Headwaters, Inc. (NYSE: HW)announced results for the fourth quarter and fiscal year ended September 30, 2006.
Revenue, operating income, and net income for the September 2006 quarter were down versus the prior year quarter, consistent with expectations, primarily due to the phase-out of Section 45K (formerly Section 29) of the Internal Revenue Code. Headwaters continues the process of transitioning away from its Section 45K business.
Headwaters total revenue for the September 2006 quarter was $275.2 million, down 13% due to the Section 45K phase-out, from $315.1 million reported for the September 2005 quarter.
Operating income decreased 36% to $44.6 million in the September 2006 quarter compared to $70.2 million in the September 2005 quarter. While exceeding the high end of its forecasted range, net income for the September 2006 quarter was $28.0 million or $0.61 of earnings per diluted share, down 38% from the September 2005 quarter of $44.9 million or $0.95 of earnings per diluted share.
Full Fiscal Year 2006
Even with the decline in revenue associated with the phase out of Section 45K, total revenue for the year ended September 30, 2006 was $1.121 billion, up 5% from $1.065 billion reported for the year ended September 30, 2005, reflecting solid growth in its building material businesses.
Operating income decreased 23%, to $181.8 million for fiscal 2006 compared to $236.9 million in the prior year. Net income for the 2006 year was $102.1 million or $2.19 of earnings per diluted share, using 48.6 million weighted-average shares outstanding. Net income for fiscal 2005 was $121.3 million or $2.79 of earnings per diluted share, using 45.1 million weighted-average shares outstanding. The primary driver of decreased operating results for the full fiscal year was the impact of phase-out and a lower contribution from the Company’s Section 45K business.
Consistent with industry trends, revenues from Headwaters’ construction materials segment during the September 2006 quarter were impacted negatively by a downturn in the residential housing market. Revenues for the September 2006 quarter were essentially flat at $149.6 million versus $149.5 million for the September 2005 quarter. Operating margin percentage decreased to 12.9% for the September 2006 quarter compared to 19.6% in the prior year quarter.
Scott K. Sorensen, Headwaters’ Chief Financial Officer, stated, “Our financial performance for the fourth fiscal quarter was impacted by lower oil prices, which improved our Section 45K business, but we also experienced more pressure on our construction materials segment than expected. Since all but one of our Section 45K customers are currently operating, we expect a robust first fiscal quarter in synfuel. In addition, we have deferred license fee revenues which we will recognize when the appropriate certainty is reached. We believe that our earnings for fiscal 2007 should be in the range of $1.60 to $1.80 per diluted share, with $1.00 to $1.05 coming from our ongoing businesses, and $0.60 to $0.75 coming from our synfuel business. If oil prices remain at lower levels into 2007, earnings could be significantly higher than our forecasted range.”
“We are faced with a down cycle in our building materials business, but we believe the downward pressures can be alleviated by introducing new products into our distribution system together with the possibility of achieving manufacturing efficiencies,” said Kirk A. Benson, Chairman and Chief Executive Officer. “In addition, we continue on a path of creating material revenue growth opportunities for fiscal 2008 and beyond as we commercialize our new energy and nanocatalyst technologies.”
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