Kaman Reports 2013 Second Quarter Results
Kaman Reports 2013 Second Quarter Results
Second Quarter 2013 Highlights:
- Record net sales of $432 million; Diluted earnings per share of $0.67;
- Aerospace delivers strong operating profit performance of 17.8%
- New Zealand SH-2G(I) helicopter contract contributes in Q2
- Sequential sales growth and restructuring drive Distribution operating margin to 5.1%
|Table 1. Summary of Financial Results from continuing operations|
|In thousands except per share amounts||For the three months ended|
|Net (loss) gain on sale of assets||(21||)||8||(29||)|
|Diluted earnings per share from continuing operations||$||0.67||$||0.61||$||0.06|
Neal J. Keating, Chairman, President and Chief Executive Officer, stated, "We achieved strong overall results for the second quarter led by the performance at Aerospace and the sequential improvement in operating profit at Distribution.
Aerospace delivered an operating profit margin of 17.8% for the quarter, due to a favorable product mix led by increased volume for our bearing product lines and a higher level of JPF direct commercial sales. Additionally, we began to record revenue and profit from the sale of the SH-2G(I) aircraft to New Zealand.
Acquisitions drove top line growth in Distribution, offset by a modest decline in organic sales as sluggish market conditions continue to impact select end markets. Distribution operating profit was 5.1% for the second quarter, demonstrating significant sequential improvement over the operating profit of 1.8% in the first quarter, due to the absence of $3.0 million of expense related to our first quarter restructuring, $2.0 million in cost savings resulting from that restructuring and operating leverage from higher sales. Operating margin declined year over year primarily as a result of the impact of lower organic sales volume. For the balance of 2013, we expect sequential sales and operating margin improvement at Distribution.
The sequential improvement we made during the first half provides us confidence that we will deliver a stronger second half. "
Sales increased 6.9% in the second quarter of 2013 to $270.2 million compared to $252.9 million a year ago. Acquisitions contributed $25.2 million in sales in the quarter (sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition). Organic sales per sales day* improved sequentially; however, they decreased 3.1% from the second quarter of 2012. (See Table 3 for additional details regarding the Segment's sales per sales day performance.)
Segment operating income for the second quarter of 2013 was $13.7 million, or 5.1%, compared to $14.2 million, or 5.6%, in the second quarter of 2012. Operating profit margin decreased due to lower organic sales and correspondingly lower rebates. This decrease was partially offset by the contribution of operating income from our 2012 acquisitions and cost savings from our first quarter restructuring.
Sales were $161.5 million, an increase of $14.1 million from sales of $147.4 million in the second quarter of 2012, due to a $15.3 million increase in sales on our military programs which was offset by a $1.2 million decrease in sales of commercial products. The increase in military sales was primarily attributable to a higher volume of shipments to foreign customers under our JPF program, higher bearing product sales and $3.8 million of revenue recognized under the SH-2G(I) contract with New Zealand.
Operating income for the second quarter of 2013 was $28.7 million, compared to operating income of $26.2 million in the second quarter of 2012. The operating margin in this year's second quarter was 17.8%, consistent with the prior year. The segment benefited from higher margin direct commercial sales of the JPF, higher commercial and military bearing product sales and the initial recognition of revenue under the SH-2G(I) program. These increases were offset by the $2.7 million negative impact of adjustments made to our contract margin estimates, lower shipments of the JPF to the USG and an increase in SG&A costs, primarily related to higher research and development expenditures.
We are updating our full-year outlook based on our current expectations for the remainder of the year. Our updated outlook is below:
- Sales of $1,100 million to $1,115 million
- Operating margins of 4.7% to 4.9%
- Sales of $620 million to $635 million
- Operating margins of 16.2% to 16.5%
- Interest expense of approximately $13 million
- Corporate expenses of approximately $49 million
- Estimated annualized tax rate of approximately 35.0%
- Capital expenditures of $40 million to $45 million
- Free cash flow* in the range of $15 million to $20 million
|Free Cash Flow*:|
|Cash flows from operations||$||55.0||to||$||65.0|
|Expenditures for property, plant and equipment||(40.0||)||to||(45.0||)|
|Free Cash Flow||$||15.0||to||$||20.0|
Chief Financial Officer, Robert D. Starr, commented, "We delivered solid results for the second quarter driven by strong performance at Aerospace, resulting from a favorable sales mix. Based on our first half performance, we are able to raise the low end of our full year outlook for operating margin at the segment. At Distribution, we achieved significant sequential improvement in our performance during the quarter and expect to deliver record operating margin performance in the second half. Distribution's full year operating profit margin percentage is expected to come in between 4.7% and 4.9%. Our full year free cash flow is expected to be between $15.0 million and $20.0 million. This reflects an anticipated delay in cash receipts related to a direct commercial sale of the JPF, which we now expect to occur in the first quarter of 2014."
Please see the MD&A section of the Company's SEC Form 10-Q filed concurrent with the issuance of this release for greater detail on our results and various company programs.
A conference call has been scheduled for tomorrow, July 30, 2013, at 8:30 AM ET. Listeners may access the call live by telephone at (877) 415-3177 and from outside the U.S. at (857) 244-7320 (passcode: 36144758); or, over the Internet through a link on the home page of the Company's website at http://www.kaman.com. In its discussion, management may include certain non-GAAP measures related to company performance. If so, a reconciliation of that information to GAAP, if not provided in this release, will be provided in the exhibits to the conference call and will be available through the Internet link provided above.
Table 2. Summary of Segment Information
|For the three months ended||For the six months ended|
|Net gain (loss) on sale of assets||(21||)||8||(100||)||32|
Non-GAAP Measure Disclosure
Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures indicated by an asterisk (*) used in this release or in other disclosures provide important perspectives into the Company's ongoing business performance. The Company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures as follows:
Organic Sales per Sales Day - Organic sales per sales day is defined as GAAP net sales of the Distribution segment less sales derived from acquisitions, divided by the number of sales days in a given period. Sales days are essentially business days that the Company's branch locations are open for business and exclude weekends and holidays. Sales days are provided as part of this release. Management believes organic sales per sales day provides an important perspective on how net sales may be impacted by the number of days the segment is open for business and provides a basis for comparing periods in which the number of sales days differ.
The following table illustrates the calculation of organic sales per sales day using "Net sales: Distribution" from the "Segment and Geographic Information" footnote in the "Notes to Condensed Consolidated Financial Statements" from the Company's Form 10-Q filed with the Securities and Exchange Commission on July 29, 2013. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition. Prior period information is adjusted to reflect acquisition sales for that period as organic sales when calculating organic sales per sales day.
Table 3. Distribution - Organic Sales Per
Sales Day (in thousands, except days)
|For the three months ended||For the six months ended|
|June 28, 2013||June 29, 2012|
June 28, 2013
June 29, 2012
|Net sales: Distribution||$||270,233||$||252,862||$||527,401||$||505,497|
|Acquisition related sales||25,163||—||48,373||—|
|Organic sales per sales day||$||3,829||$||3,951||$||3,772||$||3,949|
Free Cash Flow - Free cash flow is defined as GAAP "Net cash used in operating activities" less "Expenditures for property, plant & equipment." Management believes free cash flow provides an important perspective on the cash available for dividends to shareholders, debt repayment, and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and overall liquidity. The following table illustrates the calculation of free cash flow using "Net cash used in operating activities" and "Expenditures for property, plant & equipment", GAAP measures from the Condensed Consolidated Statements of Cash Flows.
|Table 4. Free Cash Flow (in thousands)|
For the Six
For the Three
For the Three
|June 28, 2013|
March 29, 2013
June 28, 2013
|Net cash used in operating activities||$||(13,407||)||$||(34,562||)||$||21,155|
|Expenditures for property, plant & equipment||(21,267||)||(11,841||)||(9,426||)|
|Free Cash Flow||$||(34,674||)||$||(46,403||)||$||11,729|
Debt to Capitalization Ratio - Debt to capitalization ratio is calculated by dividing debt by capitalization. Debt is defined as GAAP "Notes payable" plus "Current portion of long-term debt" plus "Long-term debt, excluding current portion." Capitalization is defined as Debt plus GAAP "Total shareholders' equity". Management believes that debt to capitalization is a measurement of financial leverage and provides an insight into the financial structure of the Company and its financial strength. The following table illustrates the calculation of debt to capitalization using GAAP measures from the condensed consolidated balance sheets included in this release.
|Table 5. Debt to Capitalization (in thousands)|
|June 28, 2013||December 31, 2012|
|Current portion of long-term debt||10,000||10,000|
|Long-term debt, excluding current portion||285,129||249,585|
|Total shareholders' equity||440,019||420,193|
|Debt to capitalization||40.1||%||38.2||%|
About Kaman Corporation
Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut conducts business in the aerospace and industrial distribution markets. The company produces and/or markets widely used proprietary aircraft bearings and components; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; aerostructure engineering design analysis and FAA certification services; safe and arm solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; and support for the company's SH-2G Super Seasprite maritime helicopters and K-MAX medium-to-heavy lift helicopters. The company is a leading distributor of industrial parts, and operates more than 200 customer service centers and five distribution centers across North America. Kaman offers more than four million items including bearings, mechanical power transmission, electrical, material handling, motion control, fluid power, automation and MRO supplies to customers in virtually every industry. Additionally, Kaman provides engineering, design and support for automation, electrical, linear, hydraulic and pneumatic systems as well as belting and rubber fabrication, customized mechanical services, hose assemblies, repair, fluid analysis and motor management.
This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.
Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements.Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration under the Budget Control Act of 2011, as modified by the enactment of the Taxpayer Relief Act of 2012); (iii) changes in geopolitical conditions in countries where the Company does or intends to do business; (iv) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; (v) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (vi) the conclusion to government inquiries or investigations regarding government programs, including the resolution of the Wichita matter; (vii) risks and uncertainties associated with the successful implementation and ramp up of significant new programs; (viii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (ix) the receipt and successful execution of production orders for the JPF U.S. government contract, including the exercise of all contract options and receipt of orders from allied militaries, as all have been assumed in connection with goodwill impairment evaluations; (x) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory; (xi) the accuracy of current cost estimates associated with environmental remediation activities, including activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; (xii) the profitable integration of acquired businesses into the Company's operations; (xiii) changes in supplier sales or vendor incentive policies; (xiv) the effects of price increases or decreases; (xv) the effects of pension regulations, pension plan assumptions, pension plan asset performance and future contributions; (xvi) future levels of indebtedness and capital expenditures; (xvii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xviii) the effects of currency exchange rates and foreign competition on future operations; (xix) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xx) future repurchases and/or issuances of common stock; and (xxi) other risks and uncertainties set forth in our Annual Report on Form 10-K for the year ended December 31, 2012.
Any forward-looking information provided in this report should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts) (unaudited)
For the Three Months Ended
For the Six Months Ended
|June 28, 2013||June 29, 2012||June 28, 2013||June 29, 2012|
|Cost of sales||
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