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Standex Reports Fourth Quarter 2019 Financial Results
August 27, 2019
To view this release online and get more information about Standex Investor Relations visit: https://ir.standex.com/2019-
Standex Reports Fourth Quarter 2019 Financial Results
- Continued Strength in Engineering Technologies, Hydraulics and Scientific
- Positive Cash Flow Trends Reflect Success of Working Capital Initiatives
- Growth Laneway Sales Increased 61% year-over-year in Fiscal 2019
- Restructuring Savings on Target for $3.8 million; Active Pipeline of Additional Efficiency Projects
SALEM, N.H., Aug. 26, 2019 /PRNewswire/ -- Standex International Corporation (NYSE: SXI) today reported financial results for the fourth quarter of fiscal year 2019 ending June 30, 2019.
|Summary Financial Results - Total Standex|
|($M except EPS and Dividends)||4Q19||4Q18||Change|
|Net Income from Continuing Ops||$13.1||$11.3||16.3%|
|EBITDA margin||13.5%||15.8%||-230 bps|
|Adjusted EBITDA margin||14.4%||16.8%||-240 bps|
|Dividends per share||0.20||0.18||11.1%|
|Free Cash Flow||$31.7||$34.0||-6.8%|
|Net Debt to Adjusted EBITDA||0.9x||0.7x||28.6%|
|*Fourth quarter of fiscal 2018 results have been adjusted to reflect the disposition of the Cooking Solutions Group on April 1, 2019.|
Fourth Quarter Fiscal 2019 Results
"Fourth quarter results were in line with our expectations as performance in Engineering Technologies, Hydraulics and Scientific remained strong. While macro-economic headwinds continued to impact results in Engraving and Electronics, we are effectively managing costs, our restructuring efforts are on plan and we delivered solid free cash flow," commented President and Chief Executive Officer David Dunbar.
"Despite challenges in some of our end markets, we continued to make significant progress in the quarter and fiscal year in regard to our strategic priorities and we are well-positioned to further execute on our transformation and long-term goals for growth and profitability.
"From a growth perspective, our targeted investments are paying off with growth laneways increasing 61% year-over-year in fiscal 2019 to $58 million and the positive repositioning of Engineering Technologies as evidenced by its results. The recent GS Engineering acquisition and successful divestiture of the Cooking Solutions business furthered our portfolio reshaping toward building our higher margin growth businesses into significant platforms. The restructuring plan we began to implement in the third quarter is on track to achieve $3.8 million in annual savings by 2Q20. We have also identified a significant number of additional productivity projects that we plan to implement in fiscal 2020.
"In addition, our financial position is strong with net debt to Adjusted EBITDA of under 1x and $253 million in available liquidity. While we will remain disciplined and balanced with respect to capital allocation, our financial flexibility positions us well to invest both in high return internal projects and our active acquisition pipeline," said Dunbar.
"As we enter fiscal 2020, we expect a sequential decline in the first quarter due to continued challenges in some of our markets followed by improved year-over-year performance in our fiscal second quarter. We expect to benefit from scheduled platform rollouts in the automotive OEM market, a very strong funnel of new business opportunities in Electronics and continued growth in Engineering Technologies and Hydraulics. These improvements will be complemented by the completion of the cost restructuring we announced in 3Q19 as well as additional efficiency projects that we have identified," concluded Dunbar.
Fourth Quarter Segment Operating Performance
Engraving (18% of sales; 18% of segment operating income)
|Engraving ($M)||4Q19||4Q18||% Change|
|Adj. Operating Income*||5.3||7.9||-32.9%|
|Adj. Operating Margin*||13.9%||22.0%|
|* FY19 excludes $0.2 million of purchase accounting expenses|
Overall sales grew 6.3% with contributions from recent acquisitions overcoming an organic decline of 4% and negative impact of foreign currency of 5%. End market weakness from a lower level of new automotive model introductions compressed margins in our core business as well as those in our recent acquisitions. Adjusted operating income decreased by $2.6 million year-on-year primarily due to the lower level of new roll-outs in the automotive sector, acquisition integration related costs, and tariff-related impact on the segment's China production facilities.
In fiscal 2020, Standex expects Engraving end markets to strengthen as new global automotive model roll-outs ramp combined with contribution from the recent GS Engineering acquisition. In addition, previously announced restructuring actions are on track to deliver annualized savings of $2.7 million by 2Q20.
Electronics (24% of sales; 30% of segment operating income)
|Electronics ($M)||4Q19||4Q18||% Change|
The 4.8% decline in sales was primarily due to lower demand in the automotive market, impact of China tariffs and distributor inventory destocking. These trends were partially offset by contribution from the Agile acquisition. Operating income for the period decreased by 37.0% from the fourth quarter of fiscal 2018 as a result of the lower sales volume, material inflation and the impact of tariffs. During the quarter, the Electronics business delivered first shipments from its new India facility. This site provides the business with a cost competitive manufacturing alternative and the ability to accelerate new business growth.
The Company expects Electronics sales volume to decline sequentially in the first half of fiscal year 2020 due to the factors that affected the fourth quarter's results followed by a modest recovery in the second half of the fiscal year. The segment also has a record level of new business opportunities, some of which have already been awarded, which will ramp during fiscal 2020. In addition, cost saving initiatives regarding G&A reduction, increased productivity and reduced material spend will approximate $1.1 million on an annual basis by 2Q20.
Engineering Technologies (16% of sales; 16% of segment operating income)
|Engineering ($M)||4Q19||4Q18||% Change|
Engineering Technologies revenue grew 33.0% over 4Q18 with broad-based strength across end markets including Aviation, Space, Defense and Energy. The Company's long-term investments to support new aviation platforms are paying off as these platforms ramp to full production volume. Operating income grew 72.6% year-over-year as the segment leveraged both the volume growth and continued productivity improvements in manufacturing processes.
In fiscal 2020, Standex expects continued growth and improved margins as aviation-related programs continue to ramp to higher production rates as well as favorable trends in Space and Defense.
Hydraulics (7% of sales; 11% of segment operating income)
|Hydraulics ($M)||4Q19||4Q18||% Change|
Sales for the Hydraulics segment increased 7.5% year-over-year due to strong OEM demand, particularly in the North American refuse market, as well as new product application offerings for vacuum trucks, sweepers and hydro-excavators. Income from operations gained 38.8% year-over-year due to higher sales and cost structure efficiencies.
The Company expects Hydraulics' end market demand to remain positive due to project opportunities in the construction and infrastructure markets as well as the potential for market share gains in the refuse market.
Food Service Equipment (35% of sales; 25% of segment operating income)
|Food Service ($M)||4Q19||4Q18||% Change|
The 4.3% decline in sales reflected lower sales in Refrigeration, Pumps and Merchandising businesses partially offset by growth in Scientific sales led by demand in clinical and drug retail markets. The 11.3% decrease in operating income reflected deleverage on lower volume in Refrigeration again partially offset by strength in Scientific.
As previously reported, a fire destroyed a Refrigeration Group warehouse in late June. There was approximately $7 million of damage to the Company's finished goods and approximately $1 million related to ancillary handling equipment. The Company has insurance coverage associated with the damage to the inventory and equipment.
The Company anticipates that Refrigeration Group sales will be lower in the first half of fiscal year 2020 as finished goods inventory levels are rebuilt in order to meet customer demand. In addition, Standex will continue to pursue productivity improvements to address the current market conditions and expects strength in Scientific and Merchandising sales in FY20.
- Share Repurchase: During 4Q19, the Company repurchased approximately 202,000 shares for $14 million or an average price per share of $69.95. In fiscal 2019, Standex repurchased approximately 437,900 shares for $33.4 million. There is approximately $53 million remaining under the Board's current repurchase authorization.
- Capital Expenditures: In fiscal 2019 Standex's capital expenditures were $34.4 million compared to the prior expectation of between $35 million to $36 million in fiscal 2019. The Company expects fiscal 2020 capital spending to be between approximately $33 million - $34 million.
- Dividends: On July 25, the Company declared a quarterly cash dividend of $0.20 per share, which was payable August 23, 2019 to shareholders of record August 9, 2019.
Balance Sheet and Cash Flow Highlights
- Net Debt: Standex had net debt of $104.5 million at June 30, 2019 compared to $84.2 million for the same period a year ago. Net debt consisted primarily of long-term debt of $197.6 million and cash and equivalents of $93.1 million of which $86.2 million was held by foreign subsidiaries. In fiscal 2019, Standex repatriated $51.5 million from foreign subsidiaries. The Company's net debt to Adjusted EBITDA leverage ratio was 0.92x at the end of fiscal 2019.
- Cash Flow: Net cash provided by continuing operating activities for the three months ended June 30, 2019 was $48.2 million compared to net cash provided by continuing operating activities of $33.5 million in the prior year. Cash provided by operating activities reflected improved working capital management driven by decreases in accounts receivable due to focused collection efforts and improved inventory turns and accounts payable management.
Cash capital expenditures were approximately $16.5 million compared to $5.1 million in 4Q18. As a result, the Company generated free cash flow of $31.7 million compared to free cash flow of $34.0 million in 4Q18. Free cash flow as a percentage of adjusted net income was 241.5% compared to 193.4% in 4Q18.
Conference Call Details
Standex will host a conference call for investors tomorrow, August 27, 2019 at 8:30 a.m. ET. On the call, David Dunbar, President and CEO, and Thomas DeByle, CFO, will review the Company's financial results and business and operating highlights. Investors interested in listening to the webcast and viewing the slide presentation should log on to the "Investors" section of Standex's website under the subheading, "Events and Presentations", located at www.standex.com.
A replay of the webcast will also be available on the Company's website shortly after the conclusion of the presentation online through August 27, 2020. To listen to the teleconference playback, please dial (877) 344-7529 in the U.S. or (412) 317-0088 internationally; the passcode is 10134405. The audio playback via phone will be available through September 3, 2019. The webcast replay also can be accessed in the "Investor Relations" section of the Company's website, located at www.standex.com.
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures, including non-GAAP adjusted income from operations, non-GAAP adjusted net income from continuing operations, free operating cash flow, EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted EBITDA, adjusted EBITDA to net debt, and adjusted earnings per share. The attached financial tables reconcile non-GAAP measures used in this press release to the most directly comparable GAAP measures. The Company believes that the use of non-GAAP measures including the impact of restructuring charges, purchase accounting, property insurance deductibles, discrete tax events, and acquisition costs help investors to obtain a better understanding of our operating results and prospects, consistent with how management measures and forecasts the Company's performance, especially when comparing such results to previous periods. An understanding of the impact in a particular quarter of specific restructuring costs, acquisition expenses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Non-GAAP measures should be considered in addition to, and not as a replacement for, the corresponding GAAP measures, and may not be comparable to similarly titled measures reported by other companies.
Standex International Corporation is a multi-industry manufacturer in five broad business segments: Engraving, Electronics, Engineering Technologies, Hydraulics, and Food Service Equipment with operations in the United States, Europe, Canada, Japan, Singapore, Mexico, Brazil, Turkey, South Africa, India and China. For additional information, visit the Company's website at https://standex.com/.
|Standex International Corporation|
|Consolidated Statement of Operations|
|Three Months Ended||Year Ended|
|June 30,||June 30,|
|(In thousands, except per share data)||2019||2018||2019||2018|
|Cost of sales||139,117||128,967||523,519||500,850|