NATCO Group Announces 1st Quarter 2008 Results

- Gross Margin Percent Exceeds 30.5% - Issues 2Q08 Guidance

- Revises 2008 Guidance

HOUSTON, April 30 /PRNewswire-FirstCall/ -- NATCO Group Inc. (NYSE:NTG) today announced revenue for the first quarter 2008 of $152 million, an increase of 19% over first quarter 2007 revenue of $127.4 million. Net income available to common stockholders for the first quarter 2008 was $9.6 million, or $0.50 per diluted share. Included in net income available to common stockholders are approximately $2.1 million of pre-tax expenses associated with a previously announced, and ongoing, review of certain payments made in a foreign jurisdiction. Without these charges, earnings per diluted share would have been $0.56. Net income available to common stockholders for the first quarter of 2007 was $8.4 million, or $0.45 per diluted share.

Segment profit, including the costs of the ongoing review, increased to $18.1 million for the first quarter 2008, up from $15.6 million for the first quarter of 2007. Bookings for the first quarter 2008 were $176.4 million, compared with $133.9 million for the first quarter of 2007.

John U. Clarke, NATCO's Chairman and CEO said, "The early months of 2008 reflect a long awaited return of higher project award activity in our Integrated Engineered Solutions segment, while historically high U.S. natural gas prices continue to support strong activity levels in our Standard & Traditional segment. Our Automation & Controls segment produced solid results as well. In addition, recent acquisitions have been successfully integrated and are performing in line with expectations."

Revenue from the Integrated Engineered Solutions segment was $54.9 million in the first quarter 2008, compared to $48.5 million in the first quarter 2007. Segment profit for the first quarter 2008 was $8.3 million, including $0.8 million of allocated costs related to the ongoing review, compared with $8.2 million in the prior year period primarily as a result of higher built-to-order project revenue recognition offset, in part, by a lower contribution from the Company's West Texas CO2 processing facility and higher operating expenses. Bookings in the first quarter 2008 totaled $79.6 million, compared with $46.6 million in the first quarter 2007.

For the first quarter 2008, the Standard & Traditional segment increased revenue over the first quarter 2007 by 24% to $70.9 million. Segment profit increased to $5.4 million, including $1.0 million of allocated costs related to the ongoing review, from $5.3 million. The improved results reflected increased sales volumes in the Company's U.S. branch network, the inclusion of two months of the Linco Electromatic liquids measurement business offset, in part, by higher operating expenses. In the first quarter of 2008, bookings for the segment were $68.7 million compared with $61.1 million for the first quarter of 2007.

Revenue from the Automation & Controls segment in the first quarter 2008 increased 22% over the prior year's comparable period to $28.2 million, while segment profit, including $0.3 million of allocated costs related to the ongoing review, increased to $4.4 million in the first quarter 2008 from $2.1 million in the first quarter 2007. The improvement in segment profit was primarily due to improved activity levels in the Gulf of Mexico and higher contribution from international field service work.

Weighted average shares of 19.9 million for the first quarter 2008 increased from 19.5 million in the first quarter of 2007 primarily as the result of the issuance of shares in conjunction with the acquisition of ConSepT in December 2007 and the impact of shares issued under the Company's incentive compensation program.

Mr. Clarke concluded, "Momentum is once again building with respect to project bookings opportunities in 2008 as both domestic and international markets remain very active. Delays, however, have affected the timing of anticipated revenue recognition and our previous guidance for the year. However, our focus on geographic and market expansion continues and will support additional growth for 2008 and beyond. We expect strengthening in the North American gas market and meaningful awards from South East Asia, the Middle East, Mexico and the Canadian oil sands during the balance of the year. We are also having early success in deploying our technologies to the downstream refining market. These wins should set the stage for a better second half of the year and a strong start to next year."

The Company is revising its 2008 guidance with respect to segment profit, estimated at $88 to $92 million, exclusive of the costs associated with the ongoing review. Revenue is expected to be between $610 and $630 million with earnings per diluted common share, excluding special items, of $2.55 to $2.65. For the second quarter 2008, the Company expects revenue of $155 to $165 million and segment profit of $17 to $20 million, exclusive of the costs associated with the ongoing review.

The Company will hold its quarterly earnings conference call on Thursday, May 1 at 9:00 a.m. Central time. Interested parties are directed to the investor relations page on the Company's website at http://www.natcogroup.com/ for information on accessing the conference call or webcast.

NATCO Group Inc. is a leading provider of wellhead process equipment, systems and services used in the production of oil and gas. NATCO has designed, manufactured and marketed production equipment and services for over 80 years. NATCO production equipment is used onshore and offshore in most major oil and gas producing regions of the world.

Statements made in this press release that are forward-looking in nature are intended to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risks and uncertainties. Forward looking statements in this press release include, but are not limited to, revenue, earnings and segment profit guidance and discussions regarding areas for growth in 2008, markets, potential awards and demand for our products. These statements may differ materially from actual future events or results. Further, bookings and backlog are not necessarily indicative of future results. Readers are referred to documents filed by NATCO Group Inc. with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which identify significant risk factors that could cause actual results to differ from those contained in the forward-looking statements.

NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par
value data) March 31, December 31,
2008 2007
(unaudited)

ASSETS

Current assets:
Cash and cash equivalents $42,766 $63,577
Trade accounts receivable, less
allowance for doubtful accounts of
$1,299 and $1,435 as of March 31,
2008 and December 31, 2007,
respectively 139,042 139,054
Inventories, net 49,639 46,456
Deferred income tax assets, net 6,730 6,927
Prepaid expenses and other current
assets 7,800 5,266
Total current assets 245,977 261,280
Property, plant and equipment, net 50,929 46,651
Goodwill, net 108,432 99,469
Deferred income tax assets, net 258 3,373
Intangible and other assets, net 25,273 12,940
Total assets $430,869 $423,713

LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable and other $57,855 $51,552
Accrued expenses 54,430 61,298
Customer advanced billings
and payments 29,968 35,652
Other taxes payable 1,002 2,478
Total current liabilities 143,255 150,980
Long-term deferred tax liabilities 3,908 3,418
Postretirement benefits and other
long-term liabilities 11,655 9,192
Total liabilities 158,818 163,590

Commitments and contingencies
Minority interest 1,750 1,226
Series B redeemable convertible preferred
stock, $.01 par value; 15,000 shares
authorized, par value; 0 and 9,915 issued
and outstanding (net of issuance costs)
as of March 31, 2008 and December 31, 2007,
respectively -- 9,401

Stockholders' equity:
Preferred stock, $.01 par value; Authorized
5,000,000 shares (of which 500,000 are
designated as Series A and 15,000 are
designated as Series B); no shares issued
and outstanding (except Series B shares
above) -- -- Series A preferred stock, $.01 par value;
500,000 shares authorized; no shares
issued and outstanding -- -- Common stock, $.01 par value; 50,000,000
shares authorized; 19,992,584 and
18,646,778 shares issued and outstanding
as of March 31, 2008 and December 31,
2007, respectively 200 186
Additional paid-in-capital 150,569 140,527
Retained earnings 111,344 101,739
Treasury stock, 0 and 1,168 shares
as of March 31, 2008 and December
31, 2007, respectively -- (59)
Accumulated other comprehensive income 8,188 7,103
Total stockholders' equity 270,301 249,496
Total liabilities, redeemable
convertible preferred stock
and stockholders' equity $430,869 $423,713

NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)

Three Months Ended
March 31,
2008 2007

Revenue:
Products $122,428 $102,035
Services 29,542 25,394
Total revenue $151,970 $127,429
Cost of goods sold and services:
Products $89,856 $77,819
Services 15,739 13,516
Total cost of goods sold and services $105,595 $91,335
Gross profit $46,375 $36,094
Selling, general and administrative expense 27,834 20,378
Depreciation and amortization expense 2,052 1,390
Interest expense 95 143
Interest income (384) (340)
Minority interest 379 61
Loss on unconsolidated investment 35 85
Other, net 1,147 555
Income before income taxes $15,217 $13,822
Income tax provision 5,364 5,045
Net income $9,853 $8,777
Preferred stock dividends 248 375
Net income available to common
stockholders $9,605 $8,402

Earnings per share:
-Basic $0.52 $0.49
-Diluted $0.50 $0.45

Weighted average number of shares
of common stock outstanding
-Basic 18,367 17,199
-Diluted 19,899 19,495

NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED SEGMENT INFORMATION
(in thousands)

Three Months Ended
March 31, December 31,
2008 2007 2007
Revenue:
Integrated Engineered Solutions $54,881 $48,469 $64,857
Standard & Traditional 70,885 57,216 61,271
Automation & Controls 28,243 23,070 32,244
Eliminations (2,039) (1,326) (1,571)
Total revenue $151,970 $127,429 $156,801

Gross profit:
Integrated Engineered Solutions $18,615 $15,225 $23,275
Standard & Traditional 19,977 16,149 13,862
Automation & Controls 7,783 4,720 7,626
Total gross profit $46,375 $36,094 $44,763

Gross profit % of revenue:
Integrated Engineered Solutions 33.9% 31.4% 35.9%
Standard & Traditional 28.2% 28.2% 22.6%
Automation & Controls 27.6% 20.5% 23.7%
Total gross profit % of revenue 30.5% 28.3% 28.5%

Operating expenses:
Integrated Engineered Solutions $10,327 $7,054 $8,509
Standard & Traditional 14,567 10,864 12,390
Automation & Controls 3,354 2,606 2,773
Total operating expenses $28,248 $20,524 $23,672

Segment profit: (1) EBITDA
Integrated Engineered Solutions $8,288 $8,171 $14,766
Standard & Traditional 5,410 5,285 1,472
Automation & Controls 4,429 2,114 4,853
Total segment profit $18,127 $15,570 $21,091

Segment profit % of Revenue
Integrated Engineered Solutions 15.1% 16.9% 22.8%
Standard & Traditional 7.6% 9.2% 2.4%
Automation & Controls 15.7% 9.2% 15.1%
Total segment profit % of Revenue 11.9% 12.2% 13.5%

Bookings:
Integrated Engineered Solutions $79,559 $46,632 $32,103
Standard & Traditional 68,707 61,139 77,471
Automation & Controls 28,117 26,079 27,341
Total bookings $176,383 $133,850 $136,915

As of March 31, As of
December 31,
Backlog: 2008 2007 2007
Integrated Engineered Solutions $120,890 $138,648 $96,163
Standard & Traditional 65,518 64,433 67,009
Automation & Controls 8,629 10,625 7,451
Total backlog $195,037 $213,706 $170,623

(1) The Company allocates corporate and other expenses to each of the
operating segments based on headcount, total assets and revenues.
Included in this allocation for the three months ended, March 31,
2008 is $2.1 million of costs related to a previously announced, and
ongoing, review of certain payments made in a foreign jurisdiction
allocated as follows: $0.8 million to the Integrated Engineered
Solutions segment, $1.0 million to the Standard & Traditional
segment and $0.3 million to the Automation & Controls segment.
Total segment profit is a non-GAAP financial measure that is
reconciled to the Consolidated Income Statement as shown below.
The Company believes that segment profit is one of the primary
drivers and provides a more meaningful presentation for measuring
the liquidity and performance of the Company.

(in thousands)
Three Months Ended
March 31, December 31,
2008 2007 2007
Total segment profit: $18,127 $15,570 $21,091
Depreciation and amortization 2,052 1,390 1,687
Interest expense 95 143 78
Interest income (384) (340) (641)
Other, net 1,147 555 203
Income from continuing operations
before income taxes $15,217 $13,822 $19,764
Income tax provision 5,364 5,045 6,708
Net income $9,853 $8,777 $13,056
Preferred stock dividends 248 375 248
Net income available to common
stockholders $9,605 $8,402 $12,808

First Call Analyst:
FCMN Contact:

Source: NATCO Group Inc.

CONTACT: Andy Smith of NATCO Group Inc., +1-713-849-7796

Web site: http://www.natcogroup.com/

2008-04-30 19:12:14 0349795 PRNEWSWIRE