News Details

NILES, IL -- (Marketwired) -- 09/18/15 -- MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the second fiscal quarter ended July 31, 2015. The Company also announced that its backlog of orders as of July 31, 2015 reached $105.1 million, an increase of 6% from its level at May 31, 2015, which previously represented MFRI's highest backlog level since July 31, 2013.

CEO Bradley Mautner commented, "As previously disclosed, we expected the first half of fiscal 2015/16 to be challenging due to our relatively low backlog position entering the year. However, with many significant wins captured in recent months by our Perma-Pipe subsidiary, we focused during the second quarter on readying our facilities and production processes to execute on those awards. The new projects we have underway include various large-scale infrastructure projects in the Middle East detailed in our year-end April 15, 2015 press release as well as several significant awards for North American projects described in our 1Q 2015 announcement, including:

• A 36-mile (58 km) onshore oil transportation pipeline to connect two refining facilities in Louisiana;
• A major international airport expansion in New Jersey;
• The insulation and jacketing of 9.5 miles (15 km) of cement-lined steel pipe to transport a potash solution for a mining operation in Canada'sSaskatchewan province;
• A new state-of-the-art city center in Jubail Industrial City in eastern Saudi Arabia, the largest industrial city in the Middle East; and

"Accordingly, during the third quarter we have entered the next stage of delivering orders and realizing income from these projects. We have scaled up our facilities in the Middle East with additional shifts to to deliver products for these infrastructure projects, and we expect to continue this pace for at least the next two quarters. Moreover, during the past two months, Perma-Pipe captured several additional assignments and our quotation activities in the Middle East have continued to be robust."

Mr. Mautner continued, "In MFRI's filtration segment, sales declined year over year by $4.5 million, reflecting continued weak demand from the steel and coal-fired power industries. However, as a result of our margin improvement, we reached approximately break-even in spite of the start-up costs associated with our new pleated manufacturing facility in the Middle East, where we have begun building a backlog of orders. While we expect the softness in end markets for fabric filters to continue through fiscal 2015/16, we believe the performance of our pleated filtration business will continue to improve as we gain further traction in that segment."

Mr. Mautner concluded, "We are confident that the significant order book we have generated in our project-based piping business and the substantial increase in backlog we have developed will offset the year's slow start through increased revenue and profitability. In addition, we continue to examine our cost structures and business portfolio in an effort to improve the overall performance of the Company."

BACKLOG

SECOND FISCAL QUARTER ENDED JULY 31, 2015

SALES - Net sales decreased 25% to $40.1 million in the current quarter, from $53.4 million in the prior-year quarter. Piping Systems sales decreased 26% or $8.6 million compared to the prior-year quarter due to lower domestic oil and gas projects and due to lower volume in Saudi Arabia and the United Arab Emirates ("U.A.E.").

GROSS PROFIT - Gross profit decreased to $5.7 million in the current quarter from $10.5 million in the prior-year quarter, mainly due to the sales volume decrease in Piping Systems. The gross margin decreased to 14.1% of net sales in the current quarter from 19.8% in the prior-year quarter.

EXPENSES - Operating expenses decreased to $8.1 million in the current quarter from $8.8 million in the prior-year quarter due to lower management incentive compensation expense, partially offset by higher stock compensation expense and increased professional expenses.

PRETAX INCOME (LOSS) FROM CONTINUING OPERATION - The pretax loss was $2.8 million in the current quarter versus income of $1.8 million in the prior-year quarter. The primary factor contributing to the 2015 results was lower volume in Piping Systems.

NET (LOSS) INCOME - Net loss was $2.4 million compared to net income of $1.4 million in the prior-year quarter. The decrease was due to lower sales volume and gross profit in Piping Systems.

PIPING SYSTEMS - Net sales decreased 26% to $25.1 million in the current quarter from $33.8 million in the prior-year quarter. The decrease was attributed to lower global and domestic volume. Gross margin decreased to 12% of net sales in the current quarter from 23% of net sales in the prior-year quarter. Gross profit decreased due to lower volume.

Operating expenses decreased to $4.0 million from $4.1 million due to lower management incentive compensation expense and lower professional costs partially offset by higher selling expenses.

FILTRATION PRODUCTS - Net sales decreased 24% to $14.9 million in the current quarter from $19.6 million in the prior-year quarter. Gross profit decreased to $2.5 million from $2.7 million. Lower gross profit from volume was almost entirely offset by improved mix. Gross margin increased to 17% in the current quarter from 14% in the prior-year quarter due to customer mix and lower costs related to product development. Startup costs for the new production facility in the U.A.E. offset some of the cost reductions elsewhere.

Operating expenses decreased to $2.5 million in the current quarter from $2.7 million in the prior-year quarter. Lower professional costs contributed to the net decrease in expenses.

SIX MONTHS ENDED JULY 31, 2015

SALES - Year to date ("YTD") net sales decreased 31.1% to $77.7 million from $112.9 million for the prior-year YTD. Filtration Products sales decreased 12.1% due to a decrease in domestic sales volume. Piping Systems sales decreased 40.3% or $30.7 million compared to the prior-year YTD due to lower volume in domestic oil and gas projects and due to lower volume in the Middle East.

GROSS PROFIT - Gross profit decreased to $9.7 million from $26.5 million in the prior-year YTD due to lower volume in Piping Systems.

EXPENSES - Operating expenses decreased to $17.0 million YTD from $19.0 million for the prior-year YTD due to lower management incentive compensation expense, partially offset by higher stock compensation expense and increased professional expenses. Operating expenses as a percent of net sales increased to 21.8% from 16.9%.

PRETAX INCOME (LOSS) FROM CONTINUING OPERATIONS - Pretax loss from continuing operations was $7.4 million versus pretax income from continuing operations of $7.2 million last year. The primary factor contributing to the 2015 results was lower volume in Piping Systems.

TAXES - The Company's worldwide effective income tax rate ("ETR") from continuing operations was 4.9% and 21.4% for the six months ended July 31, 2015 and 2014, respectively. The change in the ETR for the two periods relates to the mix of income earned in zero rate jurisdictions.

NET (LOSS) INCOME - Net loss was $7.0 million compared to net income of $5.2 million in the prior-year's YTD.

PIPING SYSTEMS - YTD net sales decreased 40% to $45.4 million from $76.1 million in the prior-year YTD. The decrease was attributed to lower volume in the Middle East and in domestic oil and gas projects. Gross margin decreased to 12% of net sales YTD from 28% of net sales in the prior-year YTD. Gross profit decreased due to the lower volume in sales.

Operating expense decreased to $7.7 million from $9.5 million in the prior-year YTD. Operating expenses as a percent of net sales increased to 17.0% from 12.5%. The dollar decrease was due to lower management incentive compensation expense due to lower earnings in the period.

FILTRATION PRODUCTS - YTD net sales decreased 12% to $32.3 million from $37 million in the prior-year YTD. Sales decreased due to a large domestic original equipment manufacturer order that was delayed to the third quarter. Gross profit decreased to $4.2 million from $5.2 million. The business continues to widen its geographic market coverage, expand its sales activities to increase revenue and improve its operating margin through expense controls.

YTD operating expenses decreased to $5.4 million from $5.8 million in the prior-year YTD. Decreased selling expense and lower professional costs contributed to the net decrease in expenses.

MFRI, Inc.

MFRI, Inc. manufactures pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling as well as other applications. The Company also manufactures custom-designed industrial filtration products to remove particulates from air and other gas streams. In total, MFRI has operations at 10 locations in six countries.

Forward-Looking Statements

Statements and other information contained in this announcement that can be identified by the use of forward-looking terminology constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby, including, without limitation, statements regarding the expected future performance and operations of the Company. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties include, but are not limited to, the project nature of the business, the increasing international nature of the business, economic conditions, market demand and pricing, competitive and cost factors, raw material availability and prices, global interest rates, currency exchange rates, labor relations and other risk factors.

MFRI's Form 10-Q for the period ended July 31, 2015 will be accessible at www.sec.gov and www.mfri.com. For more information, visit the Company's website or contact its investor relations representative, LHA.

Note: Earnings per share calculations could be impacted by rounding.

Source: MFRI