Kadant Inc. (NYSE:KAI) reported revenues from continuing operations of $92.4 million in the second quarter of 2008, an increase of $3.3 million, or 4 percent, compared to $89.1 million in the second quarter of 2007. The 2008 period included a $6.1 million, or 7 percent, increase from foreign currency translation and the 2007 period included $0.3 million in revenues from the Casting Products business that was sold in April 2007. Excluding these items, revenues decreased $2.5 million, or 3 percent, in the second quarter of 2008 compared to the 2007 period. Operating income from continuing operations in the 2008 quarter increased 11 percent to $10.1 million versus $9.2 million in the second quarter of 2007. Income from continuing operations (after-tax) was $6.9 million in the second quarter of 2008, or $.50 of diluted earnings per share (EPS), versus income of $5.9 million, or $.42 of diluted EPS, a year ago. Including the discontinued operation, net income in the second quarter of 2008 was $6.9 million, or $.50 per diluted share, versus $4.9 million, or $.35 per diluted share, in the 2007 quarter.

“We had a number of notable achievements in the second quarter,” said William A. Rainville, chairman and chief executive officer of Kadant. “Diluted EPS from our continuing operations was $.50, which exceeded the top end of our guidance by $.07. Operating income in our Papermaking Systems segment set a quarterly record of $14.7 million and represented 16.3 percent of revenues. Within this segment, our fluid-handling product line set another quarterly record, contributing revenues of $28 million, a 31 percent increase over the second quarter of 2007. In addition, cash flows from continuing operations were $4.6 million in the second quarter of 2008, or $7.3 million higher than the second quarter of 2007.

“Nevertheless, the current economic climate leads us to believe that the remainder of 2008 will be more challenging than we previously envisioned, particularly in the market for large stock preparation systems in China and Southeast Asia. Several large projects for stock preparation equipment, on which we had expected to recognize revenue in 2008, have been delayed into 2009, and a few prospective projects have been cancelled, although none were in our backlog. Despite these challenges, we are seeing encouraging developments in Europe and Latin America. For example, we recently received notification that we had been awarded a contract for over $5 million to deliver a system that will produce tissue from recycled fiber in South America.

“With the slowdown of capital equipment business in China, we now expect to report, for the full year, GAAP diluted EPS of $1.65 to $1.70 from continuing operations, revised from our previous estimate of $1.85 to $1.90, on revenues of $365 to $370 million, revised from our previous estimate of $385 to $395 million. For the third quarter of 2008, we expect to report GAAP diluted EPS of $.36 to $.38 from continuing operations on revenues of $86 to $88 million. The third quarter EPS includes a net gain of approximately $.04 primarily from the sale of real estate.”

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenues adjusted to exclude both the results from the sale of our Casting Products business and the effects of foreign currency translation. We believe that the inclusion of such measures helps investors to gain a better understanding of our underlying operations and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

We use non-GAAP financial measures, in addition to GAAP financial measures, as the basis for measuring our underlying operating performance and comparing such performance to that of prior periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release and in the accompanying tables.