Second Quarter 2012 Highlights:
•Diluted earnings per share of $0.62; net sales $405 million
•Aerospace segment operating profit of 17.8%, driven by bearing product line performance
•Industrial Distribution operating profit margin of 5.7% on record sales
•JPF deliveries meet year-to-date expectations
BLOOMFIELD, Conn.--(BUSINESS WIRE)--Jul. 26, 2012-- Kaman Corp. (NYSE:KAMN) today reported financial results for the second quarter ended June 29, 2012.
Table 1. Summary of Financial Results
Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “We are pleased with the results achieved during the second quarter of 2012. In our Aerospace business, we continued to experience stronger demand for our bearing product lines, driving the overall Aerospace operating margin to 17.8%. In addition, we delivered approximately 5,900 Joint Programmable Fuzes during the quarter, meeting our delivery expectations year-to-date on this key program.
Industrial Distribution achieved a strong operating profit margin of 5.7% for the second quarter of 2012 compared to 5.0% in the first quarter of 2012 and 5.3% in the second quarter last year. This margin performance was achieved despite experiencing organic sales growth of just 2.1% for the second quarter. We are pleased that we were able to deliver solid profit performance as we continue to focus on gross margin improvement, cost control and continuing contributions from acquisitions.
During the quarter, we also made progress toward the sale of our SH-2G(I) helicopters and the formation of a joint venture in India for an additional low-cost manufacturing alternative. In Industrial Distribution, we launched a program to implement a new state of the art business system to support our long-term growth strategy. We continue to leverage our recent acquisitions and remain committed to pursuing acquisition targets for both of our businesses. The addition of Florida Bearings in July, which expanded our geographical footprint, diversified our customer base and added additional end market exposure, demonstrates our commitment to continue to complement our organic growth with acquisitions.”
Segment reports follow:
Industrial Distribution segment
Sales increased 7.9% in the second quarter of 2012 to a record $258.1 million compared to $239.3 million a year ago. Acquisitions contributed $13.8 million in sales in the quarter (sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition). On a sales per sales day* basis, sales increased 7.9% over last year's second quarter, with organic sales representing 2.1% of the increase. (See Table 3 for additional details regarding the Segment's sales per sales day performance.) Sales growth was driven by increases in fabricated metal product manufacturing, nonmetallic mineral manufacturing and primary metal manufacturing. These increases were partially offset by declines in the food and beverage, semi-conductor and solar power industries.
Segment operating income for the second quarter of 2012 was $14.6 million compared to operating income of $12.6 million in the second quarter of 2011. The operating profit margin for the second quarter of 2012 was 5.7%. In comparison, the operating profit margin was 5.0% in the first quarter of 2012 and 5.3% in the second quarter of 2011. Operating profit was higher year over year as a result of higher sales volume; increased gross profit, which reached a record level in the quarter; and effective SG&A expense control.
Aerospace segment
Sales were $147.4 million, an increase of $1.6 million from sales of $145.8 million in the second quarter of 2011. The increase was due to strong performance from bearing product lines; increased deliveries under the A-10 re-wing program; higher sales of commercial K-MAX service, support and spares; and contributions from the acquisition of Vermont Composites. The increases were offset by lower sales on several programs including the JPF program which had the benefit of significant direct commercial sales volume in the second quarter of 2011. Other programs generating lower sales were Unmanned K-MAX, BLACK HAWK cockpit production and our legacy fuze programs.
Operating income for the second quarter of 2012 was $26.2 million, compared to operating income of $22.4 million in the 2011 second quarter. The operating margin in this year's second quarter was 17.8% as compared to 15.3% in the comparable period in the prior year. The increase in operating income resulted from higher gross profit on our bearing products and helicopter programs, including the Egypt SH-2G(E) maintenance and upgrade program, commercial K-MAX service, support and spares, and the Bell blade program. Also benefiting margin was the absence of legal fees related to FMU-143 litigation. These increases were offset by a less profitable mix of JPF sales, lower sales volume on our Unmanned K-MAX program, lower volume on our Sikorsky BLACK HAWK programs and lower sales volume on our legacy fuze programs.
Outlook
The Company's updated expectations for 2012 are as follows:
Chief Financial Officer, William C. Denninger, commented, "Now halfway through the year, we have reviewed our full year expectations for each segment and we expect full year sales and operating margins to come in toward the lower ends of our previously reported ranges for both segments. At Aerospace, revenue projections have been impacted by a potential unmanned K-MAX bridge buy that has moved out of 2012, legacy fuze and composite program deliveries shifting to the right and an anticipated reduction in deliveries of BLACK HAWK cockpits. Industrial Distribution is experiencing lower organic sales growth rates than we originally projected due to slower industrial activity. Additionally, we have reduced our previous expectation for interest expense from $13.5 million to $11.5 million and expect Corporate expenses to be near the high end of the range.”
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 27, 2012 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 . 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 (in thousands)
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 from the Industrial 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 businessand 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: Industrial 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 26, 2012. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition.
Table 3. Industrial Distribution - Organic Sales Per Sales Day (in thousands, except days)
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 Condensed Consolidated Statements of Cash Flows.
Table 4. Free Cash Flow (in thousands)
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)
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.
Forward-Looking Statements
This release contains forward-looking information relating to the Company's business and prospects, including the Aerospace and Industrial Distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; 2) political conditions in countries where the Company does or intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) 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); 5) satisfactory conclusion to government inquiries or investigations regarding government programs, including satisfactory resolution of the Wichita subpoena matter; 6) domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; 7) risks associated with successful implementation and ramp up of significant new programs; 8) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 9) successful resale of the SH-2G(I) aircraft, equipment and spare parts; 10) 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; 11) continued support of the existing K-MAX helicopter fleet, including sale of existing K-MAX spare parts inventory; 12) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 13) profitable integration of acquired businesses into the Company's operations; 14) changes in supplier sales or vendor incentive policies; 15) the effects of price increases or decreases; 16) the effects of pension regulations, pension plan assumptions, pension plan asset performance and future contributions; 17) future levels of indebtedness and capital expenditures; 18) future availability of credit; 19) continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; 20) the effects of currency exchange rates and foreign competition on future operations; 21) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; 22) future repurchases and/or issuances of common stock; and 23) other risks and uncertainties set forth in the Company's annual, quarterly and current reports,proxy statements and other filings with the SEC. Any forward-looking information provided in this report should be considered with these factors in mind. The Company assumes no obligation to update any forward-looking statements contained in this release.
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