HVAC equipment maker York International Corporation reported net income of U.S. $31.3 million, or $0.75 per diluted share, for the third quarter of 2004.
Commenting on the third quarter results, C. David Myers, president and CEO, said, "In spite of larger than expected impacts from material cost increases, we delivered performance in line with our previous guidance and continued to improve the utilization of our working capital. In addition, we are pleased with the acceptance of our new products, particularly in residential and air handling."
Net sales increased 14.9 percent from the third quarter of 2003 to $1.2 billion with every business segment delivering year-over-year increases. Income from operations was $49.1 million in the third quarter of 2004, highlighted by a 32.2-percent improvement at its Unitary Products Group (UPG).
Net interest expense in the quarter was $10.9 million and income tax expense was $9.6 million.
Sales for the Global Applied business grew 18.2 percent from the third quarter of 2003 to $877.5 million. Sales in the Americas were up 11.9 percent due to improved equipment volume and continued service growth, the company said. Sales increased 19.5 percent in EMEA driven by strong sales growth and the favorable translation impact of European currencies. Asia sales increased 36.1 percent with growth in every country.
Income from Global Applied operations in the third quarter was $44.4 million compared to $47.8 million in the prior year. Higher material costs globally, inefficiencies resulting from the YorkConnect deployment in North America, and pricing pressures in Europe and Asia more than offset volume leverage, productivity gains, and pricing realization, York said.
UPG sales improved 9.8 percent to $227.9 million as compared to $207.5 million in the third quarter of 2003, with reported sales gains in every product category.
According to the company, UPG income from operations in the third quarter improved 32.2 percent to $24.9 million versus $18.8 million in the third quarter of 2003. Improvements in production efficiency, a more positive product mix, prices increases and operating leverage on higher volume more than offset material cost increases, York said.
Bristol, York's compressor unit, reported a slight increase in sales for the third quarter over the prior year to $100.5 million. Lower sales to domestic customers were offset by increases in sales to international customers, the company said.
Bristol's income from operations declined $2.0 million from the third quarter of 2003 to $0.2 million due to rising material costs and lower pricing.
"Market volume growth and strong acceptance of our new products is reflected in our backlog increase in Global Applied of 12.9 percent and in our early October order rates in UPG. However, we continue to face the challenge of price realization," Mr. Myers said,
"Year-to-date operating performance improvements of 31.3 percent in UPG and 8.1 percent in Global Applied demonstrate the benefits of efficiency improvements, productivity increases, prior-years' restructuring, and volume leverage, which more than offset escalating material costs," he continued. "For the fourth quarter, we expect further escalation of material costs that will not be offset by price, volume, or the continued improvement in productivity and cost reductions."
For the fourth quarter of 2004, York expects earnings to be in the range of $0.60 to $0.70 per share. Mr. Myers said the company is updating full-year earnings guidance to a range of $2.20 to $2.30 per share, which includes the furnace remediation program and the favorable tax adjustment recorded in the second quarter. Debt reduction target for the full year is $60 million, York said, reflecting the impact of the fourth quarter expected results and increases in working capital to support our backlog.
"Although we will not offset the net materials impact for the fourth quarter, we will continue to execute well and drive improvement throughout all our businesses," Mr. Myers said. "We will drive pricing improvements across the board to better position ourselves for 2005. My optimism about the performance of our business remains very high and our future results will deliver the benefits of the investments we have underway."
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