Powell Industries (POWL) Q4 2005 earnings summary

Executive summary

• FY2005 demand rebounded; revenue rose 24.5% to $256.6M, backlog nearly doubled to $259.0M, and net income increased to $2.3M from $1.7M.

• Profitability remained pressured by commodity inflation, competitive pricing, higher SG&A and interest costs, while operating cash flow turned negative to fund working-capital growth.

Financial highlights

• Revenue was $256.6M vs. $206.1M; gross profit was $43.9M vs. $36.0M; SG&A was $41.8M vs. $35.4M.

• Net income was $2.251M vs. $1.669M; diluted EPS was $0.21 vs. $0.15. FY2005 included a $1.052M pre-tax gain on sale of land and building.

• Income before interest, taxes and minority interest was $3.066M vs. $0.620M; net interest income was $0.386M vs. $0.744M.

• New orders were $360.5M vs. $182.9M; year-end backlog reached $259.0M vs. $134.3M, including a municipal contract of ~$51M to be delivered over four years.

Outlook and guidance

• Management expected improved principal-market activity and higher order levels to continue into FY2006; second-half FY2005 orders were $226.8M vs. $104.5M a year earlier.

• Electrical Power Products expected a full year of S&I contribution; Process Control Systems remained in soft markets, with potential support from stronger municipal project funding.

• Commodity inflation was expected to continue weighing on FY2006 results; working-capital needs were also expected to rise with activity.

• Available working capital, borrowing capacity and operating funds were expected to cover operations, capital improvements, debt repayment and possible acquisitions; acquisitions could require additional borrowing.