Kaman Corp. (NASDAQ: KAMN) today reported financial results for the second quarter and six-month period ended July 3, 2009.


Net sales for the second quarter of 2009 were $293.2 million, a decrease of 7.3% from $316.3 million in the second quarter of 2008. For the second quarter of 2009, the company reported net earnings of $9.4 million, or $0.37 per diluted share, compared to net earnings from continuing operations of $6.1 million, or $0.24 per diluted share, in the second quarter of 2008. The company's results for the second quarter of 2008 included a non-cash, charge of $7.8 million related to goodwill impairment at the company's Wichita facility, which was not deductible for tax purposes.


Net sales for the 2009 six-month period were $587.3 million, a decrease of 2.5% as compared to $602.1 million in the first half of last year. For the first half of 2009, net earnings decreased slightly to $14.8 million, or $0.58 per diluted share, compared to net earnings from continuing operations of $15.0 million, or $0.59 per diluted share in the year ago period. First half 2008 results include the goodwill impairment charge of $7.8 million.


Neal J. Keating, Chairman, President and Chief Executive Officer, said, "Our financial results for the second quarter reflect solid performance in Aerospace, and Industrial Distribution demonstrated the impacts of their cost reduction efforts in delivering a profitable quarter under extraordinarily difficult market conditions. We saw top line growth at Aerospace across several programs including strong contributions from our Brookhouse acquisition, the JPF program and the BLACKHAWK cockpit program. While we are experiencing weakness in our sales of aircraft bearings for the commercial, business and regional jet markets, this has been somewhat offset by increased sales of military aircraft bearings. Despite this weakness, profit margins on bearing product lines have increased on a sequential basis, and Aerospace profits were higher on the higher sales volume. While we continue to make progress in Wichita, the facility is not yet profitable and without additional revenues we now do not expect to reach break even status until mid 2010. Within our Aerospace segment the most significant accomplishment during the quarter was the previously announced Joint Programmable Fuze (JPF) contract modification award, which will result in a significantly higher sales price to the U.S. Government beginning next year.


While sales at Industrial Distribution are off significantly in a difficult market, the management team has been able to maintain profitability by focusing effectively on margin improvement, expense control and asset management. We were also very pleased with our improved cash flow for the period. We generated $17.4 million in free cash flow* during the first half of the year compared to a use of $45.7 million last year. In light of an uncertain commercial aerospace market we remain cautious of the next several quarters and are expecting a weaker third quarter due to lower commercial bearing bookings with some improvement in the fourth quarter. Overall, Kaman remains in solid financial position, given our diversified business model and exposure to stable military programs in Aerospace, to continue navigating the current environment."


Segment reports follow:


Beginning with the second quarter the company's segment reporting changed to reflect changes in its organizational structure and information used to allocate resources. The aerospace business is now completely organized and managed under the leadership of a group president and staff. Under the provisions of SFAS 131, the company determined it now has two reportable segments, Industrial Distribution and Aerospace.


Industrial Distribution segment sales decreased 23.3% in the 2009 second quarter to $156.0 million from $203.3 million a year ago. Segment operating income for the second quarter of 2009 was $3.1 million, a 68.5% decrease from operating income of $9.7 million in the second quarter of 2008. During the second quarter of 2009, the INRUMEC acquisition completed in 2008 contributed incremental sales of $2.3 million. The operating profit margin for the second quarter of 2009 was 2.0% compared to 1.6% in the first quarter of 2009 and 4.8% in the second quarter of 2008.

The Industrial Distribution segment's sales for the 2009 second quarter reflect the continued difficult economic environment and resultant weak market conditions for the company in addition to a very strong comparative period in 2008 which experienced a sales increase of 16.5%. An unfavorable U.S. Dollar exchange rate also contributed to the lower sales level, shaving $1.9 million from the top line. Operating earnings were impacted by the lower sales volume as well. However, the company's cost control efforts had a positive impact and contributed to a higher operating margin as compared to the first quarter of 2009. The company is hopeful that the sales decline bottomed during the second quarter of 2009 with sales per day in Q1 of $2.7 million and sales per day in Q2 of $2.5 million.


For the 2009 six-month period, net sales in the Industrial Distribution segment totaled $332.9 million, compared with $385.5 million in the year ago period. Segment operating income in the first half of 2009 totaled $5.8 million, compared to $18.8 million in the first half of 2008. Organic growth for the first half of 2009 was a negative 19.2%, compared with a positive 6.7% in the same period last year.


Aerospace segment sales were $137.3 million, an increase of 21.5% over sales of $113.0 million in the second quarter of 2008. Operating income for the 2009 second quarter was $21.6 million, compared to operating income of $11.4 million in the 2008 second quarter. The second quarter of 2008 included the $7.8 million goodwill impairment charge at the Wichita facility.

The increase in segment sales over last year's second quarter is a result of several factors including: the addition of $9.0 million of incremental sales from the Brookhouse acquisition; increased JPF sales, which were $8.5 million higher than the comparable period; higher BLACKHAWK cockpit deliveries (43 cockpits delivered in Q209 as compared to 32 in Q208); higher sales on legacy missile fuze programs; higher sales of military aircraft bearings and KAflex(TM) couplings; and higher SH-2 revenues from the Egypt maintenance and upgrade program and New Zealand spares sales, partially offset by the loss of $2.6 million of sales to Australia. Most of the JPF and legacy missile fuze sales increases related to deliveries missed in Q109 and completed in Q209. Overall these increases were somewhat offset by a decrease in sales of aircraft bearings to the regional/business jet markets, a decrease of non-Sikorsky helicopter subcontract work, and a decrease of $1.0 million due to foreign currency translation of the company's European sales into U.S. Dollars.


The operating margin in this year's second quarter was 15.7% as compared to 17.0% in the comparable period in the prior year, excluding the goodwill impairment charge of $7.8 million. The reduction in the operating margin was primarily attributable to the higher sales from Brookhouse at a lower margin and slightly lower margins on bearing product lines.


For the 2009 six-month period, the Aerospace segment reported net sales of $254.4 million, compared to $216.6 million for the first half of 2008. The segment had operating income of $36.9 million in the first half of 2009, compared to operating income of $26.1 million in the first half of 2008 (after the $7.8 million goodwill impairment charge).

Outlook
CFO William C. Denninger commented, "Results this year have been favorably impacted by focused cost control efforts across the organization. At Aerospace this has resulted in maintained or in some cases enhanced margins, while at Distribution it has helped us remain profitable albeit at lower levels. All of our operations have participated in this effort including Brookhouse, which is both profitable and accretive to earnings per share.


For the full year, we expect Aerospace revenue to be up 5% to 7% over the prior year with an operating margin in the mid-teens. However, revenue in the third quarter is expected to be about 10% lower than the second quarter. This sequential decline is primarily attributable to lower anticipated sales of our aircraft bearing and KAflex(TM) product lines, and normalized fuzing program sales versus the 'catch-up' sales in Q2. Earlier this year, we stated that Distribution sales for 2009 were expected to be 10% to 15% lower than the prior year. At this point, we expect that the drop in sales will be at the high end of that range and that operating margin will be 200 to 250 basis points below last year.


Our balance sheet remains strong as we have focused on asset utilization and liquidity. Cash flow has been excellent and we expect to be able to attain our stated goal for the year of $35 million to $40 million in free cash flow*."


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 the quarter's results and various company programs.

A conference call has been scheduled for tomorrow, August 7, 2009 at 8:30 AM EDT. Listeners may access the call live 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 will be provided in the exhibits to the conference call and will be available through the Internet link provided above.

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