SEC Document

 

attract financing.  Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing.  EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

RESULTS OF OPERATIONS

Three Months Ended November 30, 2017

Net Sales  Consolidated net sales of $1,315.4 million for the second quarter of fiscal 2018 grew by approximately 10.5% from net sales of $1,190.8 million for last year’s second quarter. Acquisitions added 4.7%, while organic sales, which include the impact of price and volume, improved by 4.2%.  Consolidated net sales for the quarter also reflect a favorable foreign exchange impact of 1.6%.

Industrial segment net sales for the current quarter grew by 11.0% to $702.9 million, from net sales of $633.4 million during the same period a year ago. The improvement was primarily due to organic growth of 5.4% during the quarter, driven mainly by North American roofing, but also by our polymer flooring businesses. Recent acquisitions contributed 3.3% to net sales during the current quarter, while favorable foreign exchange impacted net sales by 2.3% during the current quarter.

Consumer segment net sales for the quarter grew by 11.1% to $415.4 million, from $373.8 million during last year’s second quarter, due to growth in net sales from recent acquisitions of 7.3%.  This segment had growth in organic sales of 3.0% during the quarter versus the same period last year, driven primarily by sales of caulks and sealants, as well as improved results in select international markets.  Slightly favorable foreign currency impacted net sales in the consumer segment by 0.8% during the current quarter versus the same period a year ago.  

Specialty segment net sales for the quarter grew by 7.4% to $197.1 million, from $183.6 million during last year’s second quarter. Recent acquisitions provided 3.8% of the growth in net sales, while organic growth provided 2.8% during the current quarter, in spite of the loss of sales associated with the fiscal 2017 closure of an unprofitable European manufacturing facility. Organic growth in net sales was driven by recent hurricane activity that impacted our businesses serving the water damage restoration and equipment markets, as well as increases in specialty OEM industrial coatings and wood finishes.  Sales declined in our edible coatings business as expected due to the loss of a patent in August 2017, however, this business has been able to retain most of its larger customers.  Foreign currency had a slightly favorable impact on specialty segment net sales for the quarter by 0.8%.

Gross Profit Margin  Our consolidated gross profit margin of 41.9% of net sales for the second quarter of fiscal 2018 compares to a consolidated gross profit margin of 43.8% for the comparable period a year ago. This gross profit decline of approximately 1.9% of net sales includes the benefit of our current quarter organic growth in sales, which provided approximately 0.6% of net sales, or 60 basis points (“bps”), which was more than offset by the burden of overall higher raw material costs for approximately 110 bps, unfavorable manufacturing absorption for approximately 50 bps, and approximately 100 bps from an unfavorable mix of product sold versus last year.  We anticipate that rising raw material prices will continue to trend upward due to more robust global demand and rising petrochemical costs.

Selling, General and Administrative Expenses (“SG&A”)  Our consolidated SG&A expense during the current period was relatively flat versus the same period last year, but improved to 31.9% of net sales from 35.2% of net sales for the prior year quarter, resulting primarily from the 10.5% increase in net sales during the current quarter, combined with tighter cost controls during the current quarter and the benefit from severance actions taken during fiscal 2017 across each of our segments.  During fiscal 2017, we made a decision to exit our Flowcrete polymer flooring business located in the Middle East, and in connection with that decision, we performed an additional review of the collectability of accounts receivable which resulted in a loss of $11.4 million for increased bad debt reserves during last year’s second quarter. We continue to assess unprofitable facilities and businesses and could incur additional charges in the future.  Additional SG&A expense generated from companies acquired during the last 12 months approximated $13.1 million during the current quarter. Lastly, warranty expense for the quarter ended November 30, 2017 decreased slightly by approximately $1.9 million from the amount recorded during the comparable prior year period, and it is typical that warranty expense will fluctuate from period to period.  

Our industrial segment SG&A was approximately $5.0 million higher for the second quarter of fiscal 2018 versus the comparable prior year period, but decreased as a percentage of net sales, which reflects the industrial segment’s solid 11.0% growth in net sales combined with overall tighter cost controls during the current quarter and the benefit from severance actions taken during fiscal 2017. We will continue to focus on improving operating leverage throughout the industrial segment. As previously discussed, in connection with the decision to exit the Flowcrete Middle East business, during last year’s second quarter we incurred a loss of $11.4 million for increased bad debt reserves.  Additional SG&A expense generated from companies acquired during the last 12 months approximated $6.2 million for this segment during the current quarter.

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