BLOOMFIELD, Conn. — Kaman Corp. today reported financial results for the third fiscal quarter ended October 1, 2021.
Ian K. Walsh, Chairman, President and Chief Executive Officer, commented, “We continue to focus on driving improved performance through the deployment of our operations excellence model across all of our businesses, which provides a sustainable foundation to achieve our financial targets. We saw gross margin of 35.1% in the quarter, a strong result which helped drive a sequential increase of $2.8 million in earnings from continuing operations and our third consecutive quarter of sequential Adjusted EBITDA* margin growth to 15.5%.”
“Our solid third quarter results also underscore the benefits we receive from the diversity of our product offerings. During the quarter we saw sequential improvements on sales to Boeing and Airbus, specifically for our bearings products, while continuing to see year-over-year sales growth in our medical and industrial product lines. For the quarter, we generated Net Cash Provided by Operating Activities of $28.8 million, leading to Free Cash Flow* in the period of $25.6 million, giving us a high degree of confidence in our Free Cash Flow* expectations for the full year.”
“We remain committed to driving organic growth through new product development and recently met a number of significant milestones. First, we unveiled our KARGO UAV aerial vehicle, a new purpose built medium-lift autonomous aircraft. Since the unveiling we have received interest from multiple defense and commercial customers, demonstrating the need for this cost-effective cargo hauling system. Second, we continue to expand the utilization of our Titanium Diffusion Hardening solution exploring opportunities across multiple end markets. To-date we have a number of TDH applications on new space platforms and recently we received an award to provide components to a leading eVTOL manufacturer. These achievements speak to our focus on innovation and investment across our organization with a specific focus on growing our highly engineered product offerings.”
Management’s Commentary on Third Quarter Results:
Net sales for the quarter decreased 15.9% when compared to the third quarter of 2020 and 1.4% sequentially. Organic sales*, which excludes sales from our former U.K. composites business, decreased 14.8% from the third quarter of 2020 and 1.4% from the second quarter of 2021. As expected, the decrease from the prior year period was primarily driven by lower Defense sales, given the record JPF sales volume we recorded in the third quarter of 2020. During the third quarter of 2021, we delivered 4,000 fuzes, bringing our total year-to-date deliveries to 20,290 units; and we now expect JPF deliveries for the year to be 28,000 to 30,000 units, slightly below our prior expectations. Given the over-time revenue recognition method related to our USG contract, the reduction in deliveries does not result in a change to our sales expectations for this product. Excluding the JPF sales results and taking into consideration the shift of a K-MAX® aircraft sale to the fourth quarter, Organic sales* would have been up for the remainder of the business as compared to the prior year period.
Sales for our Commercial, Business and General Aviation products increased 8.8% from the second quarter of 2021, with much of the increase relating to bearings product sales to Boeing and Airbus and an increase in engine aftermarket components.
Higher sales volume of our medical devices and implantables and miniature bearings contributed to year-over-year growth in our Medical and Industrial product lines. Sales for our Medical and Industrial products increased 25.6% and 29.4%, respectively, when compared to the third quarter of 2020. We continue to see high order intake for these product offerings and expect strong performance through the remainder of the year.
Gross margin for the period of 35.1% was up 380 basis points over the third quarter of 2020 and 110 basis points sequentially from the second quarter, despite the decrease in net sales. Margin improvement was largely driven by the absence of sales from lower margin programs from our former U.K. composites business and improved performance on our K-MAX® spares and support and on our seals, springs and contacts.
2021 Outlook
We have adjusted our outlook for the remainder of the year, due to the risk associated with a K-MAX® sale shifting into 2022 and lower sales volume for certain aerospace structures programs. We are raising Earnings from continuing operations and Adjusted EBITDA margin* expectations, driven by improved results from our operations excellence initiatives and lower expected sales on lower margin programs. The revised Sales from continuing operations and earnings expectations result in a tighter Diluted EPS range, which aligns with our previously reported outlook. Following solid performance in the third quarter, we are re-affirming our Adjusted Free Cash Flow* guidance for the year.
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