Transaction costs also included losses of $10.0 million related to a foreign currency hedge of the acquisition purchase price for Crem recorded in “Other expense-net” for the nine months ended September 30, 2018.

(4) Other items are costs, which are not representative of our operational performance. These costs include other professional fees of $0.8 million recorded in “Selling, general and administrative expenses” for the nine months ended September 30, 2019.

(5) Pension settlement represents a non-cash pension settlement loss of $1.2 million incurred during the nine months ended September 30, 2019, resulting from the settlement of a portion of our United Kingdom pension obligations.

(6) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign currency exchange contracts not designated as hedging instruments for accounting purposes.

(7) The tax effect of adjustments is determined using the statutory tax rates for the countries comprising such adjustments.

Third-party Net Sales and Organic Net Sales

In this release, we define Third-party Net Sales as net sales for the segment excluding intersegment sales and Organic Net Sales as net sales before the impacts of acquisitions and foreign currency translations during the period. We believe the Third-party Net Sales and Organic Net Sales measures are useful to investors in assessing the ongoing performance of our underlying businesses. Third-party Net Sales and Organic Net Sales reconcile to net sales presented in accordance with U.S. GAAP as follows:

 

 

For the Three Months Ended September 30, 2019 vs. 2018

 

Favorable/(Unfavorable)

 

Americas

 

EMEA

 

APAC

 

Welbilt

Organic Net Sales

 

0.1

%

 

(0.5

)%

 

5.2

%

 

0.6

%

Impact from acquisition

 

%

 

%

 

%

 

%

Impact of foreign currency translation (1)

 

(0.2

)%

 

(4.9

)%

 

(1.2

)%

 

(1.2

)%

Third-party Net Sales

 

(0.1

)%

 

(5.4

)%

 

4.0

%

 

(0.6

)%

 

 

For the Nine Months Ended September 30, 2019 vs. 2018

 

Favorable/(Unfavorable)

 

Americas

 

EMEA

 

APAC

 

Welbilt

Organic Net Sales

 

0.2

%

 

6.8

%

 

5.6

%

 

2.0

%

Impact from acquisition

 

%

 

8.5

%

 

3.8

%

 

2.1

%

Impact of foreign currency translation (1)

 

(0.4

)%

 

(6.2

)%

 

(2.4

)%

 

(1.7

)%

Third-party Net Sales

 

(0.2

)%

 

9.1

%

 

7.0

%

 

2.4

%

(1) The impact from foreign currency translation is calculated by translating current period activity at the weighted average prior period rates.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in millions)

 

2019

 

2018

 

2019

 

2018

Consolidated:

 

 

 

 

 

 

 

 

Total net sales

 

$

478.4

 

 

$

482.0

 

 

$

1,409.8

 

 

$

1,371.9

 

Less: Intersegment sales

 

(67.9

)

 

(69.1

)

 

(197.7

)

 

(187.9

)

Net sales (as reported)

 

410.5

 

 

412.9

 

 

1,212.1

 

 

1,184.0

 

Less: Crem acquisition

 

 

 

 

 

(24.0

)

 

 

Organic third-party net sales

 

410.5

 

 

412.9

 

 

1,188.1

 

 

1,184.0

 

Impact of foreign currency translation (1)

 

4.8

 

 

 

 

19.9

 

 

 

Total Consolidated organic net sales

 

$

415.3

 

 

$

412.9

 

 

$

1,208.0

 

 

$

1,184.0

 

 

 

 

 

 

 

 

 

 

Americas:

 

 

 

 

 

 

 

 

Net sales

 

$

318.2

 

 

$

322.8

 

 

$

929.2

 

 

$

931.2

 

Less: Intersegment sales

 

(33.4

)

 

(37.8

)

 

(101.0

)

 

(101.5

)

Third-party net sales

 

284.8

 

 

285.0

 

 

828.2

 

 

829.7

 

Impact of foreign currency translation (1)

 

0.4

 

 

 

 

2.9

 

 

 

Total Americas organic net sales

 

$

285.2

 

 

$

285.0

 

 

$

831.1

 

 

$

829.7

 

 

 

 

 

 

 

 

 

 

EMEA:

 

 

 

 

 

 

 

 

Net sales

 

$

95.8

 

 

$

98.5

 

 

$

301.3

 

 

$

278.8

 

Less: Intersegment sales

 

(21.8

)

 

(20.3

)

 

(59.1

)

 

(56.9

)

Third-party net sales

 

74.0

 

 

78.2

 

 

242.2

 

 

221.9

 

Less: Crem acquisition

 

 

 

 

 

(19.0

)

 

 

Organic third-party net sales

 

74.0

 

 

78.2

 

 

223.2

 

 

221.9

 

Impact of foreign currency translation (1)

 

3.8

 

 

 

 

13.9

 

 

 

Total EMEA organic net sales

 

77.8

 

 

$

78.2

 

 

$

237.1

 

 

$

221.9

 

 

 

 

 

 

 

 

 

 

APAC:

 

 

 

 

 

 

 

 

Net sales

 

$

64.4

 

 

$

60.7

 

 

$

179.3

 

 

$

161.9

 

Less: Intersegment sales

 

(12.7

)

 

(11.0

)

 

(37.6

)

 

(29.5

)

Third-party net sales

 

51.7

 

 

49.7

 

 

141.7

 

 

132.4

 

Less: Crem acquisition

 

 

 

 

 

(5.0

)

 

 

Organic third-party net sales

 

51.7

 

 

49.7

 

 

136.7

 

 

132.4

 

Impact of foreign currency translation (1)

 

0.6

 

 

 

 

3.1

 

 

 

Total APAC organic net sales

 

$

52.3

 

 

$

49.7

 

 

$

139.8

 

 

$

132.4

 

(1) The impact from foreign currency translation is calculated by translating current period activity at the weighted average prior period rates.

View source version on businesswire.com:https://www.businesswire.com/news/home/20191105005425/en/

CONTACT: Rich Sheffer

Vice President Investor Relations, Risk Management and Treasurer

Welbilt, Inc.

+1 (727) 853-3079

Richard.sheffer@welbilt.com

KEYWORD: UNITED STATES NORTH AMERICA FLORIDA

INDUSTRY KEYWORD: RETAIL RESTAURANT/BAR SPECIALTY

SOURCE: Welbilt, Inc.

Copyright Business Wire 2019.

PUB: 11/05/2019 06:00 AM/DISC: 11/05/2019 06:01 AM

http://www.businesswire.com/news/home/20191105005425/en