Market Overview

CLARCOR Reports Fourth Quarter Financial Results

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FRANKLIN, Tenn.--(BUSINESS WIRE)--

CLARCOR Inc. (NYSE: CLC):

       

Unaudited Fourth Quarter and Full Year 2016 Highlights

(Amounts in millions, except per share data and percentages)

 
Fourth Quarter Ended Full Year Ended
12/3/16     11/28/15     Change 12/3/16     11/28/15     Change
Net sales $ 376.9     $ 372.5     1% $ 1,389.6     $ 1,481.0     -6%
Operating profit 44.4 49.4 -10% 180.9 197.9 -9%
Net earnings — CLC 29.0 33.1 -12% 139.3 134.7 3%
Diluted EPS $ 0.59 $ 0.67 -12% $ 2.84 $ 2.67 6%
Operating margin 11.8%     13.3%     -1.5 pts

13.0%

 

   

13.4%

 

    -0.4 pts
 

CLARCOR Inc. (NYSE: CLC) reported that its fourth quarter diluted earnings per share were $0.59, an $0.08 reduction from the fourth quarter of 2015. Fourth quarter 2016 diluted earnings per share were negatively impacted by approximately $0.12 from expenses associated with the pending Parker-Hannifin transaction. In addition, the fourth quarters of 2016 and 2015 were negatively impacted by approximately $0.03 and $0.07, respectively, from upfront expenses for cost reduction initiatives. Excluding the aggregate impact of these items, non-GAAP adjusted diluted earnings per share for the fourth quarter of 2016 were flat compared to the fourth quarter of 2015, as reflected in the table on the next page. Our fiscal fourth quarter of 2016 included an additional or fourteenth week while our fiscal fourth quarter 2015 included thirteen weeks. We estimate that the additional week in the fourth quarter of 2016 positively influenced net sales by approximately 8% compared to the fourth quarter of 2015.

To allow investors to better compare and evaluate our historical financial performance, we are presenting non-GAAP adjusted financial results in the table following this paragraph. Non-GAAP adjusted financial results for the fourth quarter of 2016 exclude $7.4 million of expenses associated with the pending Parker-Hannifin transaction and $2.3 million of upfront expenses for cost reduction initiatives as referenced above. Non-GAAP adjusted financial results for the fourth quarter of 2015 exclude $5.6 million of upfront expenses for cost reduction initiatives. Please refer to pages 11 through 14 of this earnings release for reconciliations and additional information with respect to non-GAAP adjusted financial results for the fourth quarter and full year 2015 and 2016.

       

Non-GAAP Adjusted Financial Results:

 
Fourth Quarter Ended Full Year Ended
12/3/16     11/28/15     Change 12/3/16     11/28/15     Change
Adjusted net sales $ 376.9     $ 372.5     1% $ 1,389.6     $ 1,440.1     -4%
Adjusted operating profit 54.2

 

55.0

-2% 192.7 201.4 -4%
Adjusted net earnings — CLC 36.3

 

36.7

-1% 129.8 133.6 -3%
Adjusted diluted EPS $ 0.74

$

0.74

0% $ 2.65 $ 2.65 0%
Adjusted operating margin 14.4%    

 

14.8%

    -0.4 pts 13.9%     14.0%     -0.1 pts
 

Fourth quarter 2016 consolidated net sales increased $4 million, or 1%, from last year's fourth quarter. Higher fourth quarter net sales were primarily driven by the additional fiscal week in this year's fourth quarter compared to the fourth quarter of 2015 which contained thirteen weeks. The net sales benefit from this additional fiscal week was partially offset by continued weakness in our natural gas filtration business and lower net sales in several of our heavy-duty engine filtration markets when adjusted for the additional fiscal week, as well as changes in average foreign currency exchange rates which negatively impacted consolidated net sales by $6 million, or 2%. We also recognized higher incentive compensation expense pursuant to our company-wide annual cash incentive program in the fourth quarter of 2016 in comparison to last year's fourth quarter as the result of us achieving a higher payout level under this program in fiscal 2016 than fiscal 2015, which negatively impacted operating profit by $6.8 million, diluted earnings per share by $0.09 and operating margin by 1.8 percentage points in the fourth quarter of 2016 compared to last year's fourth quarter.

Fourth quarter 2016 net sales in our Engine/Mobile Filtration segment increased $5 million, or 3%, from last year's fourth quarter including relatively flat domestic sales and a $4 million, or 9%, increase in international net sales. Changes in average foreign currency exchange rates negatively impacted net sales in this reporting segment by $2 million, or 1%. In addition to the impact of the extra week in the fourth quarter of 2016, higher international net sales compared to last year's fourth quarter were primarily driven by an increase in heavy-duty engine first-fit filtration sales to our largest customer in China and higher export sales of off-road fuel filtration products to the agricultural and construction equipment markets primarily the result of several new first-fit product introductions. Domestic net sales in this reporting segment were relatively flat compared to last year's fourth quarter--despite the additional fiscal week in this year's fourth quarter--as a 5% increase in heavy-duty engine filtration sales to our U.S. independent aftermarket was offset by a 22% decline in sales to other filtration companies and a 10% reduction in sales to a large retail customer that was referenced in our earnings release for the prior quarter. We believe lower fourth quarter net sales to this large retail customer continue to be driven by a strategic reorganization taking place at this customer.

Fourth quarter 2016 net sales in our Industrial/Environmental Filtration segment were relatively flat compared to last year's fourth quarter. The net sales benefit of the extra fiscal week was offset by changes in average foreign currency exchange rates which negatively impacted net sales in this reporting segment by $4 million, or 2%. Higher year-over-year fourth quarter HVAC filtration product sales and $3 million additional sales from our first quarter 2016 acquisition of TDC Filter Manufacturing were offset by lower natural gas filtration sales. Sales of HVAC filtration products increased $6 million, or 21%, from last year's fourth quarter primarily due to continued higher sales into the Middle East. Natural gas filtration sales declined approximately $9 million, or 12%, from last year's fourth quarter driven by a 30% reduction in capital vessel sales which was partially offset by a 9% increase in aftermarket filtration sales, reflecting continued focus within this business on growing the aftermarket despite continued difficult end-market conditions.

Our fourth quarter operating margin of 11.8% declined 1.5 percentage points from last year's fourth quarter. This decline was driven by a 1.8 percentage point increase in selling and administrative expenses as a percentage of net sales partially offset by a 0.3 percentage point improvement in gross margin percentage. Selling and administrative expenses increased $7 million in the fourth quarter of 2016 from last year's fourth quarter primarily driven by expenses pursuant to the pending Parker-Hannifin transaction and higher incentive compensation expense pursuant to our company-wide annual cash incentive program, partially offset by lower upfront expenses for cost reduction initiatives and a reduction in bad debt expense due to continued improvement in our collection of past due accounts receivable. The higher gross margin percentage compared to last year's fourth quarter was primarily due to improvement in our Engine/Mobile Filtration segment driven by lower material and direct labor costs as a percentage of net sales, partly offset by lower absorption of fixed manufacturing costs. The reduction in material cost as a percentage of net sales was primarily the result of favorable sales mix and our company-wide purchasing cost reduction initiative.

In fiscal year 2016 we generated $285 million of net cash from operating activities, a $132 million increase from fiscal year 2015. Approximately $18 million of this increase resulted from the 3M patent litigation award received during the second quarter of fiscal 2016. The remaining improvement in operating cash generation was primarily the result of our ongoing focus on optimizing the components of working capital by employing several Lean techniques. For example, we lowered inventory $37 million from year-end 2015 while maintaining the same strong delivery and service levels to our aftermarket customers, and we lowered accounts receivable by $33 million as we successfully reduced past due customer balances while concurrently benefiting from a $6 million year-over-year reduction in bad debt expense.

Pending Parker-Hannifin Transaction

On December 1, 2016, CLARCOR Inc. (the "Company") entered into an Agreement and Plan of Merger with Parker-Hannifin Corporation ("Parker-Hannifin") and Parker Eagle Corporation, a wholly owned subsidiary of Parker-Hannifin ("Merger Sub"), pursuant to which, upon the closing of the merger, Merger Sub will cease to exist, and the Company will survive as a wholly owned subsidiary of Parker-Hannifin (the "pending Parker-Hannifin transaction"). Upon the closing of this merger, each share of the Company's common stock, par value $1.00 per share (other than treasury stock and any shares of the Company's common stock owned by the Company, Parker-Hannifin, Merger Sub, any of their wholly owned subsidiaries, or any person who properly demands statutory appraisal of their shares) will be converted into the right to receive an amount in cash equal to $83.00 without interest. Upon the completion of the merger, the Company's common stock will no longer be publicly traded and will be delisted from the New York Stock Exchange.

The pending Parker-Hannifin transaction is subject to customary closing conditions, including approval of the merger by the Company's stockholders and receipt of applicable regulatory approvals.

Conference Call Information/Guidance

In light of the pending Parker-Hannifin transaction, the Company is not holding a conference call in connection with this earnings release and is not providing 2017 guidance in connection with this earnings release.

The Company is based in Franklin, Tennessee, and is a diversified marketer and manufacturer of mobile, industrial and environmental filtration products sold in domestic and international markets. Common shares of the Company are traded on the New York Stock Exchange under the symbol CLC.

Additional Information and Where to Find It

In connection with the pending Parker-Hannifin transaction, the Company has filed a preliminary proxy statement on Schedule 14A with the SEC. In addition, a definitive proxy statement will be filed by the Company and provided to the Company's stockholders. THE COMPANY'S STOCKHOLDERS ARE ENCOURAGED TO READ THE PRELIMINARY PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS, INCLUDING THE DEFINITIVE PROXY STATEMENT (WHEN FILED), FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY NOW AND WHEN FUTURE FILINGS BECOME AVAILABLE BECAUS

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