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Standex Reports Second-Quarter Fiscal 2015 Financial Results
February 03, 2015
Second Quarter Fiscal 2015 Results from Continuing Operations
- Net sales increased 13.7% to $189.3 million from $166.5 million in the second quarter of fiscal 2014. Organic sales increased 9.1%, acquisition growth accounted for 6.5% of the increase and foreign exchange had a negative effect of 1.9% year over year.
- Income from operations was $15.9 million, compared with $15.1 million in the second quarter of fiscal 2014. Operating income for the second quarter of fiscal 2015 included pre-tax, $1.1 million of restructuring charges and $0.9 million of purchase accounting related to the step up of inventory from recent acquisitions. The second quarter of fiscal 2014 included pre-tax, $0.6 million of restructuring charges, $2.1 million in non-recurring management transition expenses, and a non-recurring, net gain of $2.0 million associated with insurance proceeds received during the quarter.
- Net income from continuing operations was $11.3 million, or $0.88 per diluted share, including tax-effected $0.8 million of restructuring charges primarily related to plant consolidations, $0.7 million of purchase accounting related to the step up of inventory from recent acquisitions, and $0.2 million in discrete tax benefits. This compares with second quarter fiscal 2014 net income from continuing operations of $10.5 million, or $0.82 per diluted share, including tax-effected $0.5 million of restructuring charges, $1.5 million in non-recurring management transition expenses, and a gain related to insurance proceeds of $1.4 million. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $12.5 million, or $0.97 per diluted share, compared with $11.0 million, or $0.87 per diluted share, in the second quarter of fiscal 2014.
- EBITDA (earnings before interest, income taxes, depreciation and amortization) was $20.3 million, compared with $18.9 million in the second quarter of fiscal 2014. Excluding the previously mentioned items from both periods, adjusted EBITDA for the second quarter of fiscal 2015 was $22.3 million, compared with $19.7 million in the year-earlier quarter.
- Net working capital (defined as accounts receivable plus inventories less accounts payable) was $147.2 million at the end of the second quarter of fiscal 2015, compared with $127.4 million a year earlier. Working capital turns were 5.1 for the second quarter of fiscal 2015. Adjusting for the impact of the Enginetics acquisition, working capital turns were 5.3, compared with 5.2 a year earlier.
- The Company closed the quarter with net debt of $43.3 million, versus net cash of $2.0 million at the end of the second quarter 2014 and net cash of $29.2 million at June 30, 2014. The increase in net debt was primarily due to the acquisition of Enginetics during the first quarter.
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 again in the second quarter, reporting 13.7% overall growth, 9.1% organic growth and an increase in non-GAAP operating income of 12.3%,” said David Dunbar, President and CEO. “We also made good progress on the strategic growth initiatives in each of our businesses.”
Food Service Equipment Group sales increased 12.8% year-over-year, and operating income was down 5.2% or a 3.5% decrease excluding the non-cash impact of purchase accounting expenses related to the Ultrafryer acquisition.
“In Refrigeration, roll outs in the dollar store segment and general market strength throughout our distribution channels drove strong year-over-year sales,” said Dunbar. “In Cooking Solutions, we achieved good top-line growth, even after excluding the acquisition of Ultrafryer. On the bottom line, we reported solid profitability and improved efficiency at Refrigeration. Profitability in Cooking Solutions continues to lag related to supply chain performance. Although we saw improved production and efficiencies in our Nogales, Mexico plant, there are still higher costs related to earlier inefficiencies coming through in premium freight claims and pricing concessions. Our top near-term priority in Food Service continues to be the improvement of our supply chain and production performance at Nogales. We continue to expect this consolidation to generate $4 million of annual cost savings1. In addition, we have restructured our U.K. organization and converted it to a distribution model to reduce channel costs and enhance profitability.
Engraving Group sales decreased 6.2% year-over-year, including a 4.6% effect from foreign exchange, while operating income grew 2.2%.
”At our Mold-Tech operations, automotive roll outs remained strong but lacked the significant growth we experienced last year,” said Dunbar. “We were able to substantially offset this decline through sales generated by our design hub in Manchester, England and the new hub in Detroit, MI that we opened during the second quarter to service North American OEMs. Mold-Tech was strong in China, where we remain optimistic about our long-term potential1. Despite weak roll, plate and machinery sales to both North America and Brazil in the quarter, North American backlog grew as a result of improvement in the construction and consumer markets. Although overall Engraving sales were down year-over-year, profitability in the segment was up 2.2% as we did a good job driving margins and we recorded a greater amount of higher-margin sales to China.”
Engineering Technologies Group sales grew 53.6% year-over-year, and operating income increased 31% or a 63% increase excluding the non-cash impact of purchase accounting expenses related to the Enginetics acquisition.
“Strong sales to space customers in the launch vehicle and defense segments were primarily responsible for a 14.5% organic sales increase,” said Dunbar. “In addition, legacy sales in the aviation segment were up by double digits as development programs moved into the production phase. Sales to the oil and gas market were down significantly. Profitability in Engineering Technologies was up 62.9%, excluding purchase accounting for the Enginetics acquisition, due to volume leverage and margin improvement initiatives across the organization. Looking forward, we expect the oil and gas market to be soft in the foreseeable future and we will take actions to align costs with demand1. At the same time, we are ramping up to support growth opportunities in aviation and plan to begin production on our newest lipskin award by the end of calendar 20151.”
Electronics Products Group sales were up 5.1% year-over-year, while operating income increased 7.9%.
“Growth in Electronics was driven by broad market growth, particularly the transportation sector in North America and the sale of reed-based sensors,” said Dunbar. “In addition to leveraging the top line, plant consolidation in China contributed to the year-over-year operating income growth. We plan to continue efforts to capitalize on the solid new business development process the Electronics group has in place to grow the sensor business and to move up the value chain to provide more complete value-added solutions1.”
The Hydraulics Products Group reported a 39.3% year-over-year sales increase, while operating income rose 37.1%.
“Growth across all of our end markets was due to the recovery in housing, aging equipment and the general economy,” said Dunbar. “The factory expansion to add capacity at our Tianjin, China plant is now complete, which strengthens our global competitive advantage by enabling us to bundle telescopic cylinders from North America with rod cylinders from China. We continue to ship and book orders at record levels at the China plant. Looking ahead, we are working to expand our addressable market in hydraulics by pursuing new opportunities1.”
“Our end markets overall continue to be strong with the primary exception of oil and gas. We have an approximate 5% exposure to this market across all of our businesses. We expect that growth in the automotive and food service equipment markets as a result of lower gas prices could offset some of the negative impact we expect to see from our oil and gas exposure1. The weak euro presents a headwind to our businesses. Though our sales in Europe and China had good momentum in the second quarter, a slowdown in those markets could have an effect in the second half1. As we enter the second half of the fiscal year, we will continue to execute on our planned investments to support increased demand, and we have a strong balance sheet that allows us to pursue both organic and acquisition growth to create shareholder value. We also are focused on increasing our margins and profitability through productivity and efficiency improvements1,” concluded Dunbar.
Conference Call Details
Standex will host a conference call for investors today, February 3, 2015 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. Investors interested in listening to the webcast should log on to the “Investor Relations” section of Standex’s website, located at www.standex.com. The Company's slide show accompanying the webcast audio also can be accessed via its website. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 62384100. The 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 athttps://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 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, 2014, 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.