MSA Safety Inc.'s Earnings Are on Fire

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MSA Safety (MSA -0.19%) continued to face the same headwinds in the second quarter that it battled in recent quarters. However, its financial results are improving because its strategic investments are paying big dividends. That said, the company is not about to declare a win. Instead, it remains focused on making the investments needed so it can capture more market share, increase its margins, and create value for investors.

MSA Safety's results: The raw numbers

YOY = year over year. Data source: MSA Safety.

What happened with MSA Safety this quarter?

A trio of catalysts drove MSA Safety's earnings growth.

• The recent acquisition of Latchways drove growth, offsetting much of the impact from foreign currency headwinds. Overall, Latchways increased constant currency and reported revenue by 5%, while organic constant currency revenue was flat.
• The reason organic revenue was flat had to do with continued soft sales to energy and industrial end-users. That said, offsetting those weak sales were robust breathing apparatus sales, which were up 20% last quarter thanks to the company's latest product the G1 self-contained breathing apparatus (SCBA). Sales of the device to fire departments in the U.S. and abroad remain, pardon the pun, on fire.
• Those two catalysts drove earnings, with Latchways alone providing $0.01 per share earnings accretion during the quarter. In addition to that, the company's restructuring program is paying big dividends, driving selling, general, and administrative (SG&A) expenses down by $2 million, including the additional costs from Latchways.

What management had to say

As CEO William Lambert, commenting on the quarter in the company's earnings press release, said:

Our quarterly results reflect strong returns on several strategic investments we've made to drive profitable growth. While we continued to see weak conditions in sales of certain products associated with energy and industrial related end-markets, our investments in new product development, strategic acquisitions and restructuring programs allowed us to recognize earnings growth of 21% on 3% revenue growth.

Lambert notes that MSA Safety's investments are driving results. The company's restructuring program, in particular, is having an impact on the bottom line. Nearly half of its earnings growth came from the drop in SG&A expenses, which is why earnings grew much faster than revenue.

Looking forward

MSA Safety plans to continue making strategic investments to offset the challenges it is currently facing. That said, one of the challenging end markets, energy, could soon start to turn. Dave Lesar, CEO of oil-field service giant Halliburton (HAL 1.60%), said this week that "we believe that the North American [energy market] has turned." Fueling this outlook is the belief that the U.S. rig count has bottomed, which the Halliburton CEO suggests will lead to a recovery in oil field activities. The implication for MSA Safety is that it will turn around the sluggish sales of its safety equipment to energy market end-users.