Wolverine World Wide reported earnings on an adjusted basis grew 27 percent in the fourth quarter, helped by improving margins and a sharp reduction in operating expenses. Revenues inched up 0.2 percent and benefited from accelerated revenue growth from Merrell and Sperry.
Earnings topped Wall Street’s estimates by 3 cents a share while sales were slightly below expectations. The company also forecast modest gains in earnings and revenues for 2019.
“Our Global Growth Agenda gained momentum in the fourth quarter, with underlying revenue growing 4.6 percent on a constant currency basis. This was the highest quarterly revenue growth of the year driven by our two largest brands Merrell and Sperry,” said Blake Krueger, Wolverine World Wide’s chairman, chief executive officer and president, in a statement. “For the full-year, we achieved attractive underlying revenue growth and our efficient business model allowed us to deliver significant profit leverage including record gross margin and earnings. Looking forward into 2019, we expect to build on this momentum and continue to invest in a variety of initiatives to drive revenue growth and continued earnings leverage.”
Fourth-Quarter 2018 Review
- Reported revenue of $579.6 million increased 0.2 percent during the fourth quarter. Underlying revenue increased 3.8 percent and further adjusting for currency, increased 4.6 percent. The consensus estimate was $581.91 million.
- Reported gross margin was 39.2 percent, as compared to 38.4 percent in the prior year. On an adjusted basis, gross margin expanded 70 basis points compared to the prior year.
- Selling, general & administrative expenses were reduced to $165.5 million from $182.2 million the prior year.
- Reported operating margin was 9.3 percent. Adjusted operating margin was 10.7 percent, a decrease of 30 basis points compared to the prior year.
- The reported tax rate of 4.0 percent in the quarter was favorably impacted by tax reform.
Reported diluted earnings per share was 40 cents, compared to a loss per share of 65 cents in the prior year. Adjusted diluted earnings per share was 52 cents compared to 41 cents in the prior year, an increase of 27 percent. Earnings topped Wall Street’s consensus estimate of 49 cents a share.
- The company repurchased nearly $105 million of shares in the quarter at an average price of $33.35.
- In December, the company refinanced its debt, which combined with the debt reduction during 2018 is expected to result in approximately $2.5 million of interest savings in 2019 and provides greater flexibility for uses of cash.
- During the fourth quarter, the company completed a pension annuity buyout, reducing the company’s defined benefit pension liabilities by approximately $67 million, or 20 percent. The company’s pension plans are essentially fully funded as of December 29, 2018.
Full-Year 2018 Review
- Reported revenue of $2,239.2 million decreased 4.7 percent for the full year. Underlying revenue increased 2.5 percent and further adjusting for currency, increased 2.3 percent.
- Reported gross margin of 41.1 percent was a record for the company and compares to 38.9 percent in the prior year. On an adjusted basis, gross margin expanded 150 basis points compared to the prior year.
- Selling, general & administrative expenses were reduced to $654.1 million from $706 million the prior year.
- Reported operating margin was 11.2 percent, compared to 1.3 percent in the prior year. Adjusted operating margin was 12.0 percent, an increase of 80 basis points compared to the prior year.
The company invested $50 million in growth initiatives for the year, including approximately $41 million included in operating expenses and approximately $9 million of growth-related capital spending.
- Reported diluted earnings per share was a record of $2.05, compared to $0.00 in the prior year. Adjusted diluted earnings per share were $2.17 compared to $1.64 in the prior year, an increase of 32 percent.
- The company generated approximately $98 million in operating cash flow. On an adjusted basis, cash from operations was $235 million excluding the impact of voluntary pension contributions and the wind-down of an accounts receivable financing program.
“We had an excellent finish to the year, including better-than-expected earnings on revenue growth that was in line with our expectations. For the full year, we achieved a 12.0 percent adjusted operating margin, which exceeded our initial stated goal,” stated Mike Stornant, senior vice president and chief financial officer. “We saw solid underlying revenue growth across our portfolio including several of our largest brands. We also deployed our capital during 2018 in an efficient manner by returning $204 million to shareholders in the form of share repurchases and dividends, reducing debt by $212 million, and making $60 million of discretionary contributions to bring our defined benefit pension plans to essentially fully-funded status. As we look forward into 2019, we remain committed to our strategy of investing in organic growth, making strategic acquisitions and continuing to focus on deploying capital to enhance shareholder value, including a new four-year Board authorization to repurchase up to $400 million of common shares and a 25 percent increase in our quarterly dividend.”
The company is providing its initial revenue and earnings outlook for the full year, which is summarized below.
- Revenue is expected to be in the range of $2.28 billion to $2.33 billion, representing growth of 3.0 percent at the mid-point of the range.
- Gross margin is expected to be in the range of 41.3 percent to 41.8 percent, up 45 basis points at the mid-point of the range.
- Reported operating margin is expected to be in the range of 11.4 percent to 11.8 percent and adjusted operating margin in the range of 12.2 percent to 12.6 percent, including $40 million of on-going investments to support the company’s Global Growth Agenda.
- The effective tax rate is expected to be approximately 19.0 percent.
- Diluted weighted average shares are expected to be approximately 93 million.
- Reported diluted earnings per share are expected to be between $2.03 to $2.18 and adjusted diluted earnings per share are expected to be between $2.20 to $2.35.
- Cash flow from operations is projected to be in the range of $200 million to $220 million.
Wolverine World Wide includes: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Chaco, Bates, HYTEST, and Soft Style. The company also is the global footwear licensee of the popular brands Cat and Harley-Davidson.
Image courtesy Merrell