MSA Safety (NYSE:MSA) is on deck to report its second-quarter results on Wednesday after markets close. The global leader in safety products is expected to report lower year-over-year sales and earnings as it faces some stiff headwinds from the slowdown in the energy sector as well as from foreign currencies. That said, there is also one very positive catalyst on the horizon that could push the company's financial results past the estimates. Here's what to watch in that report.
First, let's review
Last quarter, MSA Safety reported a real mixed bag as it missed analysts' expectations due to weak sales of energy-related safety products while foreign currencies also weighed on the results. In fact, sales were down 3% while earnings missed expectations by a dime. That being said, when those currency fluctuations were stripped away, sales grew by 4%. Meanwhile, outside of weaker energy related sales the company did see robust sales in its self-contained breathing apparatus (SCBA) segment as sales, after adjusting for local currencies, were up 27% due to the company's revolutionary G1 SCBA that just started shipping the prior quarter.
1. How did MSA Safety's results stack up to estimates?
Given the headwinds from energy and currencies, analysts don't expect a robust quarter from MSA Safety. The current consensus estimates are for the company to report sales of $276.6 million and earnings of $0.59 per share. Both numbers would represent minor year-over-year declines as the company reported sales of $282.5 million and earnings of $0.60 per share in the second quarter of last year.
What investors will want to keep an eye on here is to see how MSA Safety's results compared to those estimates. If the results fell short of estimates, investors will want to see if that was due to the company's headwinds growing stronger or if something else is at play here.
2. Did the energy headwind grow stronger?
Last quarter, both energy and currencies pulled its results lower. While currencies will likely impact second-quarter sales, what's more important is to look at adjusted sales, which strips away that impact. Investors will want to see if those adjusted sales were more deeply affected than expected due to the energy-related headwinds growing stronger.
Last quarter, weaker oil and gas activity due to lower commodity prices pulled sales of industrial head production and portable gas detection instruments down 4% and 7%, respectively. It's quite possible that it could have become worse in the second quarter as oil and gas activity, particularly in the U.S., weakened materially due to the 40% decline in the U.S. rig count. While some of that weakness has been baked in by analysts, investors will want to make sure the company's energy-related sales didn't drop off a cliff.
3. How are SCBA sales trending?
While that headwind is expected to have some impact this quarter, MSA Safety was able to more than offset the decline in energy-related sales last quarter due to the strength of its SCBA segment. Not only were SCBA sales robust last quarter, but MSA Safety ended the quarter with a backlog of future sales totaling $82 million. That was more than double the backlog in the first quarter of last year, and suggests that second-quarter sales from the segment should be robust.
What investors want to see is that this robust backlog actually translated into robust sales. Furthermore, investors will want to see the backlog still remains strong as that would suggest that sales in future quarters should continue to grow. Weakening SCBA sales would be an ominous sign as it would suggest that the customers might not be in a rush to order the company's new G1 SCBA as quickly as before.
Investors shouldn't expect a record-breaking quarter from MSA Safety as two notable headwinds are expected to continue to impact results. That said, the most important thing to keep an eye on is sales of its revolutionary G1 SCBA. If those sales are growing at a healthy clip, it has the potential to push the company's financial results past expectations, which is something investors would love to see.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends MSA Safety. The Motley Fool owns shares of MSA Safety. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.