Twin Disc ponders more cost reductions as losses continue

Oil and gas improvement needed in near future

Grand Banks' GB60 includes Twin Disc products.

Racine-based Twin Disc Inc. reported a loss for the third straight quarter as weakness in oil and gas markets has reduced demand for the company’s products.

Grand Banks' GB60 includes Twin Disc products.
Grand Banks’ GB60 includes Twin Disc products.

John Batten, Twin Disc president and chief executive officer, said there were some signs the market would pick up, but also cautioned that if it doesn’t happen soon, the company will have to take additional restructuring actions.

“We are planning additional levers,” he said. “If the volume levels were to stay the same, we cannot maintain this cost structure.”

Twin Disc manufactures marine and heavy-duty off-highway power transmission equipment, such as marine transmissions, boat propellers and industrial clutches.

The company previously announced a number of steps to control costs, including pay cuts for executive and hourly employees, eliminations of some salaried positions and temporary layoffs at its Racine facilities.

Batten said the company has received some calls for service but new orders have been limited.

“I do believe we are at or very close to the bottom and we should see growth in the second half of the year,” he said of the oil and gas market, suggesting that growth may come toward the end of the calendar year.

The third quarter of Twin Disc’s fiscal year saw earnings drop more than 130 percent to a loss of $963,000, compared with net income of $2.9 million last year. The company reported a 9 cent loss per diluted share for the quarter, compared with earnings of 26 cents per share last year.

Revenue was $41.4 million in the quarter, down 32 percent from $60.9 million last year.

The decreases were largely driven by reduced demand for oil and gas related products in North America and Asia. The company also experienced weaker demand for its commercial marine products in Asia. While European demand for those products remained weak, North America remained a stable market for them.

The company did experience an increase in its backlog from the end of the second quarter, although it remained below levels from the third quarter of fiscal 2015. The increase was partially the result of increased demand from North America, but also due to a supplier issue.

“Despite the improvement in backlog, we believe many of our markets will remain challenging for the balance of the calendar year as sustained lower oil prices and slowing global economies impact demand,” Batten said.

Twin Disc also announced it had entered into a $40 million revolving credit agreement with Bank of Montreal. The company terminated its agreement with Wells Fargo and paid off more than $11 million in debt.

“We  are  confident  that  this  new  agreement  will  provide  sufficient  financial  flexibility,  allowing  us to  pursue  growth  and productivity initiatives as we work through this difficult business cycle,” said Jeffrey Knutson, chief financial officer.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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