Image source: MSA Safety Inc.
After battling global economic headwinds last year, safety products maker MSA Safety (MSA 0.60%) started 2016 off surprisingly strong, thanks in part to some large orders. Whether or not that momentum continued will be answered Wednesday evening when the company reports its second-quarter results.
First, let's review
Before looking ahead, here's a quick look back at last quarter's numbers:
|
Metric |
Q1 2016 |
Q1 2015 |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$280.2 million |
$257.3 million |
8.9% |
|
Adjusted earnings |
$18.0 million |
$15.7 million |
14.3% |
|
Adjusted EPS |
$0.48 |
$0.42 |
14.3% |
YOY: YEAR OVER YEAR. DATA SOURCE: MSA SAFETY.
As the chart shows, MSA Safety delivered solid growth on both the top and bottom lines. Partially driving this was the addition of Latchways, a U.K.-based maker of fall protection systems and solutions that it acquired last October, which boosted revenue by 6% and earnings by $0.03 per share. In addition, strong sales of the company's new self-contained breathing apparatus (SCBA) to fire departments drove revenue growth, as did large orders for fixed gas and flame detection systems to customers in the Middle East and Mexico. Meanwhile, the company's cost-cutting moves boosted earnings: It cut selling, general, and administrative expenses by 5% year over year.
Next, here's what to focus on in this week's report.
1. Foreign currency headwinds
While sales growth was strong in Q1, foreign-exchange headwinds remained fierce: Sales were up 13% on a constant-currency basis, but up just 8.9% after translating those revenues into dollars. That said, the currency impact was even steeper in the prior quarter, when revenue was only up 1% on a reported basis, but rose by 8% on a constant currency basis.
While these headwinds appears to be abating somewhat, investors should look to see which direction the trend moved quarter.
2. SCBA sales
MSA Safety overcame the exchange headwinds in Q1, as well as the impact of weak sales to energy and emerging market customers, thanks to rapidly rising sales of its revolutionary G1 SCBA product. Last quarter, sales from its SCBA segment jumped 40%, with "robust shipping activity" to fire departments worldwide.
That sales momentum appears to have continued during the second quarter. In early June, the company put out a press release detailing a new SCBA contract in Australia, which also noted that it had secured large orders in China and Chile. Furthermore, it wrote that it was "seeing solid demand... across a number of our key geographic markets." Investors should check the second-quarter release for additional contract announcements, as well as any other comments about the SCBA sales pipeline.
3. The outlook
While SCBA sales have been robust, CEO William Lambert noted last quarter that the company continues to see "challenging conditions in certain end markets and geographies." In particular, sales to energy customers were hurt by the oil market downturn. That market, however, has started to show some signs of life again after oil prices rose sharply during the second quarter. The recovery in crude prices led some oil companies to put idled rigs back to work. According to the most recent data oil-field service company Baker Hughes (BHI +0.00%), the rig count has risen for six straight weeks. This improvement in oil and gas activities has the potential to fuel incremental sales of safety equipment to energy market customers like Baker Hughes.
Given that the oil market seems to be on the upswing, investors should be on the lookout for optimism about the back half of the year from Lambert in his upcoming report.
Investor takeaway
MSA Safety has done an admirable job battling some pretty tough headwinds over the past year. The hope now is that those headwinds have abated, allowing the company to take full advantage of its momentum in SCBA sales. If that situation applies, the company could deliver a pleasant surprise on Wednesday.
