Welbilt (WBT) Tops Q4 EPS by 1c, Revenues Miss; Offers FY20 EPS Guidance Below Consensus

Welbilt (NYSE: WBT) reported Q4 EPS of $0.19, $0.01 better than the analyst estimate of $0.18. Revenue for the quarter came in at $381.8 million versus the consensus estimate of $398.75 million.

2019 Fourth Quarter Highlights (1)

• Net sales were $381.8 million, a decrease of 6.0 percent from prior year; Organic Net Sales decreased 5.5 percent
• Earnings from operations were $37.4 million, a decrease of 27.9 percent from prior year; as a percent of net sales, earnings from operations were 9.8 percent, a decrease of 300 basis points from prior year
• Adjusted Operating EBITDA was $71.2 million, a decrease of 2.1 percent from prior year; Adjusted Operating EBITDA margin was 18.6 percent, an increase of 70 basis points from prior year
• Net earnings were $18.4 million, a decrease of 31.9 percent from prior year; Adjusted Net Earnings were $27.1 million, an increase of 6.7 percent from prior year
• Diluted net earnings per share were $0.13, a decrease of 31.6 percent from prior year; Adjusted Diluted Net Earnings Per Share were $0.19, an increase of 5.6 percent from prior year
• Net cash provided by operating activities was $50.8 million, compared to net cash used in operating activities of $68.5 million in last year's fourth quarter; Free Cash Flow was $34.3 million, compared to $80.3 million in last year's fourth quarter.

"We expected difficult comparisons in both EMEA and APAC due to significant rollouts in these regions during last year's fourth quarter and this was exacerbated by market softness in the Americas that continued what we experienced with large chains in the third quarter and spread to the general market this quarter," said Bill Johnson, Welbilt’s President and CEO. \"In the face of the softening market conditions, we took steps in the fourth quarter to adjust our cost structure to limit the impact on our profitability. Looking at sales, we continued to see delays in some projects by large chain customers globally while the general market was weaker than expected in both the Americas and EMEA. APAC grew again this quarter with strong general market sales. Operationally, our Adjusted Operating EBITDA margin increased 70 basis points year-over-year from a combination of higher net pricing and lower selling, general and administrative expenses that helped overcome the impact from lower production volumes on fixed cost absorption. Overall, our manufacturing cost inefficiencies decreased sequentially from the third quarter as we worked aggressively to reduce our cost structure to better align with the current lower volume environment."

"We are pleased with the progress we made in our Transformation Program again this quarter. All Wave 1 and Wave 2 plants, plus KitchenCare, have identified more savings opportunities than were identified in their original plans. We have also launched Wave 3 with two more plants beginning their transformation this quarter. While the current lower-volume environment presents temporary headwinds to margin expansion, we remain confident that we will deliver in excess of $75 million of run-rate savings by the end of 2021 and that we will be able to sustain and build on these improvements longer term."

"We are providing our initial 2020 guidance today. Our Organic Sales guidance anticipates a slow first half of the year, including a mid- to high-single digit decline in our first quarter, with growth in the second half of the year bringing us into our guidance range of -2.0 to +1.0 percent growth. Our 2020 Adjusted Operating EBITDA margin target is projected to increase between 30 and 130 basis points over 2019, but this includes a similar ramp to sales, with the first quarter expected to be in-line to down slightly versus prior year due to the sales decline and low absorption of 2019's fourth quarter production costs that are expected to negatively impact the first quarter of 2020. We expect margins in the second half of the year to show solid year-over-year improvement as we begin realizing Transformation Program savings in the third quarter and deliver $30 million of run-rate savings by the fourth quarter."

"We are positive on the long-term growth prospects for the commercial foodservice industry despite the recent soft patch it is in. We are committed to successfully executing our Transformation Program and are confident that our portfolio of leading brands and our innovation pipeline will leave us well-positioned for profitable growth when industry conditions improve," concluded Johnson.

GUIDANCE:

Welbilt sees FY2020 EPS of $0.68-$0.75, versus the consensus of $0.81.

• Net sales growth: between -2.0 and 1.0 percent (organic -2.0 to +1.0 percent, foreign currency translation 0.0 percent)
• Adjusted Operating EBITDA margin (a non-GAAP measure): between 18.3 and 19.3 percent
• Adjusted Diluted Net Earnings Per Share (a non-GAAP measure): between $0.68 and $0.75 per share; based on 141.9 million fully diluted shares outstanding; the effective tax rate for 2020 is forecasted to be between 38 and 40 percent (between 25 and 27 percent excluding an expected 13 percent impact from a non-cash valuation allowance related to limitations on the deductibility of interest expense); interest expense is expected to be between $78.0 and $80.0 million

For earnings history and earnings-related data on Welbilt (WBT) click here.

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