Market Overview

Welbilt Reports Solid Second Quarter Operating Results

Share:

Delivers sales and operating earnings growth over prior year;
increasing full-year sales guidance, maintaining EPS guidance and
updating margin guidance

Welbilt, Inc. (NYSE:WBT), today announced financial results for its 2018
second quarter.

2018 Second Quarter Highlights

  • Net sales were $420.7 million, an increase of 13.4 percent from
    prior year; Organic Net Sales increased 6.5 percent
  • Net earnings were $12.1 million, a decrease of 59.8 percent; Adjusted
    Net Earnings were $28.8 million, a decrease of 9.4 percent
  • Diluted net earnings per share were $0.09, a decrease of 57.1 percent;
    Adjusted Diluted Net Earnings Per Share were $0.20, a decrease of 13.0
    percent
  • Earnings from operations were $55.6 million, an increase of 2.2
    percent; as a percent of net sales, earnings from operations were 13.2
    percent, a decrease of 150 basis points
  • Adjusted Operating EBITDA was $75.5 million, an increase of 12.9
    percent; Adjusted Operating EBITDA margin was 17.9 percent, a decrease
    of 10 basis points and was negatively impacted by 20 basis points from
    the Crem Acquisition; excluding this impact, the Adjusted Operating
    EBITDA margin increased 10 basis points

2018 Second Quarter Year-to-date Highlights

  • Net sales were $771.1 million, an increase of 10.3 percent from
    prior year; Organic Net Sales increased 5.2 percent
  • Net earnings were $24.6 million, a decrease of 29.9 percent; Adjusted
    Net Earnings were $50.1 million, an increase of 14.9 percent
  • Diluted net earnings per share were $0.17, a decrease of 32.0 percent;
    Adjusted Diluted Net Earnings Per Share were $0.35, an increase of
    12.9 percent
  • Earnings from operations were $97.2 million, an increase of 8.4
    percent; as a percent of net sales, earnings from operations were 12.6
    percent, a decrease of 20 basis points
  • Adjusted Operating EBITDA was $130.8 million, an increase of 9.1
    percent; Adjusted Operating EBITDA margin was 17.0 percent, a decrease
    of 20 basis points; on a year-to-date basis, the Crem acquisition had
    an immaterial impact on the Adjusted Operating EBITDA margin

2018 Guidance

  • Net sales growth: between 9.0 and 12.0 percent (organic +2.0 to +5.0
    percent, acquisition +5.0 percent, foreign currency translation +2.0
    percent)
  • Adjusted Operating EBITDA margin: between 19.1 and 20.1 percent
    including a 20 basis point negative impact from the Crem acquisition
  • Adjusted Diluted Net Earnings Per Share: between $0.80 and $0.90 per
    share, based on a forecast of 141.0 million fully diluted shares
    outstanding and including a $0.02 benefit from the Crem acquisition

"We are pleased to deliver another quarter of Organic Net Sales and
Adjusted Operating EBITDA growth," said Hubertus Muehlhaeuser, Welbilt's
President and CEO. "Organic Net Sales increased in the Americas segment,
with new product rollouts with large chain customers and higher general
market sales driving stronger hot-side and cold-side product sales,
which more than offset lower KitchenCare® aftermarket sales.
In the APAC segment, Organic Net Sales increased with higher hot-side
product sales to both large chain and general market customers. In the
EMEA segment, Organic Net Sales were lower against strong sales of
Merrychef® high-speed ovens and Multiplex®
beverage system sales last year."

"Operationally, Adjusted Operating EBITDA increased year-over-year again
for the 12th consecutive quarter driven by the continued solid execution
of our Simplification and Right-Sizing initiatives, higher organic sales
volumes and the acquisition of Crem International. Our Adjusted
Operating EBITDA margin, excluding the dilutive impact from the acquired
business, increased slightly as these benefits were offset by less
favorable mix primarily from lower KitchenCare aftermarket sales and
from ramp-up costs related to the new product rollouts that began this
year. We see the impacts from mix and ramp-up costs as temporary. We
continue to expect to deliver higher year-over-year Adjusted Operating
EBITDA - both in absolute dollars and as a percent of sales - in 2018."

"We are increasing our 2018 annual net sales guidance today. We have
increased our Organic Net Sales guidance range by 100 basis points as we
expect to continue benefiting from increased sales to large chain
customers and for demand from general market customers to continue
improving as we progress through the year. We expect KitchenCare
aftermarket sales will contribute to growth in the second half of 2018
as the high inventory levels at our channel partners are being worked
through. We also adjusted our forecast for foreign currency translation,
which we now expect to have a positive 2 percent impact on net sales."

"We are adjusting our 2018 Adjusted Operating EBITDA margin guidance
range to now be between 19.1 and 20.1 percent. This new range reflects
the expected 20 basis point dilutive impact from the Crem acquisition
and the forecasted impact from the recently-enacted section 301 tariffs
on purchased component costs. We expect improved mix in the second half
of 2018 from higher KitchenCare aftermarket sales and for the ramp-up
costs related to the new product roll-outs to subside. We expect the
benefits from higher volumes to continue throughout the balance of the
year. Net pricing is expected to improve following our recent price
increase. These drivers, combined with our Simplification and
Right-Sizing initiatives and hedging activities, are expected to offset
the inflationary impacts from rising freight costs and from the section
232 tariffs on raw materials. In total, we expect to deliver another
year of margin growth from organic businesses and earnings growth,"
concluded Muehlhaeuser.

Segment Discussion

Net sales in our Americas segment for the second quarter were $328.2
million, a 7.2 percent increase compared to $306.1 million in last
year's second quarter. Third-party Net Sales were $294.8 million, an 8.4
percent increase (+7.9 percent organic, +0.5 percent foreign currency
translation) compared to the prior year quarter. The Organic Net Sales
increase was primarily driven by new product rollouts with large chains
and higher general market sales driving increased sales of hot-side and
cold-side products, partially offset by lower KitchenCare aftermarket
sales. Year-to-date, Americas segment net sales were $608.4 million, a
6.1 percent increase over $573.6 million last year. Third party net
sales were $544.7 million, a 6.9 percent increase (+6.4 percent organic,
+0.5 percent foreign currency translation). Second quarter adjusted
operating EBITDA in the Americas segment was $61.5 million compared to
$59.1 million in the second quarter of 2017. As a percentage of net
sales, adjusted operating EBITDA margin was 18.7 percent in the second
quarter versus 19.3 percent in the same period last year, a decrease of
60 basis points. The decrease in adjusted operating EBITDA margin was
primarily driven by unfavorable product mix, costs related to ramping up
the new rollouts and intersegment pricing, which were partially offset
by benefits from higher volume and savings from our Simplification and
Right-Sizing initiatives. Year-to-date, Americas segment adjusted
operating EBITDA was $109.1 million compared to $105.9 million in 2017.
As a percentage of net sales, adjusted operating EBITDA margin was 17.9
percent in 2018 versus 18.5 percent in the same period last year.

Net sales in our EMEA segment for the second quarter were $99.3 million,
a 30.5 percent increase versus $76.1 million in last year's second
quarter. Third-party Net Sales were $79.6 million, a 28.2 percent
increase (-1.8 percent organic, +23.2 percent acquisition, +6.8 percent
foreign currency translation). The Organic Net Sales decrease was driven
primarily by lower sales of hot-side and cold-side products, partially
offset by higher sales KitchenCare aftermarket sales. Year-to-date, EMEA
segment net sales were $180.3 million, a 25.3 percent increase over
$143.9 million last year. Third party net sales were $143.7 million, a
23.9 percent increase (+1.2 percent organic, +12.4 percent acquisition,
+10.3 percent foreign currency translation). Second quarter adjusted
operating EBITDA in the EMEA segment was $22.4 million compared to $14.8
million in the second quarter of 2017. As a percentage of net sales,
adjusted operating EBITDA margin was 22.6 percent in the second quarter
versus 19.4 percent in the same period last year, an increase of 320
basis points. The adjusted operating EBITDA margin increase was
primarily driven by savings from our Simplification and Right-Sizing
initiatives, intersegment pricing and mix. Year-to-date, adjusted
operating EBITDA in the EMEA segment was $36.5 million compared to $27.6
million in 2017. As a percentage of net sales, adjusted operating EBITDA
margin was 20.2 percent in 2018 versus 19.2 percent in the same period
last year.

Net sales in our APAC segment for the second quarter were $57.7 million,
a 28.5 percent increase from $44.9 million in last year's second
quarter. Third-party Net Sales were $46.3 million, a 24.8 percent
increase (+10.0 percent organic, +11.3 percent acquisition, +3.5 percent
foreign currency translation). The Organic Net Sales increase was driven
primarily by higher sales of hot-side products. Year-to-date, APAC
segment net sales were $101.2 million, a 16.9 percent increase from
$86.6 million last year. Third party net sales were $82.7 million, a
12.5 percent increase (+3.4 percent organic, +5.7 percent acquisition,
+3.4 percent foreign currency translation). Second quarter adjusted
operating EBITDA in the APAC segment was $7.5 million compared to $6.2
million in the second quarter of 2017. As a percentage of net sales,
adjusted operating EBITDA margin was 13.0 percent for the second quarter
of 2018 versus 13.8 percent for the same period last year, a decrease of
80 basis points. The adjusted operating EBITDA margin decrease was
primarily driven by intersegment pricing adjustments, higher
compensation expense and higher overhead costs, partially offset by
benefits from higher volumes and savings from our Simplification and
Right-Sizing initiatives. Year-to-date, adjusted operating EBITDA in the
APAC segment was $13.0 million compared to $11.7 million in 2017. As a
percentage of net sales, adjusted operating EBITDA margin was 12.8
percent in 2018 versus 13.5 percent for the same period in the prior
year.

Liquidity Discussion

Net cash used in operating activities in the second quarter was $134.5
million compared to $89.6 million in last year's second quarter. Net
cash used in investing activities in the second quarter was $76.0
million compared to cash provided by investing activities of $144.1
million in last year's second quarter. Both the current year and prior
year amounts for net cash used by operating activities and net cash
provided by investing activities reflect the impact of the adoption of
Accounting Standards Update 2016-15, which is applicable to accounts
receivable securitization programs and requires gross presentation and
classification changes between the operating and investing sections on
the consolidated statements of cash flows including retrospective
recasting of prior period information for comparability. Free Cash Flow
was $15.1 million in the quarter versus $48.5 million in last year's
second quarter. During the quarter, net borrowings on our debt
agreements increased by $159.7 million, primarily for the acquisition of
Crem International, compared to a decrease of $32.0 million for the same
period last year. Our ending cash and cash equivalents balance was
$103.9 million, a decrease of $49.9 million in the quarter primarily due
to cash used for the acquisition of Crem International. The majority of
our cash is held by our international subsidiaries. Year-to-date, net
cash used in operating activities was $288.0 million compared to $254.0
million for the same period last year. Year-to-date, Free Cash Flow was
a $10.3 million use of cash versus a $4.9 million use of cash in the
same period last year.

Conference Call and Webcast

Welbilt will host a live conference call to discuss its 2018 second
quarter earnings on Thursday, August 9, 2018 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 Thursday,
August 9, 2018 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
3,500 distributors and dealers in over 100 countries. We have
approximately 5,800 employees and generated sales of $1.45 billion in
2017. 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, the Company's expectations regarding future results, the
Company's full-year financial outlook, descriptions of our operating and
strategic plans and any assumptions on which those expectations, outlook
or plans are based. Certain of these forward-looking statements can be
identified by the use of words such as "anticipates," "believes,"
"intends," "estimates," "targets," "expects," "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 and speak only 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 acquisitions, including our ability to realize the benefits
of acquisitions in a manner consistent with our expectations and general
integration risks; risks related to our substantial levels of
indebtedness, including our ability to comply with covenants contained
in our debt agreements; world economic factors and ongoing economic and
political uncertainty; realization of anticipated earnings enhancements,
cost savings, strategic options and other synergies and the anticipated
timing to realize those enhancements, savings, synergies, and options;
our ability to source raw materials and commodities on favorable terms
and successfully respond to and manage related price volatility; the
ability to generate cash and manage working capital consistent with our
stated goals; changes in the interest rate environment and currency
fluctuations; the successful development and market acceptance of
innovative new products; actions by competitors including competitive
pricing; consumer and customer demand for products; 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 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, 2017, our Quarterly Report on Form 10-Q for the quarterly
periods ended March 31, 2018 and June 30, 2018 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 Financial Information

(In millions, except share and per share data)

(Unaudited)

 

STATEMENTS OF OPERATIONS

   
Three Months Ended June 30, Six Months Ended June 30,
  2018   2017 2018   2017
Net sales $ 420.7 $ 371.1 $ 771.1 $ 699.1
Cost of sales 271.4   233.9   495.6   438.9  
Gross profit 149.3 137.2 275.5 260.2
Selling, general and administrative expenses 83.0 74.3 159.3 148.3
Amortization expense 9.4 7.7 17.3 15.5
Separation expense 0.3 0.1 1.2
Restructuring expense 1.4 1.1 1.8 5.7
Gain from impairment or disposal of assets — net (0.1 ) (0.6 ) (0.2 ) (0.2 )
Earnings from operations 55.6 54.4 97.2 89.7
Interest expense 23.1 21.0 43.4 44.2
Loss on early extinguishment of debt 0.2 3.4
Other expense — net 15.3   3.3   23.8   5.1  
Earnings before income taxes 17.2 29.9 30.0 37.0
Income taxes 5.1   (0.2 ) 5.4   1.9  
Net earnings $ 12.1   $ 30.1   $ 24.6   $ 35.1  
Per share data
Earnings per share — Basic $ 0.09 $ 0.22 $ 0.18 $ 0.25
Earnings per share — Diluted $ 0.09 $ 0.21 $ 0.17 $ 0.25
Weighted average shares outstanding — Basic 139,998,308 138,972,873 139,853,748 138,866,565
Weighted average shares outstanding — Diluted 141,071,259 140,661,436 141,131,122 140,464,156
 
 

WELBILT, INC.

Consolidated Financial Information

(In millions, except share and per share data)

 

BALANCE SHEETS

  June 30,   December 31,
  2018 2017
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 103.9 $ 128.4
Restricted cash 0.3 0.3
Accounts receivable, less allowance of $3.8 and $4.0 at June 30,
2018 and December 31, 2017, respectively
125.4 83.7
Inventories — net 198.0 152.3
Prepaids and other current assets 28.6   19.0  
Total current assets 456.2 383.7
Property, plant and equipment — net 115.5 112.2
Goodwill 936.7 846.1
Other intangible assets — net 565.8 461.4
Other non-current assets 37.1   37.0  
Total assets $ 2,111.3   $ 1,840.4  
Liabilities and equity
Current liabilities:
Accounts payable $ 125.7 $ 103.6
Accrued expenses and other liabilities 139.6 161.7
Short-term borrowings 30.0
Current portion of capital leases 0.6 0.7
Product warranties 26.9   24.1  
Total current liabilities 322.8 290.1
Long-term debt and capital leases 1,407.8 1,232.2
Deferred income taxes 120.7 92.3
Pension and postretirement health obligations 44.7 48.3
Other long-term liabilities 74.5   67.1  
Total non-current liabilities 1,647.7 1,439.9
Commitments and contingencies
Total equity:
Common stock ($0.01 par value, 300,000,000 shares authorized,
140,097,126 shares and 139,491,860 shares issued and 140,097,126
shares and 139,440,470 shares outstanding at June 30, 2018 and
December 31, 2017, respectively)
1.4 1.4
Additional paid-in capital (deficit) (52.9 ) (63.3 )
Retained earnings 230.2 204.5
Accumulated other comprehensive loss (37.7 ) (32.0 )
Treasury stock, at cost, 52,617 shares and 51,390 shares,
respectively
(0.2 ) (0.2 )
Total equity 140.8   110.4  
Total liabilities and equity $ 2,111.3   $ 1,840.4  
 
 

WELBILT, INC.

Consolidated Financial Information

(In millions)

(Unaudited)

 

STATEMENTS OF CASH FLOWS

 
Six Months Ended June 30,
  2018   2017
Cash flows from operating activities
Net earnings $ 24.6 $ 35.1
Adjustments to reconcile net earnings to cash used in operating
activities:
Depreciation 8.7 8.0
Amortization of intangible assets 17.3 15.5
Amortization of debt issuance costs 2.7 2.6
Loss on early extinguishment of debt 3.4
Deferred income taxes (3.1 ) (14.8 )
Stock-based compensation expense 5.6 6.8
Gain from impairment or disposal of assets — net (0.2 ) (0.2 )
Loss on remeasurement of debt and other realized foreign currency
derivative
19.1
Changes in operating assets and liabilities, excluding the effects
of the business acquisition:
Accounts receivable (313.0 ) (266.3 )
Inventories (31.0 ) (23.5 )
Other assets (4.0 ) (7.0 )
Accounts payable 12.5 9.5
Other current and long-term liabilities (27.2 ) (23.1 )
Net cash used in operating activities (288.0 ) (254.0 )
Cash flows from investing activities
Cash receipts on beneficial interest in sold receivables 285.7 257.4
Capital expenditures (8.0 ) (8.3 )
Proceeds from sale of property, plant and equipment 6.0
Business acquisition, net of cash acquired (215.6 )
Settlement of foreign exchange contract (10.0 )  
Net cash provided by investing activities 52.1   255.1  
Cash flows from financing activities
Proceeds from long-term debt 261.0 115.9
Repayments on long-term debt and capital leases (76.4 ) (71.7 )
Debt issuance costs (0.4 ) (1.4 )
Proceeds from short-term borrowings 30.0 4.0
Exercises of stock options 4.8 1.3
Payments on tax withholdings for equity awards (2.4 ) (2.6 )
Net cash provided by financing activities 216.6   45.5  
Effect of exchange rate changes on cash (5.2 ) (3.6 )
Net (decrease) increase in cash and cash equivalents and restricted
cash
(24.5 ) 43.0
Balance at beginning of period 128.7   60.2  
Balance at end of period $ 104.2   $ 103.2  
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds $ 23.3 $ 20.1
Cash paid for interest, net of related hedge settlements $ 48.7 $ 44.3
Supplemental disclosures of non-cash activities:
Non-cash investing activity:
Beneficial interest obtained in exchange for securitized receivables $ 350.6 $ 353.9
 
 

SEGMENT INFORMATION

   
Three Months Ended June 30, Six Months Ended June 30,
(in millions, except percentage data) 2018   2017 2018   2017
Net sales:
Americas $ 328.2 $ 306.1 $ 608.4 $ 573.6
EMEA 99.3 76.1 180.3 143.9
APAC 57.7 44.9 101.2 86.6
Elimination of intersegment sales (64.5 ) (56.0 ) (118.8 ) (105.0 )
Total net sales $ 420.7   $ 371.1   $ 771.1   $ 699.1  
 
Segment Adjusted Operating EBITDA:
Americas $ 61.5 $ 59.1 $ 109.1 $ 105.9
EMEA 22.4 14.8 36.5 27.6
APAC 7.5   6.2   13.0   11.7  
Total Segment Adjusted Operating EBITDA 91.4 80.1 158.6 145.2
Corporate and unallocated (15.9 ) (13.2 ) (27.8 ) (25.3 )
Amortization expense (9.4 ) (7.7 ) (17.3 ) (15.5 )
Depreciation expense (4.5 ) (4.0 ) (8.7 ) (8.0 )
Transaction costs(1) (4.7 ) (5.9 )
Separation expense (0.3 ) (0.1 ) (1.2 )
Restructuring expense (1.4 ) (1.1 ) (1.8 ) (5.7 )
Gain from impairment or disposal of assets — net 0.1   0.6   0.2   0.2  
Earnings from operations 55.6 54.4 97.2 89.7
Interest expense (23.1 ) (21.0 ) (43.4 ) (44.2 )
Loss on early extinguishment of debt (0.2 ) (3.4 )
Other expense — net (15.3 ) (3.3 ) (23.8 ) (5.1 )
Earnings before income taxes $ 17.2   $ 29.9   $ 30.0   $ 37.0  

(1) Transaction costs include costs related to
inventory fair value purchase accounting adjustments recorded in
"Cost of sales" and professional services and other direct
acquisition and integration costs recorded in "Selling, general
and administrative expenses".

 
Adjusted Operating EBITDA % by segment (2):
Americas 18.7 % 19.3 % 17.9 % 18.5 %
EMEA 22.6 % 19.4 % 20.2 % 19.2 %
APAC 13.0 % 13.8 % 12.8 % 13.5 %
(2) Adjusted Operating EBITDA % in the section above is
calculated by dividing Adjusted Operating EBITDA by net sales for
each respective segment.
 
Net sales by geographic area (3):
United States $ 269.7 $ 246.4 $ 493.1 $ 461.4
Other Americas 28.3 24.8 56.8 47.8
EMEA 78.6 62.6 140.7 116.6
APAC 44.1   37.3   80.5   73.3  
Total net sales by geographic area $ 420.7   $ 371.1   $ 771.1   $ 699.1  
(3) 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 the Company's control and
difficult to predict. Such items include, but are not limited to,
restructuring expenses, separation expenses, acquisition-related
transaction and integration costs, losses on early extinguishment of
debt, foreign currency gain or loss, various other charges not
reflective of the Company's ongoing operations and the tax impact of
such non-GAAP adjustments. 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, which represents net cash
used in operating activities less capital expenditures plus cash
receipts on our beneficial interest in sold receivables. We believe this
non-GAAP financial measure is useful to investors in measuring our
ability to generate cash internally to fund initiatives such as debt
repayment, acquisitions, dividends and share repurchases. During the
first quarter of 2018, we updated our definition of Free Cash Flow to
include cash receipts on beneficial interest in sold receivables, which
is now recorded in net cash provided by investing activities with the
adoption of the accounting guidance in Accounting Standards Update
2016-15 effective January 1, 2018. Free Cash Flow reconciles to net cash
used in operating activities presented in accordance with U.S. GAAP as
follows:

   
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2018   2017 2018   2017
Free Cash Flow:
Net cash used in operating activities $ (134.5 ) $ (89.6 ) $ (288.0 ) $ (254.0 )
Capital expenditures (4.3 ) (3.4 ) (8.0 ) (8.3 )
Cash receipts on beneficial interest in sold receivables 153.9   141.5   285.7   257.4  
Free Cash Flow $ 15.1   $ 48.5   $ (10.3 ) $ (4.9 )
 

Adjusted Operating EBITDA

In addition to analyzing our 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 expense - net, depreciation and amortization plus
certain items such as gain or loss from impairment or disposal of
assets, restructuring expense, separation expense, loss on early
extinguishment of debt and acquisition-related transaction and
integration costs. Management uses Adjusted Operating EBITDA as the
basis on which it evaluates our financial performance and makes resource
allocation and other operating decisions. Management considers it
important that investors review the same operating information that it
uses. Adjusted Operating EBITDA reconciles to net earnings presented in
accordance with U.S. GAAP as follows:

   
Three Months Ended June 30, Six Months Ended June 30,
(in millions, except percentage data) 2018   2017 2018   2017
Adjusted Operating EBITDA:
Net earnings $ 12.1 $ 30.1 $ 24.6 $ 35.1
Income taxes 5.1 (0.2 ) 5.4 1.9
Other expense — net (1) 15.3 3.3 23.8 5.1
Loss on early extinguishment of debt 0.2 3.4
Interest expense 23.1   21.0   43.4   44.2  
Earnings from operations 55.6 54.4 97.2 89.7
Gain from impairment or disposal of assets — net (0.1 ) (0.6 ) (0.2 ) (0.2 )
Restructuring expense 1.4 1.1 1.8 5.7
Separation expense 0.3 0.1 1.2
Amortization expense 9.4 7.7 17.3 15.5
Depreciation 4.5 4.0 8.7 8.0
Transaction costs (2) 4.7     5.9    
Total Adjusted Operating EBITDA $ 75.5   $ 66.9   $ 130.8   $ 119.9  
 
Adjusted Operating EBITDA margin (3) 17.9 % 18.0 % 17.0 % 17.2 %
 

(1) Prior year presentation adjusted for three and six
months ended June 30, 2017 by $0.4 million and $0.7 million,
respectively. This relates to periodic pension costs that have
been reclassified from Selling, general and administrative
expenses to "Other expense — net" in accordance with the adoption
of accounting guidance in Accounting Standards Update 2017-07.

(2) Transaction costs include $1.5 million related to
inventory fair value purchase accounting adjustments recorded in
"Cost of sales" for the three and six months ended June 30, 2018
and $3.2 million and $4.4 million of professional services and
other direct acquisition and integration costs recorded in
"Selling, general and administrative expenses", for the three and
six months ended June 30, 2018, respectively.

(3) Adjusted Operating EBITDA margin in the section
above is calculated by dividing Adjusted Operating EBITDA for each
period by net sales for the corresponding period.

 

Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Share

In this release, we refer to 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 expense, separation
expense, loss on early extinguishment of debt and acquisition-related
transaction and integration costs and foreign currency transaction gain
or loss, net of taxes. 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 helpful to investors in
assessing our ongoing performance of our underlying businesses before
the impact of certain items. Beginning in the second quarter of 2018, we
updated our definitions of Adjusted Net Earnings and Adjusted Diluted
Net Earnings Per Share to exclude foreign currency transaction gains and
losses. The prior periods have been revised as necessary to reflect
these changes for consistency of presentation. Adjusted Net Earnings and
Adjusted Diluted Net Earnings Per Share reconcile to net earnings and
diluted net earnings per share, respectively, presented in accordance
with U.S. GAAP as follows:

   
Three Months Ended June 30, Six Months Ended June 30,
(in millions, except share data) 2018   2017 2018   2017
Adjusted Net Earnings:
Net earnings $ 12.1 $ 30.1 $ 24.6 $ 35.1
Gain from impairment or disposal of assets — net (0.1 ) (0.6 ) (0.2 ) (0.2 )
Restructuring expense 1.4 1.1 1.8 5.7
Separation expense 0.3 0.1 1.2
Loss on early extinguishment of debt 0.2 3.4
Transaction costs (1) 6.9 15.9
Foreign currency transaction loss (2) 11.2 1.5 10.4 3.1
Tax effect of adjustments (3) (2.7 ) (0.8 ) (2.5 ) (4.7 )
Total Adjusted Net Earnings $ 28.8   $ 31.8   $ 50.1   $ 43.6  
 
Adjusted Diluted Net Earnings Per Share:
Diluted net earnings per share $ 0.09 $ 0.21 $ 0.17 $ 0.25
(Gain) loss from disposal of assets — net per share
Restructuring expense per share 0.01 0.01 0.01 0.04
Separation expense per share 0.01
Loss on early extinguishment of debt per share 0.02
Transaction costs per share (1) 0.04 0.12
Foreign currency transaction loss per share (2) 0.08 0.01 0.07 0.02
Tax effect of adjustments per share (3) (0.02 )   (0.02 ) (0.03 )
Total Adjusted Diluted Net Earnings Per Share $ 0.20   $ 0.23   $ 0.35   $ 0.31  
 

(1) Transaction costs include $1.5 million related to
inventory fair value purchase accounting adjustments recorded in
"Cost of sales" for the three and six months ended June 30, 2018;
and $3.2 million and $4.4 million of professional services and
other direct acquisition and integration costs recorded in
"Selling, general and administrative expenses" for the three and
six months ended June 30, 2018, respectively. Also included are
losses of $2.2 million and $10.0 million for the three and six
months ended June 30, 2018, respectively, related to a foreign
currency hedge of the acquisition purchase price of Crem recorded
in "Other expense — net".

(2) 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.

(3) 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 refer to Third-party Net Sales and Organic Net
Sales. Third-party Net Sales reflect net sales for the segment excluding
intersegment sales. Organic Net Sales reflect net sales before the
impact of acquisitions and foreign currency translation. The impact from
foreign currency translation is calculated by translating current period
balances at prior period rates. We believe these measures are helpful 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 June 30, 2018 vs. 2017
Favorable/(Unfavorable)
  Americas   EMEA   APAC   Welbilt
Organic Net Sales 7.9 % (1.8 )% 10.0 % 6.5 %
Impact from acquisition % 23.2 % 11.3 % 5.0 %
Foreign currency translation 0.5 % 6.8 % 3.5 % 1.9 %
Third-party Net Sales 8.4 % 28.2 % 24.8 % 13.4 %
 
  For the Six Months Ended June 30, 2018 vs. 2017
Favorable/(Unfavorable)
  Americas   EMEA   APAC   Welbilt
Organic Net Sales 6.4 % 1.2 % 3.4 % 5.2 %
Impact from acquisition % 12.4 % 5.7 % 2.7 %
Foreign currency translation 0.5 % 10.3 % 3.4 % 2.4 %
Third-party Net Sales 6.9 % 23.9 % 12.5 % 10.3 %
 
   
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2018   2017 2018   2017
Consolidated:
Total sales $ 485.2 $ 427.1 $ 889.9 $ 804.1
Less: Intersegment sales (64.5 ) (56.0 ) (118.8 ) (105.0 )
Net sales (as reported) 420.7 371.1 771.1 699.1
Less: Crem acquisition (18.6 )   (18.6 )  
Organic third-party net sales 402.1 371.1 752.5 699.1
Foreign currency translation (6.8 )   (17.1 )  
Organic Net Sales $ 395.3   $ 371.1   $ 735.4   $ 699.1  
 
Americas:
Net sales $ 328.2 $ 306.1 $ 608.4 $ 573.6
Less: Intersegment sales (33.4 ) (34.2 ) (63.7 ) (64.0 )
Organic third-party net sales 294.8 271.9 544.7 509.6
Foreign currency translation (1.3 )   (2.7 )  
Organic Net Sales $ 293.5   $ 271.9   $ 542.0   $ 509.6  
 
EMEA:
Net sales $ 99.3 $ 76.1 $ 180.3 $ 143.9
Less: Intersegment sales (19.7 ) (14.0 ) (36.6 ) (27.9 )
Third-party net sales 79.6 62.1 143.7 116.0
Less: Crem Acquisition (14.4 )   (14.4 )  
Organic third-party net sales 65.2 62.1 129.3 116.0
Foreign currency translation (4.2 )   (11.9 )  
Organic Net Sales $ 61.0   $ 62.1   $ 117.4   $ 116.0  
 
APAC:
Net sales $ 57.7 $ 44.9 $ 101.2 $ 86.6
Less: Intersegment sales (11.4 ) (7.8 ) (18.5 ) (13.1 )
Third-party net sales 46.3 37.1 82.7 73.5
Less: Crem Acquisition (4.2 )   (4.2 )  
Organic third-party net sales 42.1 37.1 78.5 73.5
Foreign currency translation (1.3 )   (2.5 )  
Organic Net Sales $ 40.8   $ 37.1   $ 76.0   $ 73.5  
 

View Comments and Join the Discussion!