HVAC company York International Corporation announced that earnings for the full year of 2005 are estimated to be U.S. $2.60 to $2.90 per share. Based on current market trends, expectations are at the lower end of this range. Relief on material costs and an improvement in the large equipment markets in the United States and Europe would contribute to delivering the higher end of the range, the company said.
"The majority of our operations are performing well and our working capital utilization is sound," stated C. David Myers, president and CEO. "While we expect continued challenges from cost increases and deployment of business systems, we will deliver earnings improvement in 2005 in both absolute dollar terms and in earnings as a percent of sales."
For 2005, Mr. Myers said that price realization is York's top priority. "All of our businesses raised prices during 2004 and have announced further increases for 2005," he said. "We are focused on achieving these increases to minimize the impact of cost increases. We will continue to invest in VISTA, IT infrastructure, and product development to support our strategic goals. We will moderate the pace of these investments in 2005 in light of the current material cost environment."
York said that most of its markets are improving and show signs of continued unit growth. Expectations include strong growth in China and the Middle East; modest growth in the Americas, UPG, and other Asian countries; and stability in Europe and at Bristol Compressors.
The company's key operating expectations include the following:
Revenue growth of its service and parts businesses of at least 10 percent. The Company will continue to expand and invest in its service business, improve productivity and expand the multi-site commercial service business. YorkConnect, which has been deployed in all U.S. offices, will continue to negatively impact productivity in the first half of 2005 versus 2004 as new procedures and systems are employed. Benefits from the deployment will be evident in 2006.
Revenue growth in China of at least double the GDP growth rate of the overall Chinese economy. Margin pressure in China will continue to be a challenge.
Continued growth and market share gains in the middle market product lines attributable to the success of new air handling units, controls and small tonnage chiller products.
Increased pricing to offset material cost increases. The gross material cost increases over 2004 are expected to be approximately $100 million based upon current material cost levels.
The company also anticipates the following:
Positive cash flow of $55 million. This cash target does not reflect acquisitions or divestitures, and is before dividends.
Capital expenditures, including IT outlays, to be approximately $95 million. Increases in capital expenditures are primarily attributable to investments in UPG to prepare for new efficiency requirements in 2006 (13 SEER) and investments in Asia to support further growth. Depreciation and amortization is expected to be $79 million.
An increase in the tax rate to 27 percent. This includes the effects of the repeal of U.S. export incentives and higher profits in higher tax jurisdictions. The 27 percent tax rate and the cash flow target do not include any additional impact of the American Jobs Creation Act of 2004.
Higher interest expense due to higher average borrowing rates.
Average shares outstanding to increase in 2005 as a result of the dilutive impact of options outstanding and exercised. Guidance for 2005 does not include any impact from expensing stock options upon the adoption of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment."
For the full year of 2004, the York expects earnings to be approximately $1.90 to $2.00 per share, which includes the furnace remediation program and the favorable tax adjustment recorded in the second quarter this year.
"We continue to experience inefficiencies in our U.S. service operations following the deployment of YorkConnect," Mr. Myers said. "In addition, our operations in China experienced a decline in orders expected to ship by year-end, as well as pricing and cost pressures. Although revenue growth in China remains strong, the volume will be lower than anticipated."
Mr. Myers added: "We remain optimistic about York’s future performance and the achievements we expect."
York International will release its full year 2004 results on Feb. 24, 2005.
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