MFRI Reports A Sixth Consecutive Quarter Of Increased Net Sales.
September 27, 2005
NILES, IL, September 12, 2005 -- MFRI, Inc. (NASDAQ NM: MFRI), a leading manufacturer of custom-designed industrial filtration products, specialty piping systems and industrial process cooling equipment, announced improved sales for the second quarter ended July 31, 2005, but an unfavorable profit comparison mainly due to SOX404-driven expenses throughout the company. For the six months ended July 31, 2005, net sales were up by $6.8 million or 9.5%, but net income was flat with last year also mainly due to the increased spending for SOX related expenses.
Net sales for the quarter were $40,691,000, 6.9% greater than the $38,068,000 reported for the prior-year’s second quarter. Gross margin decreased to 22.6% from 23.5%. Net income for the second quarter was $711,000 or $0.14 per share ($0.13 diluted EPS) versus a $1,369,000 or $0.28 per share ($0.27 diluted EPS) in the prior year’s second quarter.
Sales in the Company’s Piping Systems business increased by 18.2% compared to the prior year’s quarter. Sales for the quarter in the Company’s Industrial Process Cooling Equipment business increased by 4.4%, and sales in the Company’s Filtration Products business decreased by 2.9% over the prior-year quarter. For the quarter, operating profits were down due to increased general administrative expense primarily due to increased accounting staff and the use of professional services consultants for its SOX404 compliance requirement.
Net sales of $76,893,000 for the six months ended July 31, 2005 increased 9.5% from $70,196,000 for the comparable period in 2004. Sales increased in each division due to a better economic environment. Gross margin increased to 22.3% from 21.2% for the six months. Net income for the first half was essentially flat with the prior year at $1,005,000 or $0.19 per share ($0.18 diluted EPS) versus a $1,040,000 or $0.21 per share ($0.21 diluted EPS) in the prior year’s first half despite the incremental expenses of the SOX404 compliance effort. Due to the seasonality of the Company's Piping Systems business, revenues and income are typically higher during the warmer months (second and third quarters), caused by weather conditions over much of North America.
The backlog decreased by $3.8 million or 8.6% to $40.6 million when compared to the end of the prior-year’s quarter. The entire decrease in the backlog occurred in the company’s Piping Systems business which was favorably impacted last year by one large project for an Air Force installation in the Middle East, now completed, and which was not replaced in this year's bookings. Without considering that prior year’s project, the company’s backlog is slightly above last year’s level.
"We are very pleased with our sales for this second quarter and the year-to-date. We believe that the level of backlog in all of our business segments and the many opportunities we see before us bode well for the balance of 2005. The major incremental expenditures towards compliance with the SEC mandated SOX404 provisions, almost $600,000 in the first six months, have surely taken a toll on our Company in both dollars and management time.” David Unger, CEO said. “Assuming that the SEC gives relief on the timing and details of SOX404 compliance requirements for smaller companies such as ours, MFRI plans to sharply decrease its SOX404-related expenses during the second half of 2005. We await these revised rules, which are expected in the near future.” Unger added.
For more information, visit the Company’s web site www.mfri.com.