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Article Excerpt
OPERATOR: Good day, and welcome to today's Colfax Corporation's fourth quarter earnings call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the conference over to your moderator, Mitzi Reynolds. Please go ahead, ma'am.
MITZI REYNOLDS, VP OF IR, COLFAX CORPORATION: Thanks, Anthony. Good morning, everyone, and thanks for joining us. My name is Mitzi Reynolds, and I'm the VP of Investor Relations. On the call today, we have John Young, our President and CEO, and Scott Faison, Colfax's Chief Financial Officer.
I'd like to point out that our earnings release is available in the Investor Section of our website, colfaxcorp.com. We will also be using a slide presentation to supplement today's call, which can be found on the Investor section of the Colfax website. Both the audio of this call and the slide presentation will be archived on the website later today, and will be available until our next quarterly call.
In addition, a replay of this call will be available for approximately two weeks. The replay number is 888-230-1112 or 719-457-0820 for international participants, and the access code is 4053059. This information is also listed in the press release.
I would also like to note that in order to help you understand the Company's direction, we will be making some forward-looking statements during the call, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings.
It's possible that actual results might differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of the date that they are made, and we do not assume any obligation or intent to update any forward-looking statements, except as required by law.
During the presentation, we do will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the accompanying slide presentation. With respect to any non-GAAP financial measures during the call today, the accompanying information, required by SEC Regulation G relating to those measures, can be found in our earnings press release under the Investor section of the Colfax website.
Now I'd like to turn it over to John.
JOHN YOUNG, PRESIDENT AND CEO, COLFAX CORPORATION: Thank you, Mitzi. Good morning, everyone. I'll begin with some of the fourth quarter's more significant highlights and some of the key performance measures we achieved. I'll follow with some annual highlights. We'll then review our strategic end markets and current outlook. Finally, I will review the financial results, and then we'll open up for a question-and-answer session.
As we announced in the press release issued this morning, Colfax had an excellent fourth quarter. Adjusted net income was $17.5 million or $0.40 per share, a 19% increase over last year's fourth quarter, despite a $0.03 currency drag on earnings. Net sales for the quarter were $159.3 million, an increase of 11%, including organic growth of 19%.
The fourth quarter is seasonally our strongest quarter, as many of our projects have year-end deliveries. During the quarter, our results were negatively impacted by foreign currency translation, as the US dollar appreciated sharply against the euro and Swedish krona, which had a 9% negative drag on sales versus prior-year.
Adjusted operating income increased 15% to $28.6 million, and the margin improved by 70 basis points to 18%. This improvement was driven by a 210 basis point increase in our gross profit margin. Adjusted EBITDA increased 11% to $32.1 million, and the margin remained flat at 20.1%, reflecting higher SG&A expenses, mainly associated with public company costs.
Orders for the quarter were down 19% overall and 16% organically. This includes commercial marine cancellations of $14 million during the quarter. We anticipated this decline, as we had an abnormally large order rate in the fourth quarter of last year, combined with the slowdown in commercial marine orders. The fourth quarter is typically our seasonally weakest order quarter of the year. Even including the impact of fourth quarter 2008 marine market cancellations, fourth quarter orders were comparable to the fourth quarter of 2006.
Turning now to a brief look at the year. 2008 was an excellent year for us, including record sales and orders. Net sales were up newly 20% to $604.9 million, an organic increase of 14%, which was in line with our double-digit growth expectation for the year.
Orders grew 15% to $669.2 million and an organic growth rate of 7%. Adjusted net income was $53.7 million or $1.22 per share, an increase of 33% over 2007. Adjusted operating income increased 25% to $90.8 million, while adjusted EBITDA increased 20% to $105.6 million. We ended the year with a backlog of $337.3 million, up from $292.8 million at the end of 2007, which was net of negative foreign exchange impact of $14.5 million.
Now moving on to a look at our end markets. We participate in five strategic and diverse end markets, which are -- commercial marine, power generation, oil and gas, Global Navy, and general and industrial. We discuss growth in sales and orders on an organic basis, which excludes the impact of acquisitions and foreign currency.
The commercial marine market is our largest single end market, and represented 24% of our fourth quarter sales and 25% of our sales for the year. Organic sales grew 34% for the quarter and 17% for the year. 2008 strong sales were driven by growth in international trade, changing environmental regulations, and demand for oil and other commodities.
While sales were strong, order activity declined significantly. Organic orders declined 58% for the quarter, and were down 2% for the year. Orders are net of cancellations during the year of $15 million, $14 million of which was in the fourth quarter. These order cancellations were mainly for containerships and bulk carriers.
Given the current...
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