Bloomfield, CT - Kaman Corp. reported financial results for the third quarter ended September 27, 2013.
| Table 1. Summary of Financial Results from continuing operations | ||||||||||||
| In thousands except per share amounts | For the three months ended | |||||||||||
| September 27, 2013 | September 28, 2012 | $ Change | ||||||||||
| Net sales: | ||||||||||||
| Distribution | $ | 272,951 | $ | 258,282 | $ | 14,669 | ||||||
| Aerospace | 150,712 | 151,285 | (573 | ) | ||||||||
| Net sales | $ | 423,663 | $ | 409,567 | $ | 14,096 | ||||||
| Operating income: | ||||||||||||
| Industrial Distribution | $ | 14,675 | $ | 12,925 | $ | 1,750 | ||||||
| Aerospace | 27,638 | 24,410 | 3,228 | |||||||||
| Net (loss) gain on sale of assets | — | (53 | ) | 53 | ||||||||
| Corporate expense | (10,892 | ) | (12,419 | ) | 1,527 | |||||||
| Operating income | $ | 31,421 | $ | 24,863 | $ | 6,558 | ||||||
| Diluted earnings per share from continuing operations | $ | 0.68 | $ | 0.55 | $ | 0.13 | ||||||
| Diluted earnings per share from discontinued operations | — | 0.01 | (0.01 | ) | ||||||||
| Diluted earnings per share from disposal of discontinued operations | 0.02 | — | 0.02 | |||||||||
| Diluted earnings per share | $ | 0.70 | $ | 0.56 | $ | 0.14 | ||||||
Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “Broad based strength across Aerospace and improved profit performance at Distribution led to very strong results for our third quarter.
Distribution delivered an operating profit margin of 5.4% in the third quarter, a 30 basis point sequential improvement from 5.1% in the second quarter. While this was slightly below our expectations, due to lower organic growth rates than we had anticipated, we are pleased with the sequential improvement in a challenging industrial environment. During the quarter we saw several encouraging signs, including achieving positive organic growth rates in September for the first time in the past four quarters, and are well positioned to capitalize as organic sales continue to improve.
Aerospace continues to deliver strong operating profit margins. For the third quarter operating profit was 18.3%, up from 17.8% in the second quarter and 16.1% in the prior year. We benefited from the contributions of our various SH-2G helicopter programs and direct commercial sales of the JPF to foreign governments. The increase in operating margin was achieved due to favorable product mix, demonstrating the benefits of the diversity of our portfolio.
Overall, we are very pleased with our results through nine months of the year and believe it highlights the strength of our product diversification and our commitment to improved operational performance across the company."
Distribution Segment
Sales increased 5.7% in the third quarter of 2013 to $273.0 million compared to $258.3 million a year ago. Acquisitions contributed $17.8 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 1.2% from the third quarter of 2012. (See Table 3 for additional details regarding the Segment's sales per sales day performance.)
Segment operating income for the third quarter of 2013 was $14.7 million, or 5.4%, compared to $12.9 million, or 5.0%, in the third quarter of 2012. Operating profit margin increased due to the contribution from the acquisitions we completed in 2012 and 2013, reduced incentive compensation and cost savings from our first quarter restructuring. These increases were offset by lower purchase volume incentives due to the reduced sales noted above and losses on mining contracts at our Mexico operations.
Aerospace Segment
Sales were $150.7 million, a decrease of $0.6 million from sales of $151.3 million in the third quarter of 2012. Sales increased $26.3 million related to higher shipments of our JPF to foreign customers and the recognition of revenue under the SH-2G(I) contract with New Zealand. These increases were offset by a decrease of $26.9 million due to lower JPF shipments to the United States Government ("USG").
Operating income for the third quarter of 2013 was $27.6 million, compared to operating income of $24.4 million in the third quarter of 2012. The operating margin in this year's third quarter was 18.3%, compared to 16.1% in the prior year. The improvement is due to gross profit attributable to the revenue recognized under the SH-2G(I) program and higher commercial and military bearing product sales.
Outlook
Kaman: We are updating our full-year outlook based on our current expectations for the remainder of the year. At Aerospace, we have revised our sales range to $615 million to $620 million from $620 million to $635 million, which reflects routine shifts in the timing of deliveries. The operating margin outlook has been raised to a range of 16.8% to 17.0% from 16.2% to 16.5%, reflecting stronger than expected year to date performance and product mix.
At Distribution, growth rates are not improving as quickly as previously anticipated. As a result we are lowering our sales outlook for the year to $1,070 million to $1,080 million from $1,100 million to $1,115 million. As a result of this lower sales volume and its impact on our rebate income and our ability to leverage our expenses, along with continued uncertainty in Mexico, we expect earnings will be less than previously anticipated in the fourth quarter, resulting in a full year operating margin range of 4.2% to 4.3% rather than our previous outlook of 4.7% to 4.9%.
We now expect corporate expenses to come in at approximately $46.5 million, which is lower than our original estimate of $49 million, and project our full year tax rate will be approximately 34.5%, as compared to our previously reported estimate of 35.0%, reflecting a lower statutory rate in the United Kingdom and favorable items from the filing of our 2012 tax return. We have maintained our outlook for free cash flow for the year.
Our updated outlook is as follows:
- Distribution:
- Sales of $1,070 million to $1,080 million
- Operating margins of 4.2% to 4.3%
- Aerospace:
- Sales of $615 million to $620 million
- Operating margins of 16.8% to 17.0%
- Interest expense of approximately $13 million
- Corporate expenses of approximately $46.5 million
- Estimated annualized tax rate of approximately 34.5%
- Capital expenditures of $40 million to $45 million
- Free cash flow* in the range of $15 million to $20 million
| 2013 Outlook | ||||||||||
| In millions | ||||||||||
| 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, "Third quarter results reflect improved performance at both Distribution and Aerospace. Our expectations for the balance of the year are for continued sales growth at Distribution, albeit at a moderated rate from our previous outlook. Accordingly, we have lowered our operating profit outlook for this segment to 4.2% to 4.3% reflecting the impact of lower anticipated sales on our purchase volume incentives and our ability to leverage operating expenses. We expect Aerospace to continue to deliver strong operating profit performance over the remainder of the year and are raising our full year expectations. We delivered strong cash flow results generating approximately $30 million of free cash flow in the third quarter and are maintaining our outlook for free cash flow for the year."
