Market Overview

ParkOhio Announces Record Second Quarter 2018 Results

Share:
  • Q2 2018 Revenues increased to a record $432 million, up 23%
    year-over-year
  • Q2 2018 GAAP EPS was $1.18
  • Q2 2018 Adjusted EPS was $1.08, up 24% from $0.87 in Q2 2017
  • Adjusted EPS guidance increased to $3.80 - $4.00; GAAP EPS guidance
    increased to $3.75 - $3.95

Park-Ohio Holdings Corp. (NASDAQ:PKOH) today announced its results for
the second quarter of 2018.

SECOND QUARTER RESULTS

Net sales were a record $432.2 million in the second quarter of 2018, an
increase of 23% from net sales of $350.9 million in the second quarter
of 2017, driven by organic growth of 13%. The Company reported net
income attributable to ParkOhio common shareholders of $14.8 million, or
$1.18 per diluted share, in the second quarter of 2018, compared to $3.0
million, or $0.24 per diluted share, in the second quarter of 2017. On
an adjusted basis, net income attributable to ParkOhio common
shareholders was $1.08 per diluted share in the second quarter of 2018
compared to $0.87 per diluted share in the 2017 period, an increase of
24%. Please refer to the table that follows for a reconciliation of net
income to adjusted earnings.

Matthew V. Crawford, Chairman and Chief Executive Officer, stated, "We
are pleased to announce our second quarter earnings, which achieved a
number of sales and profitability records. While these achievements are
meaningful, we continue to be focused on the recent investments across
our businesses, which are in line with our growth strategy. I would like
to thank all of our associates, who have worked very hard to meet our
customer expectations during this period of rapid expansion."

EBITDA was $41.1 million in the second quarter of 2018, an increase of
21% from $34.0 million in the second quarter of 2017. Please refer to
the table that follows for a reconciliation of net income to EBITDA. At
June 30, 2018, the Company had $88.4 million of cash and cash
equivalents on hand.

YEAR-TO-DATE RESULTS

Net sales were a record $837.9 million in the first six months of 2018,
an increase of 21% from net sales of $694.7 million in the first six
months of 2017, driven by organic growth of 11%. The Company reported
net income attributable to ParkOhio common shareholders of $24.6
million, or $1.96 per diluted share, in the first six months of 2018,
compared to $12.8 million, or $1.03 per diluted share, in the 2017
period. On an adjusted basis, net income attributable to ParkOhio common
shareholders was $2.00 per diluted share in the first six months of 2018
compared to $1.54 per diluted share in the 2017 period, an increase of
30%. EBITDA was $76.5 million in the first six months of 2018, an
increase of 16% from $65.9 million in the first six months of 2017.
Please refer to the tables that follow for reconciliations of net income
to adjusted earnings and net income to EBITDA.

CONFERENCE CALL

A conference call reviewing ParkOhio's second quarter 2018 results will
be broadcast live over the Internet on Thursday, August 9, commencing at
10:00 am Eastern Time. Simply log on to http://www.pkoh.com.

ParkOhio is a diversified international company providing world-class
customers with a supply chain management outsourcing service, capital
equipment used on their production lines, and manufactured components
used to assemble their products. Headquartered in Cleveland, Ohio,
ParkOhio operates more than 125 manufacturing sites and supply chain
logistics facilities worldwide, through three reportable segments:
Supply Technologies, Assembly Components and Engineered Products.

This news release contains forward-looking statements, including
statements regarding future performance of the Company, that are subject
to known and unknown risks, uncertainties and other factors that may
cause our actual results, performance and achievements, or industry
results, to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
These factors that could cause actual results to differ materially from
expectations include, but are not limited to, the following: our
substantial indebtedness; the uncertainty of the global economic
environment; general business conditions and competitive factors,
including pricing pressures and product innovation; demand for our
products and services; raw material availability and pricing;
fluctuations in energy costs; component part availability and pricing;
changes in our relationships with customers and suppliers; the financial
condition of our customers, including the impact of any bankruptcies;
our ability to successfully integrate recent and future acquisitions
into existing operations; the amounts and timing, if any, of purchases
of our common stock; changes in general economic conditions such as
inflation rates, interest rates, tax rates, unemployment rates, higher
labor and healthcare costs, recessions and changing government policies,
laws and regulations, including those related to the current global
uncertainties and crises, such as tariffs and surcharges; adverse
impacts to us, our suppliers and customers from acts of terrorism or
hostilities; our ability to meet various covenants, including financial
covenants, contained in the agreements governing our indebtedness;
disruptions, uncertainties or volatility in the credit markets that may
limit our access to capital; potential disruption due to a partial or
complete reconfiguration of the European Union; increasingly stringent
domestic and foreign governmental regulations, including those affecting
the environment or import and export controls and other trade barriers;
inherent uncertainties involved in assessing our potential liability for
environmental remediation-related activities; the outcome of pending and
future litigation and other claims and disputes with customers; the
outcome of the review conducted by the special committee of our board of
directors; our dependence on the automotive and heavy-duty truck
industries, which are highly cyclical; the dependence of the automotive
industry on consumer spending; our ability to negotiate contracts with
labor unions; our dependence on key management; our dependence on
information systems; our ability to continue to pay cash dividends, and
the other factors we describe under "Item 1A. Risk Factors" included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2017. Any forward-looking statement speaks only as of the date on which
such statement is made, and we undertake no obligation to update any
forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law. In light of these
and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by us that our plans
and objectives will be achieved. The Company assumes no obligation to
update the information in this release.

   
Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 (2) 2018   2017 (2)
(In millions, except per share data)
Net sales $ 432.2 $ 350.9 $ 837.9 $ 694.7
Cost of sales (1) 359.1   291.1   699.7   579.9  
Gross profit 73.1 59.8 138.2 114.8
Selling, general and administrative expenses (1) 47.8 37.2 90.8 74.9
Litigation settlement gain       (3.3 )
Operating income 25.3 22.6 47.4 43.2
Other components of pension income and other postretirement benefits
expense, net (1)
2.1 1.5 4.4 3.1
Gain on sale of assets 1.9 1.9
Interest expense (8.8 ) (7.9 ) (17.2 ) (15.3 )
Loss on extinguishment of debt   (11.0 )   (11.0 )
Income before income taxes 20.5 5.2 36.5 20.0
Income tax expense (5.5 ) (2.0 ) (11.3 ) (6.7 )
Net income 15.0 3.2 25.2 13.3
Net income attributable to noncontrolling interests (0.2 ) (0.2 ) (0.6 ) (0.5 )
Net income attributable to Park-Ohio Holdings Corp. common
shareholders
$ 14.8   $ 3.0   $ 24.6   $ 12.8  
 
Earnings per common share attributable to Park-Ohio Holdings Corp.
common shareholders:
Basic $ 1.20   $ 0.25   $ 2.00   $ 1.05  
Diluted $ 1.18   $ 0.24   $ 1.96   $ 1.03  
Weighted-average shares used to compute earnings per share:
Basic 12.3   12.2   12.3   12.2  
Diluted 12.6   12.4   12.6   12.5  
 
Dividends per common share $ 0.125   $ 0.125   $ 0.25   $ 0.25  
 
Other financial data:
EBITDA, as defined $ 41.1   $ 34.0   $ 76.5   $ 65.9  
 
(1) - The Company adopted ASU 2017-07 in the first quarter of 2018,
resulting in a change to the presentation of components of pension
income and other postretirement benefits expense, net. The following
amounts are reflected in the condensed consolidated statements of
income:
 
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017   2018   2017
Amounts recorded in Cost of sales $ (0.8 )   $ (0.5 )   $ (1.5 )   $ (1.0 )
Amounts recorded in SG&A expenses (0.2 ) (0.2 ) (0.5 ) (0.3 )
Amounts recorded in Other components of pension income and other
postretirement benefits expense, net
2.1     1.5     4.4     3.1  
Total pension income and other postretirement benefit expense, net $ 1.1     $ 0.8     $ 2.4     $ 1.8  
 
(2) - 2017 pension and other postretirement amounts have been
reclassified to conform to the 2018 presentation.
 

Park-Ohio Holdings Corp. and Subsidiaries
Supplemental
Non-GAAP Financial Measures (Unaudited)

Adjusted earnings is a non-GAAP financial measure that the Company is
providing in this press release. Adjusted earnings is net income
calculated in accordance with generally accepted accounting principles
("GAAP"), adjusted for special items. The Company presents this non-GAAP
financial measure because management uses adjusted earnings to compare
its operating performance on a consistent basis over multiple periods
because they remove the impact of certain significant non-cash credits
or charges and certain infrequent items impacting net income. Adjusted
earnings is not a measure of performance under GAAP and should not be
considered in isolation from, or as a substitute for, net income
calculated in accordance with GAAP. Adjusted earnings herein may not be
comparable to similarly titled measures of other companies. The
following table reconciles net income to adjusted earnings:

  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
Earnings  

Diluted
EPS

Earnings  

Diluted
EPS

Earnings  

Diluted
EPS

Earnings  

Diluted
EPS

(In millions, except for earnings per share (EPS))
Net income $ 15.0 $ 1.20 $ 3.2 $ 0.26 $ 25.2 $ 2.01 $ 13.3 $ 1.07
Net income attributable to noncontrolling interests (0.2 ) (0.02 ) (0.2 ) (0.02 ) (0.6 ) (0.05 ) (0.5 ) (0.04 )
Net income attributable to Park-Ohio Holdings Corp. common
shareholders
14.8 1.18 3.0 0.24 24.6 1.96 12.8 1.03
Adjustments:
Acquisition-related expenses 0.3 0.02 0.1 0.01 1.0 0.08 0.4 0.03
Gain on sale of assets (1.9 ) (0.15 ) (1.9 ) (0.15 )
Loss on extinguishment of debt 11.0 0.89 11.0 0.88
Litigation settlement gain

(3.3 ) (0.26 )
Plant relocation and related costs

0.7 0.05
Tax effect of above adjustments 0.4 0.03 (3.3 ) (0.27 ) 0.2 0.01 (2.2 ) (0.19 )
U.S. Tax Act adjustment         1.2   0.10      
Adjusted earnings $ 13.6   $ 1.08   $ 10.8   $ 0.87   $ 25.1   $ 2.00   $ 19.4   $ 1.54  
 

Park-Ohio Holdings Corp. and Subsidiaries
Supplemental
Non-GAAP Financial Measures (Unaudited)

EBITDA, as defined is a non-GAAP financial measure that the Company is
providing in this press release. EBITDA, as defined reflects net income
attributable to Park-Ohio Holdings Corp. common shareholders before
interest expense, income taxes, depreciation and amortization, and also
excludes certain non-cash charges and corporate-level expenses as
defined in the Company's current revolving credit facility. The Company
presents this non-GAAP financial measure because management uses EBITDA,
as defined to assess the Company's performance and believes that EBITDA
is useful to investors as an indication of the Company's satisfaction of
its Debt Service Ratio covenant in its current revolving credit
facility. Additionally, EBITDA, as defined is a measure used under the
Company's current revolving credit facility to determine whether the
Company may incur additional debt under such facility. EBITDA, as
defined is not a measure of performance under GAAP and should not be
considered in isolation from, or as a substitute for, net income or cash
flow information calculated in accordance with GAAP. EBITDA, as defined
herein may not be comparable to similarly titled measures of other
companies. The following table reconciles net income to EBITDA, as
defined:

   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
(In millions)
Net income attributable to Park-Ohio Holdings Corp. common
shareholders
$ 14.8 $ 3.0 $ 24.6 $ 12.8
Add back:
Interest expense 8.8 7.9 17.2 15.3
Loss on extinguishment of debt 11.0 11.0
Income tax expense 5.5 2.0 11.3 6.7
Depreciation and amortization 9.3 8.0 18.1 15.8
Stock-based compensation expense 2.4 1.9 4.6 4.1
Acquisition-related expenses and other 0.3   0.2   0.7   0.2  
EBITDA, as defined $ 41.1   $ 34.0   $ 76.5   $ 65.9  
 
 
Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
 
(Unaudited)
June 30, 2018 December 31, 2017
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 88.4 $ 82.8
Accounts receivable, net 287.8 242.6
Inventories, net 304.8 282.8
Other current assets 87.4   61.4
Total current assets 768.4 669.6
Property, plant and equipment, net 198.4 177.0
Goodwill 102.1 100.2
Intangible assets, net 103.9 99.5
Other long-term assets 86.5   86.2
Total assets $ 1,259.3   $ 1,132.5
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 183.9 $ 173.7
Current portion of long-term debt and short-term debt 15.6 17.7
Accrued expenses and other 101.4   84.7
Total current liabilities 300.9 276.1
Long-term liabilities, less current portion:
Debt 591.9 515.5
Deferred income taxes 27.5 22.3
Other long-term liabilities 30.8   30.6
Total long-term liabilities 650.2 568.4
Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity 295.6 276.0
Noncontrolling interests 12.6   12.0
Total equity 308.2   288.0
Total liabilities and shareholders' equity $ 1,259.3   $ 1,132.5
 
 
Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended June 30,
2018   2017
(In millions)
OPERATING ACTIVITIES
Net income $ 25.2 $ 13.3
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18.1 15.8
Stock-based compensation expense 4.6 4.1
Net impact of U.S. Tax Act 1.2
Gain on sale of assets (1.9 )
Loss on extinguishment of debt 11.0
Litigation settlement gain (3.3 )
Changes in operating assets and liabilities:
Accounts receivable (36.4 ) (24.0 )
Inventories (17.7 ) (5.4 )
Other current assets (13.5 ) (8.3 )
Accounts payable and accrued expenses 22.0 14.9
Litigation settlement payment (4.0 )
Other (2.9 ) (5.1 )
Net cash (used by) provided by operating activities (1.3 ) 9.0
INVESTING ACTIVITIES
Purchases of property, plant and equipment (22.3 ) (12.4 )
Proceeds from sale of assets 2.8
Business acquisitions, net of cash acquired (35.6 ) (10.5 )
Net cash used by investing activities (55.1 ) (22.9 )
FINANCING ACTIVITIES
Proceeds from (payments on) revolving credit facility, net 74.6 (28.8 )
Payments on term loans and other debt (2.6 ) (28.9 )
Proceeds from term loans and other debt 2.2
(Payments on) proceeds from capital lease facilities, net (2.3 ) 1.2
Issuance of 6.625% Senior Notes due 2027 350.0
Debt financing costs (7.2 )
Repurchase of 8.125% Senior Notes due 2021 (250.0 )
Premium on early extinguishment of debt (8.0 )
Dividends (3.2 ) (3.1 )
Purchase of treasury shares (0.6 ) (3.6 )
Payments of withholding taxes on share awards (3.5 ) (2.3 )
Net cash provided by financing activities 64.6 19.3
Effect of exchange rate changes on cash (2.6 ) 3.0  
Increase in cash and cash equivalents 5.6 8.4
Cash and cash equivalents at beginning of period 82.8   64.3  
Cash and cash equivalents at end of period $ 88.4   $ 72.7  
Income taxes paid $ 8.1 $ 7.1
Interest paid $ 16.3 $ 14.7
 
   
Park-Ohio Holdings Corp. and Subsidiaries
Business Segment Information (Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
(In millions)
Net sales:
Supply Technologies $ 166.2 $ 142.4 $ 327.1 $ 275.6
Assembly Components 153.2 126.0 298.6 265.3
Engineered Products 112.8   82.5   212.2   153.8  
$ 432.2   $ 350.9   $ 837.9   $ 694.7  
 
Segment operating income:
Supply Technologies $ 13.5 $ 11.8 $ 26.0 $ 22.5
Assembly Components 11.7 12.5 24.3 24.4
Engineered Products 9.5   5.5   15.2   6.8  
Total segment operating income 34.7 29.8 65.5 53.7
Corporate costs (9.4 ) (7.2 ) (18.1 ) (13.8 )
Litigation settlement gain       3.3  
Operating income 25.3 22.6 47.4 43.2
Other components of net pension income and other postretirement
benefits expense, net
2.1 1.5 4.4 3.1
Gain on sale of assets 1.9 1.9
Interest expense (8.8 ) (7.9 ) (17.2 ) (15.3 )
Loss on extinguishment of debt   (11.0 )     (11.0 )
Income before income taxes $ 20.5   $ 5.2   $ 36.5   $ 20.0  
 

Park-Ohio Holdings Corp. and Subsidiaries
Supplemental
Non-GAAP Financial Measures (Unaudited)

Adjusted earnings per share is a non-GAAP financial measure that the
Company is providing in this press release. Adjusted earnings per share
is earnings per share calculated in accordance with GAAP, adjusted for
special items. The Company presents this non-GAAP financial measure
because management uses adjusted earnings per share to compare its
operating performance on a consistent basis over multiple periods
because they remove the impact of certain significant non-cash credits
or charges and certain infrequent items impacting earnings per share.
Adjusted earnings per share is not a measure of performance under GAAP
and should not be considered in isolation from, or as a substitute for,
earnings per share calculated in accordance with GAAP. Adjusted earnings
per share herein may not be comparable to similarly titled measures of
other companies. The following table reconciles earnings per share to
adjusted earnings per share:

 
FY 2018 Guidance
Low   High
Diluted EPS-GAAP basis $ 3.75 $ 3.95
 
Acquisition-related expenses 0.08 0.08
Gain on sale of assets (0.15 ) (0.15 )
Tax effect of adjustments 0.02 0.02
U.S. Tax Act Adjustment 0.10   0.10  
Impact of adjustments 0.05 0.05
   
Diluted EPS-Adjusted basis $ 3.80   $ 4.00  
 

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