SPX Exceeds Earnings Estimates, Cost Reduction to Net $100 Million in Savings

SPX Corporation reports that its second quarter results have exceeded estimates and that cost savings and integration efforts arising from acquisitions are expected to reap $100 million U.S. in annualized savings.
Second quarter results included $910.1 million in revenues and earnings per share of $0.37 or $1.51 before unusual items, exceeding First Call’s consensus estimate of $1.50 per share.
This quarter marks the company’s 22nd consecutive quarter of meeting its commitments. Reported second quarter 2001 results include $54.0 million in pretax charges associated with cost reduction actions and the integration of United Dominion Industries (UDI) which was acquired on May 24, 2001.
Service Solutions reported revenues for the second quarter 2001 were $168.5 million, a 15.6% decline over second quarter 2000 revenues of $199.7 million. Incremental sales of the next generation scan tool and the ACR2000 in the second quarter 2000 were approximately $25 million and provide a difficult year over year comparison.
Commenting on the company’s second quarter results, John B. Blystone, Chairman, President and CEO said, “We are very pleased with our performance despite the current economic conditions. We are aggressively attacking cost reduction opportunities across the businesses and rapidly integrating UDI using our Value Improvement Process to quickly implement EVA, rightsize the businesses, and establish fix, grow or sell strategies. We are confident in our guidance of $6.50 per share for the full year 2001.”
Among the moves the company says it has made or will make is the closing of 49 manufacturing, sales and administrative facilities within the next year and the dramatic reduction of staff at the former headquarters of UDI, which is expected to reduce the company’s workforce by 2,000.

FINANCIAL HIGHLIGHTS:
Consolidation of United Dominion:
Reported financial results for the second quarter 2001 include the impact of the acquisition of UDI which was completed on May 24, 2001. Beginning with the second quarter 2001, the company will report the results of operations in four segments, Technical Products and Systems, Industrial Products and Services, Flow Technology, and Service Solutions. The new structure reflects the acquisition of UDI and aligns financial reporting with the operating structure of the organization. Earnings Per Share: Reported second quarter earnings of $0.37 per share include a $54.0 million charge ($34.5 million after-tax) or $0.96 per share associated with cost reduction and integration initiatives, and a $11.8 million ($6.7 million after-tax) or $0.18 per share loss on the sale of GS Electric.
$40.5 million of the charge ($26.3 million after-tax) or $0.73 per share is reported as a special charge on the income statement.
Charges of $13.5 million ($8.2 million after-tax) or $0.23 per share are included in cost of goods sold.
The $11.8 million ($0.18 per share) loss on the sale of GS Electric is included in other income.
The second quarter 2001 earnings per share, without the impact of these one-time items, was $1.51, exceeding First Call’s consensus estimate of $1.50.
The cash portion of the charges will be approximately $27.7 million.
The tax rate for the quarter was 53% due to the restructuring actions taken during the quarter. Cost Reduction and Integration Initiatives:
The company has initiated an aggressive cost reduction and integration program at the former UDI businesses. The program includes closing facilities, selling non-productive assets, sourcing initiatives, and productivity improvement programs. Significant actions to date include:
Dramatically reducing staff at the former UDI headquarters in Charlotte, North Carolina.
Closing approximately 49 manufacturing, sales and administrative facilities within the next year.
Various other productivity improvement initiatives, including leveraging sourcing efforts and combining redundant administrative and information systems.
The company expects these actions will result in an annualized work force reduction of approximately 2,000 positions over the next 12 months. As part of purchase accounting for the acquisition of UDI, the company recorded approximately $76.1 million in liabilities for severance, facility holding, and other cash costs expected to be incurred with the integration of UDI that are reflected in goodwill and not in second quarter results. The cash portion of these liabilities is expected to be approximately $46.1 million. Annualized savings from cost reduction and integration actions are expected to exceed $100.0 million, which will be partially offset by declining economic conditions and dilutive dispositions. The company expects additional charges associated with these actions will be incurred in the third and fourth quarters of 2001.
Strategic Disposals:
The company received $123.0 million in cash associated with the divestiture of GS Electric and Door Products during the second quarter. These transactions are dilutive by approximately $0.18 per share on an annualized basis and are expected to be offset by the aforementioned cost savings. Revenues: Reported revenues for the second quarter grew by 31% to $910.1 million compared with second quarter 2000 revenues of $695.1 million. Internal growth, excluding the acquisition of UDI, was -1.3%. Pro forma internal growth including the results of the UDI acquisition was -3.5%.