MSA Safety Incorporated — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 16, 2024. This annual filing also reports fourth-quarter results. MSA sells safety equipment and connected safety solutions across Firefighter Safety, Detection, and Industrial PPE. Its reportable segments are Americas, International, and Corporate.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $1,787.6 million | $1,528.0 million |
| Gross profit / margin | $852.1 million / 47.7% | $673.8 million / 44.1% |
| Operating income (GAAP) | $231.3 million | $239.1 million |
| Net income | $58.6 million | $179.6 million |
| Diluted EPS | $1.48 | $4.56 |
| Operating cash flow | $92.9 million | $157.5 million |
- Sales rose 17.0% as reported and 16.1% on a constant-currency basis. Americas sales increased 18.4%; International sales increased 13.9%.
- Gross margin improved 3.6 percentage points, attributed to volume leverage, pricing and cost management, favorable mix, and productivity.
- Non-GAAP adjusted operating income increased to $397.7 million from $290.4 million; adjusted EBITDA increased to $449.2 million from $337.5 million. These measures exclude specified items, including restructuring, currency losses, acquisition-related amortization, and the divestiture loss.
- Cash and cash equivalents were $146.4 million; cash, cash equivalents, and restricted cash totaled $148.4 million at year-end. The $16.0 million decline in the latter balance included the $341.2 million cash contribution for the MSA LLC divestiture, partly offset by improved working capital, notably lower inventories.
- Long-term debt, including current maturities, was $601.7 million. The company reported $838.1 million of unused capacity under its $900 million revolving facility. About 52% of long-term debt was fixed-rate; variable-rate borrowings were $292.1 million. MSA reported compliance with debt covenants.
- Capital expenditures were $42.8 million. Cash dividends paid were $73.5 million; dividends per common share were $1.87, versus $1.82 in 2022.
Fourth-quarter results
Q4 2023 net sales were $495.4 million, gross profit was $238.2 million, net income was $76.4 million, and diluted EPS was $1.93. For Q4 2022, the corresponding figures were $443.3 million, $197.3 million, $51.5 million, and $1.31.
Material changes and unusual items
- On January 5, 2023, MSA divested MSA LLC, which held legacy cumulative-trauma product-liability claims. MSA contributed $341.2 million in cash; the buyer joint venture contributed a further $35.0 million. MSA derecognized the subsidiary’s related reserves, insurance assets, and deferred tax assets.
- The divestiture generated a $129.2 million pretax loss and a $199.6 million tax-effected loss. The nondeductible loss was the primary reason the reported effective tax rate rose to 71.6% from 24.7%, materially reducing reported net income and EPS despite strong sales and gross-profit growth.
- Interest expense increased to $46.7 million from $21.7 million, reflecting higher rates and debt associated with the divestiture. MSA paid down $289.0 million of borrowings after the transaction and forecast approximately $40 million of interest expense for 2024.
- Restructuring charges were $9.9 million, versus $8.0 million; 152 positions were eliminated in 2023. Currency-exchange losses were $17.1 million, versus $10.3 million.
Outlook, commentary, and risks
- Management expected mid-single-digit sales growth in 2024, with incremental margin and cash-flow conversion aligned with its long-term targets. It noted better visibility in the first half and said it would remain agile if conditions differed from expectations.
- Management identified supply-chain constraints, raw-material availability, industrial employment, interest rates, military conflict, foreign-exchange volatility, economic recovery, and geopolitical risk as factors that could affect the outlook. MSA also reported extended lead times and constrained supply for certain industrial electronic components, though it said it had navigated these challenges without significant raw-material shortages.
- Globe, an MSA subsidiary, faced approximately 467 lawsuits comprising about 10,578 claims, plus a putative class action, concerning PFAS in certain firefighter turnout-gear fabrics as of February 7, 2024. The matters were at an early stage; Globe said it believed it had valid defenses and was pursuing insurance coverage and indemnification. The filing does not provide a clear estimate of potential losses.
- Although MSA says it has no continuing obligation for MSA LLC’s transferred legacy cumulative-trauma claims, it identifies counterparty and indemnity-enforcement risks, and says it remains responsible for product claims not transferred. It also faces ordinary product-liability and warranty exposure.
- Other material risks include product safety or recall claims, regulatory and environmental changes, cybersecurity and third-party risks, international and currency exposure, competition, acquisition integration, pension assumptions, and debt service and interest-rate exposure. MSA reported no known material cyber breach or loss to date.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of year-end.
Key facts for investors to verify
- Review the MSA LLC sale agreements, indemnities, and counterparty capacity to honor them; distinguish transferred legacy claims from liabilities retained by MSA and the separate PFAS litigation.
- Assess the quality and recurrence of earnings by reconciling GAAP results with adjusted measures and isolating the divestiture-related loss and unusually high tax rate.
- Track 2024 sales growth, margins, cash conversion, and management’s stated long-term targets against the mid-single-digit growth outlook.
- Monitor debt balances, the 2026 revolving-facility and term-loan maturities, variable-rate exposure, and expected interest expense.
- Evaluate whether PFAS claims, product-liability matters, and related insurance or indemnification recoveries could result in material costs not clearly quantified in this filing.