Chart Industries, Inc. today reported results for the second quarter ended June 30, 2015.
Net income for the second quarter of 2015 was $17.2 million, or $0.56 per diluted share. Second quarter 2015 earnings would have been $0.60 per diluted share excluding $1.7 million, or $0.04 per diluted share, of facility shutdown and severance costs recorded in the quarter. This compares with net income of $20.1 million, or $0.65 per diluted share, for the second quarter of 2014. Second quarter 2014 earnings would have been $0.70 per share excluding $2.0 million, or $0.04 per diluted share, of acquisition-related and facility start-up costs in that period, as well as a $0.01 per diluted share impact associated with Chart’s Convertible Notes.
Net sales for the second quarter of 2015 decreased 12% to $270.3 million from $306.8 million in the comparable period a year ago. Gross profit for the second quarter of 2015 was $74.9 million, or 27.7% of sales, versus $92.2 million, or 30.0% of sales, in the comparable quarter of 2014.
“Low and uncertain global oil pricing continues to cause customers to delay investment decisions, especially in China, and impacts our ability to predict future order timing. Despite these headwinds, we delivered solid second quarter performance in most businesses through a focus on core demand as well as disciplined execution and cost control,” stated Sam Thomas, Chart’s Chairman, President and Chief Executive Officer.
Mr. Thomas continued, “We remain confident in the long-term fundamental global drivers of our business. This is evidenced by the pending award for the four-train Magnolia LNG export project being developed by LNG Limited at Lake Charles, Louisiana, and the related global alliance agreement under which Chart and LNG Limited will collaborate on future LNG projects. We expect a staged release of the Magnolia LNG order commencing in the third quarter with a commitment for all four trains by the end of 2015. The total order value is expected to be in excess of $80 million. We continue to be encouraged by the interest for North American multi-train LNG export facilities. In addition, we are pleased to have successfully completed the acquisition of vaporizer manufacturer Thermax. We remain steadfast in our pursuit of additional strategic growth opportunities.”
Backlog at June 30, 2015 was $524.7 million, down 14% from the March 31, 2015 level of $608.7 million. Reported orders for the second quarter of 2015 were $183.5 million compared with $219.5 million for the first quarter of 2015. Orders and backlog were reduced in the second quarter of 2015 by $47.6 million to address changes in Distribution and Storage (“D&S”) Asia backlog as circumstances indicate that customers were unlikely to fulfill their original obligations primarily due to the impact of lower oil prices and the continued economic slowdown in China. Orders for the second quarter of 2015 would have been $231.1 million, excluding the $47.6 million in orders we removed from backlog. Absent these adjustments, D&S orders were up sequentially driven by strong orders in the U.S.
Selling, general and administrative (“SG&A”) expenses for the second quarter of 2015 decreased $8.0 million compared with the same period in 2014 to $45.6 million, or 16.9% of sales. SG&A expenses in the second quarter of 2014 were 17.5% of sales. The decrease was largely due to lower variable based incentive compensation, lower bad debt expense and impact from our cost reduction initiatives.
Net interest expense was $4.0 million for the second quarter of 2015, which included $2.9 million of non-cash accretion expense associated with the Company’s Convertible Notes. Net cash interest was $1.1 million.
Income tax expense was $6.9 million for the second quarter of 2015 and represented an effective tax rate of 28.7% compared with $8.8 million in the prior year quarter, or an effective tax rate of 30.2%. The decrease in the effective tax rate was primarily due to the effect of income earned by certain of the Company’s foreign entities which are taxed at lower rates.
Energy and Chemicals (“E&C”) segment sales decreased 1.7% to $91.3 million for the second quarter of 2015 compared with $93.0 million for the same quarter in the prior year. The decline was due to lower sales volume in brazed aluminum heat exchangers within industrial gas applications which was partially offset by improved project mix in process systems. E&C gross profit margins were 30.3% in the 2015 quarter compared with 26.5% in the same quarter of 2014. Improved project mix and execution in the current quarter and the absence of start-up costs related to the La Crosse expansion and Wuxi acquisition incurred in the prior year quarter drove the margin improvement.
D&S segment sales decreased 18.3% to $121.8 million for the second quarter of 2015 compared with $149.1 million for the same quarter in the prior year. Lower LNG sales volume, driven by low oil prices, reduced China industrial activity and the strength of the U.S. dollar contributed to the decline. D&S gross profit margins were 23.4% compared with 30.6% in the prior year quarter. Lower volume, restructuring costs associated with the Owatonna, Minnesota shutdown and other cost reduction initiatives, and product mix led to the margin decline. In addition, the prior year quarter included the favorable resolution of a partial contract cancellation, which improved margins approximately 1.5% during that period.
BioMedical segment sales decreased 11.8% to $57.1 million for the second quarter of 2015 compared with $64.8 million for the same quarter in the prior year. The decline is primarily due to lower respiratory sales volume in Europe and currency impact due to the strength of the U.S. dollar. BioMedical gross profit margin declined to 32.8% in the quarter compared with 33.8% for the same period in 2014 due to lower volume and product mix.
Based on year to date results, first half order trends, including backlog reductions in China, the overall economic environment, particularly in China, and the recent decline in oil prices, the company is lowering its previously announced 2015 guidance range. Sales are now expected to be in a range of $1.0 to $1.1 billion, and diluted earnings per share are now expected to be in a range of $1.40 to $1.60 per diluted share, on approximately 30.7 million weighted average shares outstanding. This excludes the impact from any restructuring costs. This revised guidance compares with previous sales guidance of $1.05 billion to $1.2 billion and earnings per diluted share of $1.60 to $2.10 per diluted share, which also excluded restructuring costs.