Standex International Corporation (NYSE:SXI) today reported financial results for the first quarter of fiscal year 2017.
First-Quarter Fiscal 2017 Results
Net sales decreased 9.5% to $179.6 million from $198.4 million in the first quarter of fiscal 2016. Organic sales decreased 8.0%, foreign exchange had a negative effect of 0.7%, acquisitions contributed positive 1.4%, and the U.S. Roll, Plate and Machinery (RPM) divestiture had a negative effect of 2.2% year over year.
Income from operations was $19.8 million, compared with $23.1 million in the first quarter of fiscal 2016. Net income from continuing operations was $14.0 million, or $1.09 per diluted share, including tax-effected $0.3 million of restructuring charges. This compares with first-quarter fiscal 2016 net income from continuing operations of $16.1 million, or $1.26 per diluted share, including tax-effected $1.1 million of restructuring charges. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $14.2 million, or $1.11 per diluted share, compared with $17.2 million, or $1.34 per diluted share in the prior year.
Net working capital (defined as accounts receivable plus inventories less accounts payable) was $146.6 million at the end of the first quarter of fiscal 2017, compared with $148.7 million a year earlier. Working capital turns were 4.9 in the first quarter of fiscal 2017 and 5.3 in the year-earlier quarter.
The Company closed the quarter with a net cash (defined as debt less cash) position of $17.0 million, compared with a net debt position of $9.0 million a year ago.
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.
Management Comments
“First-quarter organic sales were primarily affected by continued softness in refrigeration end markets, as well as a difficult year over year comparison at Engraving for which we reported a record first quarter last year,” said President and Chief Executive Office David Dunbar. “While these factors affected our overall results in the quarter, our focus on operational excellence resulted in margin improvement at our Electronics, Engineering Technologies and Hydraulics segments, as well as at our Cooking Solutions division. Our balance sheet is strong and we ended the quarter with a net cash position of $17.0 million. We have announced a 14.3% increase in our quarterly dividend from $0.14 to $0.16 per share. This is our 209th consecutive quarterly dividend since the Company’s inception”
Segment Review
Food Service Equipment sales decreased 13.6% year-over-year, and operating income was down 32.3%.
“In Refrigeration, sales were lower by nearly 20% in the quarter, as Quick Serve Restaurants, Dollar Store and Drug Retail sales remained sluggish as expected,” said Dunbar. “As a result of these market conditions, we have implemented further profit improvement actions to align the cost structure with the lower demand environment. We anticipate at least one more quarter of headwinds and we believe we are at the trough in the small footprint retail and large, national chain markets. We anticipate that investment spending in the large national chain accounts will increase in calendar 2017, and we are well positioned to compete for these sales. After the close of the quarter we acquired Horizon Scientific to enhance our penetration of the higher margin refrigeration markets represented by the growing scientific, bio-medical and pharmaceutical sectors. We look forward to offering Horizon Scientific’s well respected products and working with its customer base and channel partners to expand sales of our NorLake® Scientific brand into these markets.
“Sales were down approximately 11% in Cooking Solutions, due primarily to a large grocery store rollout in Q1 last year that did not repeat this year, and our ongoing elimination of lower margin commodity products,” said Dunbar. “Despite the sales decline in the quarter, Cooking Solutions delivered higher profits from ongoing operational improvements and the product rationalization efforts.”
Engraving sales decreased 20.3% year-over-year, with 5.5% organic sales decline, a 12.8% negative effect from the RPM divestiture, and a negative foreign exchange impact of 2.0%. Operating income was down 25.3% compared with last year and down 24.8% adjusted without RPM.
“Lower adjusted sales were largely due to a record first quarter of fiscal ’16 as a result of demand that was pushed out from Q4 of fiscal 2015,” said Dunbar. “At the same time, we are encouraged by the progress of our new product offerings, as sales for Nickel Shell, Laser, Weld and Polish, and Architexture services increased versus the prior year. During the quarter, we also completed the sale of the U.S. Roll, Plate and Machinery business, and are now devoting full focus and resources on higher growth and better return businesses. We remain optimistic about Engraving’s prospects and anticipate sales growth in the remainder of the year as we focus on expanding sales in traditional and non-traditional offerings.”
Engineering Technologies sales increased 0.1% year-over-year, and operating income increased 121.7%.
“Sales were flat year-over-year, primarily due to lower demand in the medical and industrial markets, delayed shipments on space programs and delivery pushouts by a major aviation engine supplier. Sales to the oil and gas industry were flat both sequentially and compared to the first quarter of last year,” said Dunbar. “Despite the delivery delays, aviation sales grew 7.6%. Segment operating income increased due to sales mix and margin improvement initiatives. Looking ahead, we are continuing to reposition the business to capitalize on aviation demand and expand capacity to support existing contracts.”
Electronics sales were up 9.5% year-over-year. Organic growth and acquisitions contributed 0.9% and 9.7%, respectively, partially offset by a negative currency effect of 1.1%. Operating income was up 16.6%.
“Electronics sales increased 9.5%, primarily due to the Q2 2016 acquisition of Northlake,” said Dunbar. “Operating margin was strong at 21% due to cost savings activities, improving efficiencies, and favorable product mix. Our legacy business sales were up in Europe, but were partially offset by decreases in North America and Asia. Looking ahead, we are focused on alternate sensor technologies, growth laneways and new business opportunities.”
Hydraulics reported a 1.1% year-over-year sales decrease, while operating income rose 7.7%.
“Sales were down 1.1% year-over-year, primarily due to order softening in the traditional North America dump truck markets,” said Dunbar. “Despite the leveling of growth, our end user markets remain solid due to anticipated infrastructure spending. We are focused on selectively adding distribution partners for key market coverage, exploring hydraulic solution applications and testing new cylinder designs.”
Business Outlook
“As we communicated last quarter, we expect that second quarter Food Service organic sales and earnings will be below prior year levels due to continued headwinds in Refrigeration,” said Dunbar. “Our near-term priority in Food Service is to align the cost structure in Refrigeration to reflect current lower market activity and to integrate Horizon Scientific. We will continue to capitalize on aviation opportunities in Engineering Technologies and drive growth in Engraving, Electronics and Hydraulics. As we look to the future, our balance sheet is well positioned to fund growth, CAPEX and acquisitions as we continue to deploy the Standex Value Creation System.”
Conference Call Details
Standex will host a conference call for investors today, October 28, 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 96111425. 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
In addition to the financial measures prepared in accordance with generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures, including non-GAAP income from operations, non-GAAP net income from continuing operations, free operating cash flow, EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted earnings per share. The attached financial tables reconcile non-GAAP measures used in this press release to the most directly comparable GAAP measures. The Company believes that the use of non-GAAP measures including the impact of restructuring charges, results of assets held for sale, and acquisition costs help investors to obtain a better understanding of our operating results and future prospects, consistent with how management measures and forecasts the Company’s performance, especially when comparing such results to previous periods. An understanding of the impact in a particular quarter of specific restructuring costs, acquisition expenses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Non-GAAP measures should be considered in addition to, and not as a replacement for, the corresponding GAAP measures, and may not be comparable to similarly titled measures reported by other companies.
About Standex
Standex International Corporation is a multi-industry manufacturer in five broad business segments: Food Service Equipment, Engineering Technologies, Engraving, Electronics, and Hydraulics 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 at http://standex.com.
