MSA Safety rporated(MSA) - 2024 Q3 - Quarterly Report

Part I - Financial Information Financial Statements The company reported net sales of $432.7 million for Q3 2024, a decrease from $446.7 million in Q3 2023, while net income increased to $66.6 million from $65.3 million year-over-year, and total assets increased to $2.24 billion from $2.17 billion at the end of 2023, with total liabilities decreasing Condensed Consolidated Statements of Operations For the third quarter of 2024, net sales decreased by 3.1% year-over-year to $432.7 million, while net income slightly increased to $66.6 million, and for the nine-month period, net sales grew 1.2% to $1.31 billion, with the company swinging to a net income of $197.0 million from a net loss of $17.8 million in the prior year Consolidated Statements of Operations Highlights (In thousands, except per share values) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $432,679 | $446,728 | $1,308,443 | $1,292,290 | | Gross profit | $207,456 | $218,761 | $626,016 | $613,955 | | Operating income | $91,477 | $94,123 | $271,533 | $129,070 | | Net income (loss) | $66,648 | $65,256 | $197,021 | $(17,827) | | Diluted EPS | $1.69 | $1.65 | $4.98 | $(0.46) | Condensed Consolidated Balance Sheets As of September 30, 2024, total assets stood at $2.24 billion, an increase from $2.17 billion at year-end 2023, driven by higher inventories, while total liabilities decreased to $1.15 billion from $1.20 billion, primarily due to a reduction in long-term debt, leading to an increase in total shareholders' equity to $1.10 billion from $966.8 million Balance Sheet Summary (In thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $154,371 | $146,442 | | Inventories | $351,805 | $292,604 | | Total current assets | $842,669 | $786,270 | | Total assets | $2,241,927 | $2,170,150 | | Long-term debt, net | $527,807 | $575,170 | | Total liabilities | $1,146,582 | $1,203,348 | | Total shareholders' equity | $1,095,345 | $966,802 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities was $188.5 million, a significant improvement from a cash usage of $66.1 million in the prior-year period, primarily due to a $341.2 million cash contribution for the divestiture of MSA LLC in 2023, with investing activities using $39.7 million and financing activities using $136.2 million Cash Flow Summary for Nine Months Ended Sep 30 (In thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash Flow From Operating Activities | $188,520 | $(66,057) | | Cash Flow Used in Investing Activities | $(39,724) | $(28,289) | | Cash Flow (Used in) From Financing Activities | $(136,172) | $110,507 | | Change in cash, cash equivalents and restricted cash | $6,562 | $2,009 | Notes to Condensed Consolidated Financial Statements Key notes detail restructuring charges of $5.7 million for the first nine months of 2024 for manufacturing optimization, sales growth in both Americas and International segments, a decrease in long-term debt to $554.7 million, and the prior year's divestiture of MSA LLC resulting in a $199.6 million tax-effected loss, while the company defends ongoing PFAS-related lawsuits concerning its subsidiary, Globe - Restructuring charges of $5.7 million were recorded in the first nine months of 2024, related to manufacturing footprint optimization and management restructuring[20] - On January 5, 2023, the company divested its subsidiary MSA LLC, transferring all cumulative trauma product liability claims, which resulted in the derecognition of related reserves and assets and a tax-effected loss of $199.6 million[71][73] - The company's subsidiary, Globe, is a defendant in 535 lawsuits (7,850 claims) related to per- and polyfluoroalkyl substances (PFAS) allegedly contained in its firefighter turnout gear[74][75] Sales by Product Group (Nine Months Ended Sep 30) | Product Group | 2024 Sales (thousands) | 2023 Sales (thousands) | | :--- | :--- | :--- | | Fire Service | $496,478 | $481,610 | | Detection | $473,214 | $460,537 | | Industrial PPE and Other | $338,751 | $350,143 | | Total | $1,308,443 | $1,292,290 | Management's Discussion and Analysis (MD&A) Management reported a 3.1% decrease in Q3 2024 net sales, driven by a 4.7% decline in the Americas segment due to delayed SCBA orders, while for the full nine months, net sales grew 1.2%, and the significant increase in nine-month net income is attributed to the absence of the prior year's one-time loss from the MSA LLC divestiture, with the company maintaining a strong liquidity position of $154.4 million in cash Business Overview MSA Safety is a global leader in advanced safety products and solutions, serving markets such as fire service, energy, construction, and industrial manufacturing, with a core product portfolio including self-contained breathing apparatus (SCBA), fixed and portable gas detection systems, and industrial personal protective equipment (PPE), organized into Americas and International segments - The company's main product groups are Fire Service (SCBA, protective apparel), Detection (fixed and portable gas detection), and Industrial PPE (head and fall protection)[83] - Operations are structured into two primary reportable segments: Americas (including U.S., Mexico, Brazil) and International (Europe, Middle East, Africa, and Asia Pacific)[84][85] Results of Operations In Q3 2024, consolidated net sales fell 3.1% to $432.7 million, with an organic decline of 2.6%, primarily due to weakness in the Americas fire service sector, while for the nine-month period, sales rose 1.2% to $1.31 billion, with an organic increase of 1.4%, and the significant year-over-year increase in nine-month operating income to $271.5 million from $129.1 million was mainly due to the non-recurrence of a $129.2 million loss on the divestiture of MSA LLC in 2023 Q3 2024 vs Q3 2023 Net Sales Change | Segment | GAAP Change | Currency Effects | Organic Constant Currency Change | | :--- | :--- | :--- | :--- | | Americas | (4.7)% | 1.3% | (3.4)% | | International | 0.6% | (1.4)% | (0.8)% | | Consolidated | (3.1)% | 0.5% | (2.6)% | - The decrease in Q3 Americas sales was driven by a decline in fire service, primarily SCBA, due to delayed timing of large order deliveries[90] - Q3 2024 gross profit margin decreased to 47.9% from 49.0% in Q3 2023, primarily due to lower sales volume[92] - The nine-month 2023 results included a $129.2 million pre-tax loss on the divestiture of MSA LLC, which was absent in 2024, leading to a significant increase in reported GAAP operating income[116][117] Liquidity and Capital Resources The company maintains a healthy liquidity position with $154.4 million in cash and cash equivalents as of September 30, 2024, with operating activities providing $188.5 million in cash for the first nine months of 2024, a stark contrast to the $66.1 million used in the same period of 2023, which was heavily impacted by a $341.2 million cash contribution related to the MSA LLC divestiture, and financing activities using $136.2 million - Cash and cash equivalents totaled $154.4 million at September 30, 2024[132] - The significant year-over-year improvement in operating cash flow was primarily due to the non-recurring $341.2 million cash contribution for the MSA LLC divestiture in 2023[133] - During the first nine months of 2024, the company used cash for $51.0 million in net debt payments, $58.7 million in dividends, and $27.4 million in share repurchases[135] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from currency exchange rates and interest rates, where a hypothetical 10% change in the U.S. dollar's strength would impact quarterly net income by approximately $1.9 million, and for interest rate risk, the company has $249.5 million in variable-rate debt, where a 100 basis point change in rates would affect annual earnings by $2.6 million, with foreign currency forward contracts used to mitigate some currency risk - A hypothetical 10% strengthening or weakening of the U.S. dollar would impact Q3 2024 reported sales by approximately $17.5 million and net income by $1.9 million[143] - The company had $184.8 million in notional value of open foreign currency forward contracts at September 30, 2024, to manage transactional exposure[144] - With $249.5 million in variable rate borrowings, a 100 basis point change in interest rates would impact future annual earnings by $2.6 million[145] Controls and Procedures Based on an evaluation as of September 30, 2024, the company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures are effective, with no material changes in the company's internal control over financial reporting during the third quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[146] - No changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[147] Part II - Other Information Issuer Purchases of Equity Securities During the third quarter of 2024, the company repurchased a total of 56,356 shares under its publicly announced $200.0 million share repurchase program, which has no expiration date, with additional shares purchased related to stock-based compensation transactions Share Repurchases in Q3 2024 (Publicly Announced Program) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | July 2024 | 4,545 | $188.84 | | August 2024 | 36,395 | $179.05 | | September 2024 | 15,416 | $173.70 | - The company has a stock repurchase program authorizing up to $200.0 million in repurchases with no expiration date[149] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files for interactive data submission - The filing includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and 18 U.S.C. 1350[152]