MRO Magazine

Standex Reports Strong Fourth-Quarter and Fiscal 2015 Financial Results on Food Service Margin Expansion


August 25, 2015
By Business Wire News

SALEM, N.H.

Standex International Corporation(NYSE:SXI) today reported financial results for the fourth quarter of fiscal year 2015.

Fourth Quarter Fiscal 2015 Results from Continuing Operations

  • Net sales increased 1.2% to $199.8 million from $197.3 million in the fourth quarter of fiscal 2014. Organic sales decreased 0.5%, acquisition growth accounted for 5.4% of the increase and foreign exchange had a negative effect of 3.7% year over year.
  • Income from operations was $23.7 million, compared with $19.2 million in the fourth quarter of fiscal 2014. Net income from continuing operations was $16.3 million, or $1.27 per diluted share, including tax-effected $0.8 million of restructuring charges offset by $0.4 million of insurance proceeds. This compares with fourth quarter fiscal 2014 net income from continuing operations of $13.6 million, or $1.07 per diluted share, including tax-effected $3.0 million of restructuring charges, and $0.2 million in non-recurring management transition expenses, offset by gains of $1.1 million and $0.1 million related to insurance proceeds and discrete tax items, respectively. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $16.7 million, or $1.31 per diluted share, compared with $15.7 million, or $1.24 per diluted share, in the fourth quarter of fiscal 2014.
  • EBITDA (earnings before interest, income taxes, depreciation and amortization) was $27.9 million, compared with $23.0 million in the fourth quarter of fiscal 2014. Excluding the previously mentioned items from both periods, adjusted EBITDA for the fourth quarter of fiscal 2015 was $28.5 million, compared with $26.1 million in the year-earlier quarter.
  • Net working capital (defined as accounts receivable plus inventories less accounts payable) was $138.0 million at the end of the fourth quarter of fiscal 2015, compared with $119.5 million a year earlier. Working capital turns were 5.8 in fiscal 2015, slightly short of our goal of 6.0. In the prior fiscal year, working capital turns were 6.6 primarily due to increased payables for capital projects.
  • The Company closed the quarter with net debt of $6.9 million, compared with net cash of $29.2 million at June 30, 2014.
  • A reconciliation of net income, earnings per share and net income from continuing operations from reported GAAP amounts to non-GAAP amounts is included later in this release.

Management Comments

“Standex closed fiscal 2015 on a high note, especially given the continued headwinds from foreign exchange and the downturn in the oil and gas markets,” said David Dunbar, President and CEO. “For Q4, overall revenues grew 1.2% to $199.8 million, with foreign exchange having a negative effect of 3.7%, and adjusted operating income was up 8.8%. Food Service was slightly down on the top line in the fourth quarter, but we are seeing positive results from an operational standpoint, as it generated an 11.8% EBIT margin. We are seeing a leaner, more profitable Food Service business. The Engraving, Electronics and Hydraulics Groups reported strong demand during the quarter, while Engineering Technologies continued to be affected by the decline in oil and gas.”

Segment Review

Food Service Equipment Groupsales decreased 1.0% year-over-year, and operating income was up 7.7%.

“In Refrigeration, sales to large, national chains declined during the quarter, as well as sales through dealers,” said Dunbar. “Strength in drug retail and dollar stores slowed a bit, while C-stores and other small retail continued to perform well. Cooking Solutions sales increased by approximately 19% year-over-year, including the Ultrafryer acquisition. Excluding the acquisition, Cooking Solutions sales increased 3.1% and it generated an improved EBIT margin. Pricing continues to strengthen, freight costs are coming down, and plant productivity was solid. Efforts at Cooking Solutions are now focusing on warranty costs and distribution center performance.”

Engraving Groupsales increased 2.1% year-over-year. Sales increases of 13.1% were offset by an 11.0% negative effect from foreign exchange, while operating income was flat with last year.

“Our Mold-Tech performed well in China as we saw demand from both automotive and non-automotive customers,” said Dunbar. “Sales volume also increased in Europe, which was masked by the negative currency effect. We expect sales in North America to improve during the first half of fiscal 2016 as some automotive projects were pushed out from the fourth quarter.1 We continue to expand our Mold-Tech presence worldwide and during Q4 we set up new operations in both Sweden and Malaysia. In our roll, plate and machinery business, sales increased year-over-year due to a large project win from a major tissue and towel maker.”

Engineering Technologies Group sales grew 13.2% year-over-year, and operating income increased 4.2%. Acquisitions contributed 29.8% to growth, partially offset by organic and foreign exchange sales declines.

“Profitability in Engineering Technologies was up 4.2% year over year.” said Dunbar. “We continue to be excited by our Enginetics acquisition, which remains on track in terms of integration and performance expectations.1 Our legacy business increased margins through cost-reduction and operational excellence initiatives. The organic sales decline was due to the continued weak demand from the oil and gas market, which also carries high margins. We have reduced our cost structure in this business in response to market conditions. Our aviation sales continue to ramp up, though they were not enough to overcome the headwinds in the other end markets. To meet the demands of our current aviation contracts and future opportunities, we are expanding capacity with a new greenfield site in Wisconsin. We are breaking ground in the current first fiscal quarter, and will begin production later in 2016.”

Electronics Products Group sales were down 2.4% year-over-year. Organic sales increases of 5.8% were offset by an 8.7% negative currency effect, while operating income was up 7.8%.

“Sales in Q4 were driven by automotive demand in North America as well as strength in Europe.” said Dunbar. “Operating income was up 7.8% as a result of successful operational improvement and cost reduction programs. We have a mature operational excellence program within Electronics that we will continue to leverage. We remain optimistic about Electronics long term and have a strong backlog going into Q1.1

The Hydraulics Products Group reported a 6.1% year-over-year sales increase, while operating income rose 2.2%.

“We experienced strong demand across our dump truck/dump trailer and refuse markets.” said Dunbar. “Our facility in China is helping to strengthen Standex’s global competitive advantage by enabling us to bundle telescopic cylinders from North America with rod cylinders from China. Looking ahead, we are focused on capitalizing on strong customer demand in our end markets and leveraging operational excellence to increase throughput.1 We also are turning custom product designs around rapidly in our core markets and exploring opportunities for expansion in new markets.1

Business Outlook

“Looking ahead, we will continue to use the elements of our Standex value creation system, which is now in place across all segments, to grow sales and improve operating efficiencies. Food Service Equipment will continue its focus on improved operating performance to enhance margins, and Engineering Technologies is undergoing a significant change in its end-market mix as aviation awards ramp up and oil and gas related projects remain soft. Our balance sheet remains strong and we are executing on our planned investments to support the increased demand across a number of businesses and markets. The financial performance of our recent acquisitions – Planar, Ultrafryer and Enginetics — reflects the success of our acquisition strategy and we have a healthy, active pipeline of additional prospects. We are beginning to reap the rewards from these initiatives and we are excited to continue to execute against our strategy this coming year,1” concluded Dunbar.

Conference Call Details

Standex will host a conference call for investors today, August 25, 2015 at 10:00 a.m. ET. On the call, David Dunbar, President and CEO, and Thomas DeByle, CFO, will review the Company’s financial results and business and operating highlights. Interested parties may access the call by dialing (877) 847-6070 in the U.S. and (631) 813-4923 internationally; the passcode is 94619625. The live audio feed of the call, which will be supplemented by a slide presentation, can be accessed in the “Webcasts and Presentations” tab in the “Investors” section of the company’s website, located at: www.standex.com. For those unable to participate in the live conference call, a playback will be available through September 1, 2015. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 94619625. The webcast replay also can be accessed in the “Investor Relations” section of the Company’s website, located at www.standex.com.

Use of Non-GAAP Financial Measures

EBITDA, which is “Earnings Before Interest, Taxes, Depreciation and Amortization,” non-GAAP income from operations, non-GAAP net income from continuing operations and free cash flow are non-GAAP financial measures and are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the Company’s performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

About Standex

Standex International Corporation is a multi-industry manufacturer in five broad business segments: Food Service Equipment Group, Engineering Technologies Group, Engraving Group, Electronics Products Group, and Hydraulics Products Group with operations in the United States, Europe, Canada, Australia, Singapore, Mexico, Brazil, Argentina, Turkey, South Africa, India and China. For additional information, visit the Company’s website at http://standex.com/.

1 Safe Harbor Language
Statements in this news release include, or may be based upon, management’s current expectations, estimates and/or projections about Standex’s markets and industries. These statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may materially differ from those indicated by such forward-looking statements as a result of certain risks, uncertainties and assumptions that are difficult to predict. Among the factors that could cause actual results to differ are the impact of implementation of government regulations and programs affecting our businesses, unforeseen legal judgments, fines or settlements, uncertainty in conditions in the financial and banking markets, general domestic and international economy including more specifically economic conditions in the oil and gas market, the impact of foreign exchange, increases in raw material costs, the ability to substitute less expensive alternative raw materials, the heavy construction vehicle market, the ability to continue to successfully implement productivity improvements, increase market share, access new markets, introduce new products, enhance our presence in strategic channels, the successful expansion and automation of manufacturing capabilities and diversification efforts in emerging markets, the ability to continue to achieve cost savings through lean manufacturing, cost reduction activities, and low cost sourcing, effective completion of plant consolidations, successful completion and integration of acquisitions and the other factors discussed in the Annual Report of Standex on Form 10-K for the fiscal year ending June 30, 2014, which is on file with the Securities and Exchange Commission, and any subsequent periodic reports filed by the Company with the Securities and Exchange Commission. In addition, any forward-looking statements represent management’s estimates only as of the day made and should not be relied upon as representing management’s estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management’s estimates change.

 
Standex International Corporation
Consolidated Statement of Operations
       
 Three Months Ended
June 30,
 Year Ended
June 30,
(In thousands, except per share data)    2015    2014    2015    2014
 
Net sales $ 199,779 $ 197,340 $ 772,142 $ 716,180
Cost of sales   134,463   132,942   524,656   477,911
Gross profit 65,316 64,398 247,486 238,269
 
Selling, general and administrative expenses 41,001 42,434 165,837 165,786
Restructuring costs 1,089 4,246 3,443 10,077
Other operating (income) expense, net   (497)   (1,500)   (438)   (3,462)
 
Income from operations   23,723   19,218   78,644   65,868
 
Interest expense 792 540 3,161 2,249
Other (income) expense, net   (78)   (207)   (634)   (4,184)
Total   714   333   2,527   (1,935)
 
Income from continuing operations before income taxes 23,009 18,885 76,117 67,803
Provision for income taxes   6,721   5,242   20,874   18,054
Net income from continuing operations 16,288 13,643 55,243 49,749
 
Income (loss) from discontinued operations, net of tax   93   (3,596)   (500)   (6,883)
 
Net income $ 16,381 $ 10,047 $ 54,743 $ 42,866
 
Basic earnings per share:
Income from continuing operations $ 1.29 $ 1.08 $ 4.37 $ 3.94
Income (loss) from discontinued operations   0.01   (0.28)   (0.04)   (0.55)
Total $ 1.30 $ 0.80 $ 4.33 $ 3.39
 
Diluted earnings per share:
Income from continuing operations $ 1.27 $ 1.07 $ 4.31 $ 3.89
Income (loss) from discontinued operations   0.01   (0.28)   (0.04)   (0.54)
Total $ 1.28 $ 0.79 $ 4.27 $ 3.35
 
Average Shares Outstanding
Basic 12,655 12,638 12,655 12,613
Diluted 12,792 12,810 12,805 12,778
 
 
Standex International Corporation
Condensed Consolidated Balance Sheets
   
(In thousands)    June 30,
2015
   June 30,
2014
 
ASSETS
Current assets:
Cash and cash equivalents $ 96,128 $ 74,260
Accounts receivable, net 110,478 107,674
Inventories 108,305 97,065
Prepaid expenses and other current assets 7,070 7,034
Income taxes receivable 747 922
Deferred tax asset   12,674   12,981
Total current assets   335,402   299,936
 
Property, plant, equipment, net 108,536 96,697
Intangible assets, net 38,048 31,490
Goodwill 154,732 125,965
Deferred tax asset 917 878
Other non-current assets   22,706   23,194
Total non-current assets   324,939   278,224
 
Total assets $ 660,341 $ 578,160
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 80,764 $ 85,206
Accrued liabilities 47,742 51,038
Income taxes payable   10,285   4,926
Total current liabilities   138,791   141,170
 
Long-term debt 103,031 45,056
Accrued pension and other non-current liabilities   69,949   51,208
Total non-current liabilities   172,980   96,264
 
Stockholders’ equity:
Common stock 41,976 41,976
Additional paid-in capital 47,254 43,388
Retained earnings 632,864 584,014
Accumulated other comprehensive loss (93,017) (55,819)
Treasury shares   (280,507)   (272,833)
Total stockholders’ equity   348,570   340,726
 
Total liabilities and stockholders’ equity $ 660,341 $ 578,160
 
 
Standex International Corporation and Subsidiaries
Statements of Consolidated Cash Flows
 
 Year Ended
June 30,
(In thousands)    2015    2014
 
Cash Flows from Operating Activities
Net income $ 54,743 $ 42,866
Income (loss) from discontinued operations   (500)   (6,883)
Income from continuing operations 55,243 49,749
 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,684 14,591
Stock-based compensation 3,764 6,630
Non-cash portion of restructuring charge (171) 5,982
Disposal of real estate and equipment 925
Excess tax benefit from share-based payment activity (2,088) (1,650)
Life insurance benefit (3,353)
Contributions to defined benefit plans (1,484) (1,527)
Net changes in operating assets and liabilities   (5,781)   645
Net cash provided by operating activities – continuing operations 66,167 71,992
Net cash provided by (used in) operating activities – discontinued operations   (2,128)   (1,693)
Net cash provided by (used in) operating activities   64,039   70,299
Cash Flows from Investing Activities
Expenditures for property, plant and equipment (22,561) (18,832)
Expenditures for acquisitions, net of cash acquired (57,149) (23,075)
Proceeds from sale of real estate and equipment 66 118
Other investing activities   1,128   6,174
Net cash (used in) investing activities from continuing operations (78,516) (35,615)
Net cash (used in )investing activities from discontinued operations     2,452
Net cash (used in) investing activities   (78,516)   (33,163)
Cash Flows from Financing Activities
Proceeds from borrowings 274,700 71,000
Payments of debt (216,700) (76,000)
Activity under share-based payment plans 696 1,098
Excess tax benefit from share-based payment activity 2,088 1,650
Purchase of treasury stock (10,356) (4,793)
Cash dividends paid   (5,820)   (7,790)
Net cash provided by (used in) financing activities   44,608   (14,835)
 
Effect of exchange rate changes on cash (8,263) 895
 
Net changes in cash and cash equivalents 21,868 23,196
Cash and cash equivalents at beginning of year   74,260   51,064
Cash and cash equivalents at end of period $ 96,128 $ 74,260
 
Standex International Corporation
Selected Segment Data
       
 Three Months Ended
June 30,
 Year Ended
June 30,
(In thousands)    2015    2014    2015    2014
Net Sales
Food Service Equipment $ 105,276 $ 106,336 $ 408,706 $ 377,848
Engraving 29,172 28,582 110,781 109,271
Engineering Technologies 25,704 22,707 97,018 79,642
Electronics Products 28,897 29,604 114,196 114,881
Hydraulics Products   10,730   10,111   41,441   34,538
Total $ 199,779 $ 197,340 $ 772,142 $ 716,180
 
Income from operations
Food Service Equipment $ 12,467 $ 11,571 $ 37,456 $ 38,203
Engraving 5,603 5,595 24,250 22,145
Engineering Technologies 4,004 3,842 13,097 12,676
Electronics Products 5,302 4,919 20,884 19,732
Hydraulics Products 2,116 2,071 7,013 5,781
Restructuring (1,089) (4,246) (3,443) (10,077)
Other operating income (expense), net 497 1,500 438 3,462
Corporate   (5,177) (6,034)   (21,051)   (26,054)
Total $ 23,723 $ 19,218 $ 78,644 $ 65,868
 
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
         
 Three Months Ended
June 30,
 Year Ended
June 30,
(In thousands, except percentages)    2015    2014  % Change    2015    2014  % Change

Adjusted income from operations and
adjusted net income from continuing
operations:

Income from operations, as reported $ 23,723 $ 19,218 23.4% $ 78,644 $ 65,868 19.4%
Adjustments:

Restructuring charges

1,089 4,246 3,443 10,077

Management transition

328 3,918

Net gain on insurance proceeds

(497) (1,500) (497) (3,462)

Acquisition-related costs

    60       1,696   60    
Adjusted income from operations $ 24,315 $ 22,352   8.8% $ 83,286 $ 76,461   8.9%
Interest and other income (expense), net (714) (333) (2,527) 1,935

Life insurance benefit

(3,353)
Provision for income taxes (6,721) (5,242) (20,874) (18,054)

Discrete tax items

(139) (239) 16

Tax impact of above adjustments

  (162)   (899)       (1,270)   (3,040)    

Net income from continuing operations,
as adjusted

$ 16,718 $ 15,739   6.2% $ 58,376 $ 53,965   8.2%
 
EBITDA and Adjusted EBITDA:

Income from continuing operations
before income taxes, as reported

$ 23,009 $ 18,885 $ 76,117 $ 67,803
Add back:

Interest expense

792 540 3,161 2,249

Depreciation and amortization

  4,082   3,559       16,684   14,591    
EBITDA $ 27,883 $ 22,984   21.3% $ 95,962 $ 84,643   13.4%
Adjustments:

Restructuring charges

1,089 4,246 3,443 10,077

Management transition

328 3,918

Life insurance benefit

(3,353)

Net gain on insurance proceeds

(497) (1,500) (497) (3,462)

Acquisition-related costs

    60       1,696   60    
Adjusted EBITDA $ 28,475 $ 26,118   9.0% $ 100,604 $ 91,883   9.5%
 
Free operating cash flow:

Net cash provided by operating
activities – continuing operations,
as reported

$ 43,092 $ 36,913 $ 66,167 $ 71,992
Less: Capital expenditures   (3,714)   (3,135)   (22,561)   (18,832)
Free operating cash flow $ 39,378 $ 33,778 $ 43,606 $ 53,160
Net income from continuing operations   16,288   13,643   55,243   49,749
Conversion of free operating cash flow   241.8%   247.6%   78.9%   106.9%
 
 
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
           
Three Months EndedYear Ended

Adjusted earnings per share
from continuing operations

June 30,June 30,
   2015    2014  %
Change
   2015    2014  % Change
 

Diluted earnings per share from
continuing operations, as reported

$ 1.27$ 1.07 18.7%$ 4.31  $ 3.89 10.8%
 
Adjustments:

Restructuring charges

0.07 0.24 0.20 0.56
Management transition 0.02 0.22
Net gain on insurance proceeds (0.03) (0.08) (0.03) (0.19)
Life insurance benefit (0.26)
Acquisition-related costs 0.10
Discrete tax items     (0.01)     (0.02)      

Diluted earnings per share from
continuing operations, as adjusted

$ 1.31$ 1.24 5.6%$ 4.56  $ 4.22 8.1%
 

Standex International Corporation
Thomas DeByle, 603-893-9701
CFO
InvestorRelations@Standex.com