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Standex Reports Second-Quarter 2016 Financial Results
February 02, 2016
Second Quarter Fiscal 2016 Results from Continuing Operations
- Net sales decreased 3.9% to $181.9 million from $189.3 million in the second quarter of fiscal 2015. Organic sales decreased 2.4%, foreign exchange had a negative effect of 2.5%, and acquisitions contributed positive 1.0% year over year.
- Income from operations was $16.1 million, compared with $15.9 million in the second quarter of fiscal 2015. Net income from continuing operations was $12.4 million, or $0.97 per diluted share, including tax-effected $1.1 million of restructuring charges, $0.3 million of acquisition-related charges, and discrete and other tax benefits of $0.7 million. This compares with second quarter fiscal 2015 net income from continuing operations of $11.3 million, or $0.88 per diluted share, including tax-effected $0.8 million of restructuring charges, $0.7 million of purchase accounting, and $0.2 million in discrete and other tax benefits. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $13.1 million, or $1.02 per diluted share, compared with $12.5 million, or $0.97 per diluted share, in the second quarter of fiscal 2015.
- EBITDA (earnings before interest, income taxes, depreciation and amortization) was $20.7 million, compared with $20.3 million in the second quarter of fiscal 2015. Excluding the previously mentioned items from both periods, adjusted EBITDA for the second quarter of fiscal 2016 was $22.6 million, compared with $22.3 million in the year-earlier quarter.
- Net working capital (defined as accounts receivable plus inventories less accounts payable) was $144.2 million at the end of the second quarter of fiscal 2016, compared with $147.2 million a year earlier. Working capital turns were 5.0 in the second quarter fiscal 2016 and 5.1 in the year-earlier quarter.
- The Company closed the quarter with net debt of $4.7 million, compared with $41.8 million at December 31, 2014 and $5.6 million at June 30, 2015.
- A reconciliation of net income, earnings per share and net income from continuing operations from reported GAAP amounts to non-GAAP amounts is included later in this release.
“We performed well operationally in the second fiscal quarter, reporting margin expansion in four of our five businesses, excluding purchase accounting,” said President and CEO David Dunbar. “Second-quarter revenues were down 3.9% from the prior year to $181.9 million, with foreign exchange having a negative effect of 2.5% and acquisitions contributing positive 1%. Second-quarter adjusted EPS was up 5.2% year-over-year. In the Food Service Equipment Group, our focus continues to be on operational improvement initiatives and lowering material costs. We generated a 7.4% EBIT margin in Q2 in Food Service, up from 7.0% last year, despite a 7.7% decline in sales. Engraving had another record quarter, and we maintained the positive momentum at Electronics and Hydraulics. While Engineering Technologies continued to be affected by the decline in the oil and gas markets, we are making progress in capitalizing on aviation opportunities.”
Food Service Equipment Group sales decreased 7.7% year-over-year, and operating income was down 3.0%.
“Margin improvement continues to be a key area of focus for us within Food Service, and we achieved a 40 basis point increase year over year in Q2,” said Dunbar. “This is even more impressive given the decline in sales, driven primarily by lower volume at Refrigeration. We are encouraged that our operational excellence initiatives are achieving the intended results, both in the short and long-term. With these operational excellence initiatives in place and performance heading in the right direction, the team is currently reviewing its commercial strategic initiatives, ensuring that the business remains aligned with the Standex 2020 Vision.”
Engraving Group sales increased 19.9% year-over-year, partially offset by a 9.9% negative effect from foreign exchange, while operating income was up 25.2%, compared with last year.
“The Engraving Group had another strong quarter, achieving record sales and operating income,” said Dunbar. “Sales growth of 19.9% was primarily driven by a double-digit increase in our Mold Tech business across all of our regions, as demand for automotive molds remain strong. In addition to the strong performance at Mold Tech, sales also increased at our Roll, Plate and Machinery business due to large plate orders. The demand trends and momentum at Engraving are strong and we expect this to continue throughout fiscal 2016.1”
Engineering Technologies Group sales declined 22.2% year-over-year, and operating income decreased 35.0%.
“Organic sales were down 21.7% in constant currency year-over-year, primarily due to lower energy market sales. Sales declines were partially offset by increased sales in aviation,” said Dunbar. “We have put cost reductions in place to offset the lower demand in the oil and gas markets and we have shifted our focus to the aviation market, where we are seeing good demand. We exited Q1 with an operating margin of 3.6%. Sequentially, operating margins have improved to 10.1% in Q2. Looking forward, we anticipate exiting the fourth quarter of 2016 with margin improvements generated from sales and margin growth in aviation and an easier year-over-year comparison in the oil and gas market. 1 Operating margins should be in the mid-teens for Q4.1 We continue to be excited about our Enginetics acquisition and aviation opportunities as we invest capital and install capacity for the ramp up of our long-term awards.1”
Electronics Products Group sales were up 1.9% year-over-year. Acquisitions contributed 7.2%, partially offset by a negative currency effect of 5.2%. Operating income was down 4.5%.
“Electronics sales increased 1.9%, primarily due to the acquisition of Northlake at the beginning of Q2,” said Dunbar. “China and Europe grew, but were offset by softness and continued customer inventory adjustments in North America. Northlake directly supports our Electronics Group strategy to expand our high-reliability magnetics business into adjacent markets, such as medical equipment and power generation, to drive growth and profitability. We remain optimistic about the Electronics business long term.1 Going forward, we are focused on new business opportunities, strategic laneways and market tests aimed at increased volumes.1”
The Hydraulics Products Group reported a 2.7% year-over-year sales increase, while operating income rose 4.6%.
“Sales were up 2.7% year-over-year, primarily related to the dump truck and trailer market, which is tied to the strong North American construction environment,” said Dunbar. “We are gaining share in the U.S. in mobile hydraulic cylinders by having quick turnaround in custom quotations and short delivery times. Looking ahead, we are focused on developing unique custom engineering capabilities to solve customer issues and utilizing our dual production capabilities in North America and China. 1”
“While foreign exchange and the oil and gas market have taken their toll on our results in recent quarters, we are fortunate that our exposure to these areas and to China is relatively low,” said Dunbar. “Moving forward, we’ll continue to exercise caution around currency expectations, the oil and gas markets and regional economic conditions.1 Across the organization we are focused on executing on the four pillars of the Standex Value Creation System to drive performance in the business. These include the balanced performance plan process, the growth disciplines, operational excellence, and talent management. This is a long-term journey, but we are reaping the rewards from these initiatives and look forward to continued success in these areas.1”
Conference Call Details
Standex will host a conference call for investors today, February 2, 2016 at 10:00 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. Interested parties may access the call by dialing (877) 847-6070 in the U.S. and (631) 813-4923 internationally; the passcode is 19890649. The live audio feed of the call, which will be supplemented by a slide presentation, can be accessed in the “Webcasts and Presentations” tab in the “Investors” section of the company’s website, located at: www.standex.com. For those unable to participate in the live conference call, a playback will be available through February 9, 2016. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 19890649. 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
EBITDA, which is "Earnings Before Interest, Taxes, Depreciation and Amortization," non-GAAP income from operations, non-GAAP net income from continuing operations and free cash flow are non-GAAP financial measures and are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.
Standex International Corporation is a multi-industry manufacturer in five broad business segments: Food Service Equipment Group, Engineering Technologies Group, Engraving Group, Electronics Products Group, and Hydraulics Products Group with operations in the United States, Europe, Canada, Australia, Singapore, Mexico, Brazil, Argentina, Turkey, South Africa, India and China. For additional information, visit the Company's website at https://standex.com/.
1 Safe Harbor Language
Statements in this news release include, or may be based upon, management's current expectations, estimates and/or projections about Standex's markets and industries. These statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may materially differ from those indicated by such forward-looking statements as a result of certain risks, uncertainties and assumptions that are difficult to predict. Among the factors that could cause actual results to differ are the impact of implementation of government regulations and programs affecting our businesses, unforeseen legal judgments, fines or settlements, uncertainty in conditions in the financial and banking markets, general domestic and international economy including more specifically economic conditions in the oil and gas market, the impact of foreign exchange, increases in raw material costs, the ability to substitute less expensive alternative raw materials, the heavy construction vehicle market, the ability to continue to successfully implement productivity improvements, increase market share, access new markets, introduce new products, enhance our presence in strategic channels, the successful expansion and automation of manufacturing capabilities and diversification efforts in emerging markets, the ability to continue to achieve cost savings through lean manufacturing, cost reduction activities, and low cost sourcing, effective completion of plant consolidations, successful completion and integration of acquisitions and the other factors discussed in the Annual Report of Standex on Form 10-K for the fiscal year ending June 30, 2015, which is on file with the Securities and Exchange Commission, and any subsequent periodic reports filed by the Company with the Securities and Exchange Commission. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.