Kaman Q1 Results

Kaman Corporation today reported financial results for the first quarter, which ended March 28, 2014.

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Apr 28, 2014--Kaman Corp. (NYSE:KAMN) today reported financial results for the first quarter ended March 28, 2014.

 Table 1. Summary of Financial Results        
 In thousands except per share amounts For the three months ended
   March 28,
 March 29,
 Net sales:         
 Distribution $264,870  $257,168  $7,702 
 Aerospace 149,062  130,907  18,155 
 Net sales $413,932  $388,075  $25,857 
 Operating income:       
 Distribution $11,135  $4,630  $6,505 
 Aerospace 22,021  20,911  1,110 
 Net (loss) gain on sale of assets (111) (79) (32)
 Corporate expense (12,056) (11,695) (361)
 Operating income $20,989  $13,767  $7,222 
 Adjusted EBITDA*:         
 Distribution $14,120  $7,501  $6,619 
 Aerospace 25,805  24,551  1,254 
 Net (loss) gain on sale of assets (111) (79) (32)
 Corporate expense (10,613) (10,570) (43)
 Adjusted EBITDA $29,201  $21,403  $7,798 
 Diluted earnings per share $0.42  $0.26  $0.16 

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “We began 2014 on a positive note, with revenue growth of 6.7% and improved margins driving a 52.5% increase in operating income. Momentum in the first quarter was led by solid execution at Aerospace, coupled with continued organic growth and substantial margin improvement at Distribution.

Aerospace continued its strong performance, with our specialty bearing products posting a solid quarter combined with margin contributions from our New Zealand SH-2G(I) helicopter and JPF programs. Of note, we received $52.4 million of JPF orders, increasing our program backlog to $131 million, and during April, we conducted our first test flight of a reconfigured SH-2G(I) aircraft, a significant milestone as we get closer to our first aircraft delivery later this year.

Distribution results for the quarter were encouraging, as organic sales per sales day increased 1.9%, despite adverse weather conditions in January and February. Excluding restructuring costs incurred in the prior year, operating margin improved more than 120 basis points, driven by operating leverage associated with positive organic growth and costs savings from our 2013 restructuring.

Finally, we completed the previously announced acquisition of selected assets of B.W. Rogers last week. Including the acquisition, Kaman is now one of the largest Parker distributors in North America, with more than 40 locations broadly authorized to distribute Parker product directly, with another 200 locations authorized through our national reseller agreement."

Distribution Segment

Table 2. Summary of Distribution Segment Information (in thousands)         
  For the three months ended
  March 28,
 March 29,
Net sales $264,870  $257,168  $7,702 
Operating income $11,135  $4,630  $6,505 
% of sales 4.2% 1.8% 2.4%

The increase in sales reflects $6.9 million in sales from acquisitions and an increase of $0.8 million in organic sales, despite one fewer sales day during the quarter (sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition). (See Table 6 for additional details regarding the Segment's sales per sales day performance.)

The increase in operating income was driven primarily by the absence of $3.0 million in restructuring costs, the expense savings resulting from the 2013 restructuring activities and higher sales volume with corresponding gross profit.

Aerospace Segment

Table 3. Summary of Aerospace Segment Information (in thousands)         
  For the three months ended
  March 28,
 March 29,
Net sales $149,062  $130,907  $18,155 
Operating income $22,021  $20,911  $1,110 
% of sales 14.8% 16.0% (1.2)%

Sales increased due to work performed on our SH-2G(I) contract with New Zealand, higher JPF shipments and increased volume on certain composite structure programs. These increases were partially offset by a reduction in sales for our BLACK HAWK helicopter cockpit program and engineering design services.

As expected, operating margin in the first quarter of 14.8% was lower than the 16.0% achieved in the prior year, primarily due to sales mix. The increase in operating income dollars is due to gross profit on the sales increases noted above, partially offset by reduced gross profit resulting from a higher mix of lower margin composite structure programs, lower BLACK HAWK helicopter cockpit demand and sales mix within our bearing products.


We have updated our outlook to reflect the closing of the B.W. Rogers acquisition on April 25, 2014. For 2014 we expect sales for this acquisition to be in the range of $65 million to $70 million and expect the transaction to be modestly accretive on a GAAP basis. In connection with the acquisition, we expect to incur approximately $1.5 million of one-time costs, as well as, $1.7 million of expense for the amortization of intangible assets in 2014. Our updated outlook for 2014 is as follows:

  • Distribution:
    • Sales of $1,180 million to $1,220 million
    • Operating margins of 4.7% to 5.2%
  • Aerospace:
    • Sales of $640 million to $660 million
    • Operating margins of 16.5% to 17.0%
  • Interest expense of approximately $13.5 million
  • Corporate expenses of approximately $52 million
  • Estimated annualized tax rate of approximately 35%
  • Depreciation and amortization expense of approximately $38 million
  • Capital expenditures of $35 million to $40 million
  • Free cash flow* in the range of $43 million to $48 million

Chief Financial Officer, Robert D. Starr, commented, "We delivered solid results for the quarter with EPS increasing 62% over the prior year to $0.42. Quarterly sales of $414 million, were driven by a 13.9% increase in our Aerospace segment and a 3.0% increase in our Distribution segment.

During the quarter we made strong progress on our growth initiatives. At Aerospace we have successfully begun production at our new bearings facility in Hochstadt, Germany, and our new tooling facility in Burnley, Lancashire, UK. At Distribution we closed on the B.W Rogers acquisition and have made significant strides towards achieving the targeted expansion of our sales force.

With the closing of the B.W. Rogers acquisition this month, we have updated our outlook for the full year. We are reaffirming our base outlook and continue to expect approximately 60% of our full year cumulative earnings in the second half with meaningful sequential improvement over the remainder of the year. We anticipate the transaction will be accretive in 2014, excluding amortization of intangibles and one-time expenses, such as integration costs.

Finally, due to the numerous investments we have made over the course of the past few years we have included Adjusted EBITDA* to provide an alternative earnings metric that we believe provides further insight into the underlying performance of our business."

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, April 29, 2014, at 8:30 AM ET. Listeners may access the call live by telephone at (866) 318-8616 and from outside the U.S. at (617) 399-5135; (passcode: 66956338); or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (888) 286-8010 or (617) 801-6888 using the passcode: 50637293. 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 4. Summary of Segment Information (in thousands)      
  For the three months ended
  March 28,
 March 29,
Net sales:    
Distribution $264,870  $257,168 
Aerospace 149,062  130,907 
Net sales $413,932  $388,075 
Operating income:    
Distribution $11,135  $4,630 
Aerospace 22,021  20,911 
Net gain (loss) on sale of assets (111) (79)
Corporate expense (12,056) (11,695)
Operating income $20,989  $13,767 
Depreciation and Amortization:      
Depreciation $1,366  $1,380 
Amortization 1,619  1,491 
Total $2,985  $2,871 
Depreciation $2,951  $2,833 
Amortization 833  807 
Total $3,784  $3,640 
Depreciation $1,051  $740 
Amortization 392  385 
Total $1,443  $1,125 

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:

Adjusted EBITDA - Adjusted EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is calculated on our consolidated results as well as the results of our reportable segments. Adjusted EBITDA differs from Segment Operating Income, as calculated in accordance with GAAP, in that it excludes depreciation and amortization. We have made numerous investments in our business, such as acquisitions and increased capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and new ERP systems. Based on these investments, Management believes Adjusted EBITDA provides an additional perspective on the operating results of the organization and earnings capacity and helps improve the comparability of our results between periods by eliminating the impact of non-cash depreciation and amortization expense. Adjusted EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. Adjusted EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of Adjusted EBITDA, as presented, may differ from similarly titled measures reported by other companies.

Table 5. Adjusted EBITDA (in thousands)  
  For the three months ended
  March 28,
 March 29,
Adjusted EBITDA      
Operating Income $11,135  $4,630 
Depreciation and Amortization 2,985  2,871 
Adjusted EBITDA $14,120  $7,501 
Operating Income $22,021  $20,911 
Depreciation and Amortization 3,784  3,640 
Adjusted EBITDA $25,805  $24,551 
Corporate expense      
Operating expense $(12,056) $(11,695)
Depreciation and Amortization 1,443  1,125 
Adjusted EBITDA $(10,613) $(10,570)

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 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 April 28, 2014. 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 6. Distribution - Organic Sales Per Sales Day (in thousands, except days)      
  For the three months ended
  March 28,
 March 29,
Net sales: Distribution $264,870  $257,168 
Acquisition related sales 6,866   
Organic sales 258,004  257,168 
Sales days 62  63 
Organic sales per sales day $4,161  $4,082 
% change 1.9% 3.4%

Free Cash Flow - Free cash flow is defined as GAAP “Net cash provided by (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 provided by (used in) operating activities” and “Expenditures for property, plant & equipment”, GAAP measures from the Consolidated Statements of Cash Flows included in this release.

Table 7. Free Cash Flow (in thousands)        
  For the Three Months Ended For the Three Months Ended For the Three Months Ended

March 28, 2014


March 29, 2013

 2014 vs. 2013
Net cash used in operating activities $(11,970) $(34,562) $22,592
Expenditures for property, plant & equipment (11,660) (11,841) 181
Free Cash Flow $(23,630) $(46,403) $22,773
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