Distributors

Kaman Misses Q2 Earnings, Revenue Estimates

BLOOMFIELD, Conn. — Kaman Corp. reported financial results for the second fiscal quarter ended June 28, 2019. During the second quarter, the Company announced the anticipated sale of its Distribution segment to affiliates of Littlejohn & Co., LLC for $700 million in cash, subject to customary closing conditions and working capital adjustments. The Distribution segment results are reported as discontinued operations for all periods in the release.

Table 1. Summary of Financial Results (unaudited)

In thousands except per share amounts

For the Three Months Ended

June 28, 2019

June 29, 2018

Change

Net sales from continuing operations:

Aerospace

$

174,712

$

178,606

$

(3,894

)

Operating income from continuing operations:

Aerospace

$

24,598

$

22,741

$

1,857

% of sales

14.1

%

12.7

%

1.4

%

Net gain on sale of assets

1,528

(1,528

)

Corporate expense

(14,023

)

(17,043

)

3,020

Operating income from continuing operations

$

10,575

$

7,226

$

3,349

Adjusted EBITDA*:

Earnings from continuing operations

$

6,389

$

4,778

$

1,611

Adjustments

10,735

12,807

(2,072

)

Adjusted EBITDA*

$

17,124

$

17,585

$

(461

)

% of sales

9.8

%

9.8

%

%

Earnings per share:

Diluted earnings per share from continuing operations

$

0.23

$

0.17

$

0.06

Adjustments

(0.07

)

0.01

(0.08

)

Adjusted diluted earnings per share from continuing operations*

$

0.16

$

0.18

$

(0.02

)

Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “The second quarter marked an exciting and transformational time for Kaman. During the period, we announced the sale of our Distribution segment, beginning a strategic shift toward focusing on the opportunities to maximize value in our Aerospace business. The divestiture of Distribution remains on track and will provide us significant financial capacity to execute on strategic acquisitions of complementary businesses and organic growth investments.

In our continuing operations, we exit the second quarter with strong sales of $174.7 million, up 5.0% from the first quarter. Sales declined when compared to the second quarter of 2018, due to unfavorable foreign exchange of $1.9 million and the absence of $2.5 million of sales from the Aerospace businesses sold in 2018. Highlighting our performance in the quarter was an 8.2% increase in Aerospace operating profit to $24.6 million, or 14.1% of sales, when compared to the prior year.

We are pleased that through the first six months of 2019 we had record order intake for our specialty bearings and engineered products, supporting our forecasted growth for these products and underscoring the benefits of the investments we continue to make in this business. Also, in July we received authorization from the U.S. Government to begin deliveries under our $324 million JPF DCS contract. We expect to make initial deliveries in September and continue to expect record deliveries of 40,000 to 45,000 fuzes for 2019. Backlog for this program was $427 million at the end of the second quarter and looking ahead we see opportunities to grow backlog through additional sales to foreign militaries and the U.S Government. The expected increase in volume for our JPF DCS and specialty bearing products is expected to lead to higher operating margins in the back half of the year.

During the quarter we continued to make investments to help drive sustained long term organic growth. First, we recently announced the expansion of GRW, our precision bearings operations in Germany. This expansion will allow us to increase capacity to meet the higher forecasted demand, while creating a more efficient layout and increasing the efficiency of our operations. Second, we continue to execute on the development of our K-MAX® unmanned mission management system and we are seeing strong interest from commercial operators for this technology. Lastly, we recently opened our new customer service and delivery center which will support both our K-MAX® and SH-2 Super Seasprite customers. This customer service center includes our brand new K-MAX® flight simulator and consolidates a number of our customer support functions under one roof. These initiatives represent just a sample of the opportunities we have undertaken to drive continued growth in our business.”

Chief Financial Officer, Robert D. Starr, commented, “Through the first six months of 2019 we generated cash flows from continuing operations of $10.9 million. Cash usage in the second quarter was due in part to a buildup of inventory in our Joint Programmable Fuze and self-lubricating bearings products which we expect to deliver in the second half of the year. Sales in the second half of the year are expected to be 20% higher at the mid-point than first half results, leading to expected sales from continuing operations for the full year in the range of $740.0 million to $760.0 million, an increase of $10.0 million in the low end of our previous expectations. The higher volume of JPF DCS and specialty bearing products is expected to contribute to higher operating margins in the second half of the year. As such we expect Aerospace operating margin in the range of 16.7% to 17.2%, a 195 bps increase at the mid-point over our first half performance of 15.0%.

We are progressing towards a third quarter closing of the sale of the Distribution segment. The net proceeds of the sale are expected to be approximately $600 million, after taxes of approximately $75 million and transaction expenses of approximately $25 million to $30 million. Of the approximately $600 million in net proceeds, we will use approximately $100 million to pay down amounts outstanding on our revolving credit facility. We expect to deploy a significant portion of the remaining proceeds toward our acquisition priorities and organic growth initiatives. In addition, we are evaluating the return of capital to shareholders through dividend and share buybacks; however, the scope and timing of these capital return options have not been finalized.”

2019 Outlook

Our revised 2019 outlook for Aerospace performance:

  • Aerospace:
    • Sales of $740.0 million to $760.0 million
    • Operating margins of 16.7% to 17.2%
    • Depreciation and amortization expense of approximately $21.0 million
Tagged with ,

Comment on the story

Your email address will not be published.