BLOOMFIELD, Conn.— Kaman Corp. reported financial results for the first fiscal quarter ended April 3, 2020.
Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “I want to start by thanking our employees for their extraordinary efforts during this difficult time, and to re-emphasize our focus on maintaining their health, safety and well-being. Together we demonstrated our commitment to supporting our customers across the broad range of industries we serve. This commitment led to very strong results with first quarter consolidated sales from continuing operations up 24.6% to $207.3 million, which benefited from organic sales* growth across all of our major product categories of 10.5%. In addition to the significant increase in sales, we saw improved profitability over the prior year. During the quarter we recorded a loss per diluted share of $0.01 compared to diluted earnings per share of $0.20 in the prior year period. The loss in the current period is due to a number of significant items, including acquisition and purchase accounting costs for Bal Seal, costs associated with our corporate development activities and restructuring and severance costs. When adjusted, Adjusted diluted earnings per share from continuing operations* was $0.48, a $0.27 increase over the adjusted result in the prior year period.
We began to feel the effects of COVID-19 during March and immediately took actions to implement strategies to minimize the impact on our operations. These included new processes and procedures to ensure safe and continuous production, including social distancing inside of our facilities, the use of appropriate PPE for employees on-site and segregating work groups to enable more effective contact tracing while limiting in facility interactions throughout the workday. We also transitioned to remote work for our office and other non-manufacturing employees. We have been pleased with the way our employees have responded and supported one another and our customers through this transition.
As of today, we have experienced and continue to expect some level of inefficiency as a result of the steps we have taken to respond to COVID-19 and to address the needs of our employees as they and their families navigate through these challenges. Additionally, we will continue to invest in our future and we do not anticipate a meaningful impact to our research and development programs as a result of COVID-19.
Due to the volatility of current market conditions, primarily across commercial aerospace, we have made the decision to withdraw our full year guidance. However we believe our first quarter performance highlights the benefits of our efforts to diversify our products and end markets. Our defense programs contribute approximately 50% of our sales and are expected to remain strong with opportunities emerging for additional growth over the remainder of the year. Commercial aerospace, at approximately 30% of sales, presents the biggest risk to our performance. In this end market our sales split is approximately 80% OEM and 20% aftermarket. We are adjusting our manufacturing plans to meet the expected decline in new commercial aircraft production rates, however, the impact to our aftermarket business is more difficult to predict. The remaining 20% of our sales is primarily focused on the medical and industrial end markets which we anticipate to have pockets of strength and weakness, particularly given the range of customer applications. While the depth and duration of a downturn in these end markets is difficult to predict, we expect them to be less impacted and recover more quickly than commercial aerospace.
Our first quarter performance speaks to the ability of the new Kaman to drive stronger operating results and the ability of our team to execute despite the challenges they faced as the quarter progressed. We were also pleased to complete the acquisition of Bal Seal in January. The first quarter marks our first report with Bal Seal, and the results for the business were in line with our expectations and above the results they posted in the prior year. With the addition of Bal Seal, we have continued to strengthen our portfolio of highly engineered proprietary solutions serving defense, commercial aerospace, medical and industrial end markets, presenting a wide opportunity for growth going forward. This demonstrated strength positions us well for long-term growth and will enable us to better navigate the near-term challenges.”
Chief Financial Officer, Robert D. Starr, commented, “We ended the quarter with a strong balance sheet. In March, as we evaluated the uncertainty associated with the COVID-19 outbreak, we elected to borrow $200 million under our $800 million revolving credit facility. At quarter end, we had available cash on hand of $270 million, significant remaining capacity under our revolving credit facility and no debt maturities until 2024. We will remain focused on maintaining our liquidity and strong balance sheet.
In light of the COVID-19 outbreak we have taken a number of steps to mitigate the potential impact on our business, including adjusting production needs to meet demand, reducing our discretionary spend, reducing salaries across our senior management team, and our non-employee directors have agreed to temporarily reduce their quarterly cash retainer payments.
Free cash flow usage in the quarter was driven by increased inventory spend as we prepare for deliveries over the course of 2020 and an increase in receivables due to the timing of collections. Additionally, we had employee related cash payments, including a $10.0 million pension contribution made in February. As we look ahead, Free Cash Flow* is expected to improve through the balance of the year as we begin to convert working capital build in the first half to cash. In addition, we have reduced discretionary spending and non-essential capital expenditures across the organization; however, we were built on innovation and we will continue to invest in research and development programs to position ourselves to capture market share and accelerate our long-term growth.”
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