Albany International Corp. reported Q1 2015 income attributable to the Company of $12.2 million, including charges of $0.2 million for income tax adjustments. Income attributable to the Company in Q1 2014 was $10.6 million, including unfavorable income tax adjustments of $1.1 million.
CFO and Treasurer John Cozzolino commented, “Net debt (total debt less cash) increased $19 million to $112 million (see Table 11), with total cash of $171 million negatively affected by about $9 million due to unfavorable changes in foreign currency rates as compared to the end of Q4, incentive compensation payments which typically occur in the first quarter of each year, and higher accounts receivable and inventory. The Company’s leverage ratio, as defined in our primary debt agreements, decreased from 1.30 at the end of 2014 to 1.28 at the end of Q1. Capital expenditures in Q1 were $12 million, and we continue to estimate full-year spending in 2015 to be $65 to $75 million. Cash paid for income taxes was about $7 million in Q1, and we estimate cash taxes in 2015 to range from $20 million to $23 million.
“During Q1, the Company recorded about $5 million of foreign currency revaluation gains. As discussed last quarter, the primary exposures are in Europe and they relate to the monthly revaluation of cash and trade and intercompany receivables and payables. Regarding the currency impact of translating sales and expenses to U.S. dollars, net sales were negatively impacted by the broadly stronger U.S. dollar. However, since the Company also has foreign currency expense exposures which help to offset the impact of a decline in sales, currency did not have a significant impact on Q1 Adjusted EBITDA.”
President and CEO Joe Morone said, “Q1 2015 was an outstanding quarter for Albany International. In comparison to a strong Q1 2014, sales excluding currency effects improved by 7 percent; Adjusted EBITDA improved by 10 percent. MC had an exceptional quarter across the board, and AEC continued to make good progress toward the LEAP ramp and development of the next generation of new products.
“As we have mentioned many times, because of seasonal factors, the first half of the year for MC is generally stronger than the second half. In a normal business cycle, sales tend to be strong in Q1, peak in Q2, and then weaken in the second half of the year. Gross margin typically peaks in the first quarter, and then for a variety of reasons – for example, annual salary increases in North America go into effect in April – declines as the year progresses. So we ordinarily expect relatively good sales and gross margin in Q1, but even with this expectation, this was a very good start to the year. Sales were strong in every region, particularly in Europe and Asia. A number of factors contributed, most notably the relatively healthy U.S. economy, improvement in the European economy, and strong new product performance in just about every major product line. We were also encouraged in Q1 by progress in the development of our new technology platform both in pre-commercial trials and actual performance in early commercial applications.
“Q1 was also a strong quarter for AEC. Sales were in line with our expectations, and much stronger than a year ago, when LEAP revenue was held back by inventory and plant start-up effects. We made important strides in Q1 toward LEAP production readiness, even as orders for LEAP continue to grow. On the R&D front, we continue to be encouraged by progress in each of our two major application areas – aircraft engine and airframe components – as well as in our probe into the automotive market.
“As for our operations in Boerne, Texas, two important programs for Rolls-Royce, long in development, are now entering into production: composite components for the LiftFan® on the Joint Strike Fighter and for the BR725, the engine that powers the Gulfstream 650. Together these two account for over half of Boerne’s roughly $25 million of annualized sales. We are meeting critical delivery and yield targets for both these programs. The contract for the BR725 program, which was signed in 2007, sets very aggressive pricing levels. We will have to pay careful attention in the coming quarters to the projected life-of-program profitability as we gain more production experience.
“Turning to our outlook, in MC the same factors that contributed to the good Q1 sales should hold in Q2. The one exception is China, where the paper industry is still suffering from the combination of a slowing economy, weak exports, and overcapacity. Even though our sales there were strong in Q1, our customers in the packaging market took prolonged downtimes, which hurt our Q1 orders and will thus hold back Q2 sales.
“Apart from this softness in China, we expect Q2 to conform to the normal seasonal pattern: sales should be strong and, excluding currency effects, roughly comparable to the strong sales in Q2 2014; gross margins should seasonally weaken; and Adjusted EBITDA should be roughly comparable to Q2 2014.
“In AEC, our overall outlook, both short- and long-term, remains unchanged. For 2015, we continue to expect revenue to be 5-10 percent ahead of last year, with intense focus on preparing for the LEAP ramp. As has been the case for the past five quarters, we expect choppiness in revenue from quarter to quarter, as production levels in our LEAP plants respond to short-term shifts in demand for parts for engine tests and for periodic production runs to assess our readiness to ramp.
“In sum, Q1 2015 was a very strong quarter, marked by outstanding across-the-board performance in MC, and continued progress in AEC toward the LEAP ramp. Our outlook for Q2 is for comparable performance to a strong Q2 2014. And, given the continued growth in LEAP orders, the steady progress by AEC in new product development, and the promising results from initial applications of our new technology platform in MC, we continue to be optimistic about the long-term, technology-enabled outlook for both businesses.”