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Standex Reports Third-Quarter 2016 Financial Results
May 03, 2016
Third-Quarter Fiscal 2016 Results from Continuing Operations
- Net sales decreased 2.0% to $177.5 million from $181.0 million in the third quarter of fiscal 2015. Organic sales decreased 2.0%, foreign exchange had a negative effect of 1.4%, and acquisitions contributed positive 1.4% year over year.
- Income from operations was $17.2 million, compared with $17.8 million in the third quarter of fiscal 2015.Net income from continuing operations was $11.6 million, or $0.91 per diluted share, including tax-effected $0.3 million of restructuring charges. This compares with third-quarter fiscal 2015 net income from continuing operations of $12.8 million, or $1.00 per diluted share, including tax-effected $0.3 million of restructuring charges. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $11.9 million, or $0.93 per diluted share, compared with $13.1 million, or $1.02 per diluted share, in the third quarter of fiscal 2015.
- EBITDA (earnings before interest, income taxes, depreciation and amortization) was $21.6 million, compared with $22.2 million in the third quarter of fiscal 2015. Excluding the previously mentioned restructuring charges from both periods, adjusted EBITDA for the third quarter of fiscal 2016 was $21.9 million, compared with $22.6 million in the year-earlier quarter.
- Net working capital (defined as accounts receivable plus inventories less accounts payable) was $144.6 million at the end of the third quarter of fiscal 2016, compared with $149.5 million a year earlier. Working capital turns were 4.9 in the third quarter of fiscal 2016 and 4.8 in the prior year.
- The Company closed the quarter with a net cash position of $7.4 million, compared with a net debt position of $44.4 million a year ago.
“We continued to make good progress operationally during the quarter as we faced challenges to the top line in certain of our end markets,” said President and CEO David Dunbar. “Third-quarter non-GAAP operating income was down 3.7% year-over-year on a 2.0% revenue decline. Significant operating income gains in the Food Service Equipment Group did not fully offset a decline in Engineering Technologies operating income as a result of the oil and gas downturn and the impact of planned growth investments in Engraving. We generated a 9.6% Food Service operating margin in Q3, up from 7.0% last year, despite a 3.4% decline in sales. Engraving had another great quarter on the top line as we invested in technology to drive future growth, and Electronics and Hydraulics continued to perform well. The repositioning of Engineering Technologies is progressing well as we ramp up capacity to capitalize on aviation growth opportunities.”
Food Service Equipment Group sales decreased 3.4% year-over-year, and operating income was up 32.0%.
“Our focus on margin improvement resulted in a significant increase in year-over-year Food Service Equipment operating income,” said Dunbar. “Operating income margins increased 260 basis points to 9.6% on a sales decrease of 3.4% from Q3 last year. The decrease in sales was driven primarily by lower Refrigeration sales as well as ongoing actions to eliminate less profitable products. With our operational excellence initiatives in place and demonstrating positive early results, the team is advancing its commercial strategic initiatives -- focusing on technological enhancements to our product lines, expansion into attractive market adjacencies and improving sales force structure and incentives. However, we anticipate top-line performance challenges to continue in the Refrigeration group in the near term.”
Engraving Group sales increased 6.2% year-over-year, with 11.6% organic growth partially offset by a 5.4% negative effect from foreign exchange. Operating income was down 7.9% compared with last year due to planned growth investments.
“Engraving Group sales increases were primarily driven by our Mold-Tech locations in Europe and China, as demand for automotive molds remain strong,” said Dunbar. “As a result of our planned investments in laser and nickel shell technologies and design services to meet demand and market trends, operating income margins declined 280 basis points to 18.6%. While we have begun to see softness in some of our Asian markets, we remain optimistic about our near term potential for global Mold-Tech sales growth.”
Engineering Technologies Group sales declined 21.3% year-over-year, and operating income decreased 52.3%.
“Organic sales were down 20.7% year-over-year, primarily due to significantly lower demand in the oil and gas markets, as well as contract timing in the space industry,” said Dunbar. “This was partially offset by increased sales in aviation. Demand in aviation continues to grow and we are creating the capacity to fulfill customer needs. Construction of our Aluminum Center of Excellence in Wisconsin is on track and we expect to be in production at that facility in June.
We anticipate improvement in year-over-year fourth-quarter margins due to improvements from higher sales and margin growth in aviation and an easier year-over-year comparison in the oil and gas market.”
Electronics Products Group sales were up 6.8% year-over-year. Acquisitions contributed 8.9%, partially offset by a negative currency effect of 2.3%. Operating income was down 0.7%.
“Electronics sales increased 6.8% due to the Q2 2016 acquisition of Northlake as well as program launches in Europe, partially offset by softness in Asia and North America and the effect of foreign exchange rate,” said Dunbar. “Operating income was nearly flat to prior year results. We continue to see increasing opportunities in sensors and expect our new sensor programs will drive growth in fiscal year 2017.”
The Hydraulics Products Group reported a 12.0% year-over-year sales increase, while operating income rose 16.5%.
“Sales were up 12.0% year-over-year, primarily due to the continued strengthening in our traditional North American dump truck and trailer markets, which is tied to the strong North American construction environment,” said Dunbar. “Our customers are optimistic that the passage of the new five-year highway bill could provide further growth opportunities. We continue to capture new OEM platforms in the refuse space and we are focused on entering new markets, such as airline support equipment. March was a record month for cylinder production and we are enhancing our capacity in China in order to meet increased demand in the fourth quarter and into fiscal 2017.”
“Our fourth-quarter focus will be to continue our operational excellence and top-line initiatives, as we seek to finish the year strong. Across the organization we will be aggressively 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.”
The Company today also is announcing that its Board of Directors has authorized a revision to its share repurchase program under which the Company may now repurchase up to an aggregate of $100 million of its outstanding common stock. Commenting on the Board’s authorization, Mr. Dunbar stated, “To date, we have used our stock repurchase program primarily to offset dilution caused by employee stock issuances. This revision provides the Company with the ability to make opportunistic share repurchases, is consistent with our disciplined capital allocation strategy and reflects the Board’s confidence in Standex’s ability to enhance shareholder value.” Under the program, purchases may be made from time to time on the open market, including through 10b5-1 trading plans, or through privately negotiated transactions, block transactions, or other techniques in accordance with prevailing market conditions and the requirements of the Securities and Exchange Commission. The Board’s authorization is open-ended and does not establish a timeframe for the purchases. The Company is not obligated to acquire a particular number of shares, and the program may be discontinued at any time at the Company’s discretion.
Conference Call Details
Standex will host a conference call for investors today, May 3, 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. 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, "Webcasts and Presentations", located at www.standex.com. A replay of the webcast will also be available on the Company’s web site shortly after the conclusion of the presentation. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 87927611. 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, South Korea 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, aerospace market, retail food and beverage market, and automotive and heavy construction vehicle markets, the impact of foreign exchange, increases in raw material costs, the ability to substitute less expensive alternative raw materials, 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.