Kaman Corp. has reported financial results for the second fiscal quarter ended July 1, 2016.
Neal J. Keating, chairman, president and chief executive officer, said: “We are pleased with our performance for the second quarter, where we delivered GAAP [generally accepted accounting principles] diluted earnings per share of $0.59 or $0.64 when measured on an adjusted basis. Net earnings, when compared to the prior year, were lower largely due to a $4.4 million tax benefit in the prior year and $1.5 million of acquisition related costs, net of tax, recorded in the second quarter of 2016. Adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] for the quarter increased to $41.4 million, a 4.5 percent increase over the prior year, including $2.3 million of pretax expenses related to our recent acquisitions.
“At Distribution, we achieved operating margin for the quarter of 4.8 percent, despite continued weakness in the industrial economy and its impact on top line performance, primarily due to our cost control efforts and productivity initiatives. On a sequential basis, we continue to see improved margin performance, with a 120 bps improvement when compared to the first quarter, our second straight quarter of operating margin improvement of at least 100 bps.
“Aerospace sales increased approximately 30 percent, or 27 percent when adjusted to eliminate the $4.3 million in sales recorded in connection with the settlement received on our Bell AH-1Z program. Deliveries of the JPF to foreign militaries led our organic sales growth of 17 percent, while our 2015 acquisitions contributed $18.1 million in sales for the quarter. Integration of these acquired businesses is on track and we expect these acquisitions to be accretive to GAAP diluted earnings per share for the second half.”
Chief financial officer, Robert D. Starr, said: “At Distribution we delivered a strong quarter with operating income increasing 31.9 percent when compared to the first quarter of 2016, on flat organic sales per sales day. When compared to the prior year, Organic sales per sales day decreased 7.7 percent, reflecting continued weakness in the industrial economy. Our cost control measures combined with productivity initiatives allowed us to largely mitigate the negative impact of deleveraging normally associated with this level of decline in organic sales. Aerospace performance illustrates the importance of a diversified product portfolio with our JPF and specialty bearings products delivering strong results; and despite lower than expected performance from our structures programs, we continue to target new opportunities and focus on improving operational performance in this area of our business.
“As we look to the second half of 2016, we are revising our outlook for both segments. At Distribution, our daily sales have stabilized giving us confidence to hold the low end of the previously reported sales range; however, we are lowering the top end of our sales range by $15 million to $1,150 million, as a result of the continued softness in the industrial economy. Based on our sequential operating margin improvement at Distribution over the first half of 2016, we are increasing our operating margin expectations for the full year, raising the low end of our range by 10 bps to 4.5 percent and the high end of the range by 20 bps to 4.8 percent.
“At Aerospace, we are raising the lower end of our sales range by $10 million to $710 million and the high end of our range by $5 million to $725 million, due to the increased visibility we have halfway through the year. We are reducing our operating margin expectations for the segment to 16.8 percent to 17.1 percent from 17.5 percent to 17.8 percent, and on an adjusted basis, reflecting the $5.5 million of acquisition and integration costs, to 17.6 percent to 17.9 percent from the previously disclosed 18.3 percent to 18.6 percent. The downward revision of our operating margin outlook is primarily due to underperformance on a number of our structures programs.
“Moving to the cadence of our quarterly earnings, we expect to record approximately 35-40 percent of our full year net earnings in the fourth quarter.
“Finally, we have modified our use of certain non-GAAP financial measures, their definitions and policies regarding the use of these measures based upon the new interpretations relative to the use of non-GAAP financial measures issued by the SEC [U.S. Securities and Exchange Commission] during the second quarter. These revisions, primarily in our outlook for 2016, do not change the underlying results of our business or our expectations for our performance for the year.”
2016 Outlook
Kaman has adjusted its outlook to address the revised interpretations issued by the SEC during the second quarter relative to the use of non-GAAP financial measures. It has removed its guidance for Adjusted EBITDA from our outlook for each of our segments and is disclosing its expectations for depreciation and amortization expense. The company intends to present our outlook in this adjusted manner in the future. This change provides users additional information that management believes will allow it to make any adjustments it feels appropriate to account for the impact of these non-cash expenses on the performance of our segments. The company’s revised 2016 outlook is as follows:
- Distribution:
- Sales of $1,125 million to $1,150 million;
- Operating margins of 4.5 percent to 4.8 percent;
- Depreciation and amortization expense of $16.5 million.
- Aerospace:
- Sales of $710 million to $725 million;
- Operating margins of 16.8 percent to 17.1 percent, or Adjusted operating margin of 17.6 percent to 17.9 percent, when adjusted for $5.5 million of transaction and integration costs in 2016 associated with the 2015 acquisitions;
- Depreciation and amortization expense of $24.5 million;
- Interest expense of approximately $16 million;
- Corporate expenses of approximately $55 million;
- Estimated annualized tax rate of approximately 34.5 percent;
- Consolidated depreciation and amortization expense of approximately $45 million;
- Capital expenditures of $30 million to $40 million;
- Cash flows from operations in the range of $80 million to $100 million; free cash flow in the range of$50 million to $60 million
