| Table 1. Summary of Financial Results from continuing operations | ||||||||||||||
| In thousands except per share amounts | For the three months ended | |||||||||||||
| June 28, 2013 | June 29, 2012 | $ Change | ||||||||||||
| Net sales: | ||||||||||||||
| Distribution | $ | 270,233 | $ | 252,862 | $ | 17,371 | ||||||||
| Aerospace | 161,492 | 147,364 | 14,128 | |||||||||||
| Net sales | $ | 431,725 | $ | 400,226 | $ | 31,499 | ||||||||
| Operating income: | ||||||||||||||
| Industrial Distribution | $ | 13,669 | $ | 14,166 | $ | (497 | ) | |||||||
| Aerospace | 28,678 | 26,158 | 2,520 | |||||||||||
| Net (loss) gain on sale of assets | (21 | ) | 8 | (29 | ) | |||||||||
| Corporate expense | (11,309 | ) | (12,312 | ) | 1,003 | |||||||||
| Operating income | $ | 31,017 | $ | 28,020 | $ | 2,997 | ||||||||
| 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. "
Distribution Segment
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.
Aerospace Segment
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.
Outlook
We are updating our full-year outlook based on our current expectations for the remainder of the year. Our updated outlook is below:
- Distribution:
- Sales of $1,100 million to $1,115 million
- Operating margins of 4.7% to 4.9%
- Aerospace:
- 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
| 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, "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."
- See more at: http://kaman.com/news/kaman-reports-2013-second-quarter-results/#sthash.cRhSj1u3.dpuf
