Market Overview

Standex Reports Fourth-Quarter 2018 Financial Results

Share:

Achieves 4.8% Sales Increase and 1.2% Organic Increase

GAAP Operating Income Increases 28.2% and Non-GAAP Operating Income
Grows 11.0%

GAAP EPS Decreases 10.8% and Non-GAAP EPS Increases 14.3%

Standex International Corporation (NYSE:SXI)
today reported financial results for its fourth quarter and full fiscal
year 2018 ended June 30, 2018.

Fourth-Quarter Fiscal 2018 Results

  • Net sales increased 4.8% year-over-year to $227.5 million with total
    organic sales up 1.2%. Acquisitions contributed 1.8% to growth and
    foreign exchange had a positive effect of 1.8%.
  • Net income from continuing operations was $12.6 million, or $0.99 per
    share, which includes tax-effected $0.6 million of acquisition-related
    costs, $1.0 million of restructuring charges, and $6.3 million of
    discrete tax items related to the impact of tax reform. This compares
    with fourth-quarter fiscal 2017 net income from continuing operations
    of $14.1 million, or $1.11 per diluted share, including tax-effected
    $0.7 million of acquisition-related costs, $2.0 million of
    restructuring charges, $1.5 million of purchase accounting costs and a
    $0.5 million gain on sale of real estate. Excluding the aforementioned
    items from both periods, non-GAAP net income from continuing
    operations was $20.4 million, or $1.60 per diluted share, up from
    $17.9 million, or $1.40 per diluted share, in the prior-year period.
  • Net working capital (defined as accounts receivable plus inventories
    less accounts payable) was $171.7 million at the end of the fourth
    quarter of fiscal 2018, compared with $150.0 million a year earlier.
    Working capital turns decreased to 5.3 in the fourth quarter of fiscal
    2018 from 5.8 a year earlier, primarily due to sales growth and
    business mix.
  • The Company closed the quarter with net debt (defined as debt less
    cash) of $84.2 million, compared with a net debt position of $108.4
    million in the prior quarter.

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

"We ended the fiscal year with a strong fourth quarter as we delivered
topline organic growth across our Electronics, Engraving and Hydraulics
business segments, and began to realize bottom line benefits from our
restructuring initiatives in the Food Service business," said President
and Chief Executive Officer David Dunbar. "Engineering Technologies
sales and margins were challenged as expected due to delays in aviation
platform ramps, and we remain optimistic that investments we have made
in the business will support long-term sustainable growth."

"On a full-year basis, sales were up 15%, reflecting double-digit
organic growth in Engraving, Electronics and Hydraulics, as well as
strong contributions from the recent acquisitions of Standex Electronics
Japan and Piazza Rosa," continued Dunbar, "We exited the year with a
solid balance sheet, growing backlog, and continued strength in our end
markets."

Segment Review

Food Service Equipment sales
decreased 2.2% year-over-year. Q4 operating income increased 5.1%.

"Operating income grew 70 basis points as we began to realize the
benefits from the restructuring efforts in Cooking and Refrigeration,"
said Dunbar. "Our Scientific and Specialty Solutions businesses
delivered double-digit growth as we capitalized on new product roll outs
and business opportunities. Despite this, overall segment sales declined
due to lighter order volumes from customers in our refrigeration and
cooking businesses.."

"Looking ahead, we remain focused on continuing to grow differentiated
products and realizing improved margins in our Refrigeration and Cooking
plants."

Engraving sales increased
28.6% year-over-year. Operating income was up 36.1%.

"We achieved strong top and bottom line performance in Engraving as we
capitalized on new technologies including laser, tool finishing and
nickel shell, as well as the success of the Piazza Rosa acquisition,"
said Dunbar. "As recently announced, we completed the acquisition of
Tenibac-Graphion, which complements our Engraving offering and will
deliver additional value to both our automotive and non-automotive
customers."

"Looking ahead, we remain focused on capitalizing on growth from new
technologies and recent acquisitions, as well as robust automotive roll
outs."

Engineering Technologies sales decreased
14.9% year-over-year, and operating income declined 32.1%.

"Sales and margins declined in line with our expectations as we
experienced lower shipments in aviation and space markets" said Dunbar.
"As we exited the quarter, we saw early signs of improved profitability,
and our backlog was up 21% from the prior year, demonstrating that
demand is building in the business."

"Going forward, we are focused on leveraging the investments we have
made to support the upcoming aviation ramp, delivering on the growing
backlog for critical engine parts and lip-skins, and executing on our
operational excellence initiatives to improve operating efficiencies."

Electronics sales were up 15.4%
year-over-year. Operating income was up 59.1% year over year. Excluding
$2.0M of purchase accounting in Q4 of FY 17, operating income was up
29.1%.

"The year-over-year sales increase in Electronics was once again driven
by double-digit organic growth in all regions and all end-markets with
continued solid contributions from Standex Electronics Japan, said
Dunbar.

"Looking ahead, we are focused on capitalizing on increased market
demand and fueling the growth potential of the Electronics business with
investments in market tests, growth laneways and M&A opportunities."

Hydraulics reported a 19.5% year-over-year
sales increase while operating income increased 16.0%.

"Hydraulics sales growth was driven by strength in all sectors," said
Dunbar. "Orders increased over 30% and backlog more than doubled as
compared to the prior-year. In addition, EBIT margins were back to
normal levels as we began to realize the benefits from pricing increases
implemented earlier. We remain optimistic about the future of this
segment as we continue to leverage the strong market environment and
pursue market tests to grow the business."

Business Outlook

"We are entering 2019 with solid momentum and strong end markets" said
Dunbar. "We are well-positioned to grow in Engraving, Electronics and
Hydraulics over the next year. We expect to see margin improvements in
our Engineering Technologies business and Food Service Equipment as the
results of restructuring programs flow through to our bottom line. Our
plans are to ramp our capex spending to $35 to $36 million to support
investments in growth opportunities in Electronics and Engraving, as
well as new aviation platforms like the A350 in Engineering
Technologies. By executing against our Value Creation System, we are
positioning Standex to deliver on our long-term financial targets and
fulfill our mission to become a best-in-class operating company."

Conference Call Details

Standex will host a conference call for investors today, August 28, 2018
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. Investors interested in listening to
the webcast and viewing the slide presentation should log on to the
"Investors" section of Standex's website under the subheading, "Webcasts
and Presentations
", located at www.standex.com.
A replay of the webcast will also be available on the Company's website
shortly after the conclusion of the presentation through September 11,
2018. To listen to the playback, please dial (800) 585-8367 in the U.S.
or (404) 537-3406 internationally; the passcode is 3896908. 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

In addition to the financial measures prepared in accordance with
generally accepted accounting principles ("GAAP"), the Company uses
certain non-GAAP financial measures, including non-GAAP income from
operations, non-GAAP net income from continuing operations, free
operating cash flow, EBITDA (earnings before interest, taxes,
depreciation and amortization) and adjusted earnings per share. The
attached financial tables reconcile non-GAAP measures used in this press
release to the most directly comparable GAAP measures. The Company
believes that the use of non-GAAP measures including the impact of
restructuring charges, purchase accounting, discrete tax events, and
acquisition costs help investors to obtain a better understanding of our
operating results and prospects, consistent with how management measures
and forecasts the Company's performance, especially when comparing such
results to previous periods. An understanding of the impact in a
particular quarter of specific restructuring costs, acquisition
expenses, or other gains and losses, on net income (absolute as well as
on a per-share basis), operating income or EBITDA can give management
and investors additional insight into core financial performance,
especially when compared to quarters in which such items had a greater
or lesser effect, or no effect. Non-GAAP measures should be considered
in addition to, and not as a replacement for, the corresponding GAAP
measures, and may not be comparable to similarly titled measures
reported by other companies.

About Standex

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

 
Standex International Corporation
Consolidated Statement of Operations
       
Three Months Ended Year Ended
June 30, (unaudited) June 30,
(In thousands, except per share data)     2018     2017     2018     2017
 
Net sales $ 227,508 $ 217,089 $ 868,382 $ 755,258
Cost of sales 145,188 144,352 566,581 502,504
Gross profit 82,320 72,737 301,801 252,754
 
Selling, general and administrative expenses 53,898 48,482 206,419 174,060
Restructuring costs 1,287 2,748 7,594 5,825
Acquisition related costs 749 918 3,749 7,843
 
Income from operations 26,386 20,589 84,039 65,026
 
Interest expense 2,230 1,544 8,030 4,043
Other non-operating (income) expense, net (481) (130) (1,243) (949)
Total 1,749 1,414 6,787 3,094
 
Income from continuing operations before income taxes 24,637 19,175 77,252 61,932
Provision for income taxes 12,020 5,044 40,620   15,355
Net income from continuing operations 12,617 14,131 36,632 46,577
 
Income (loss) from discontinued operations, net of tax (7) 11 (28) (32)
 
Net income $ 12,610 $ 14,142 $ 36,604 $ 46,545
 
Basic earnings per share:
Income from continuing operations $ 0.99 $ 1.12 $ 2.88 $ 3.68
Income (loss) from discontinued operations - - - -
Total $ 0.99 $ 1.12 $ 2.88 $ 3.68
 
Diluted earnings per share:
Income from continuing operations $ 0.99 $ 1.11 $ 2.86 $ 3.65
Income (loss) from discontinued operations - - - -
Total $ 0.99 $ 1.11 $ 2.86 3.65
 
Average Shares Outstanding
Basic 12,708 12,663 12,698 12,666
Diluted 12,800 12,757 12,788 12,768

During the fourth quarter of fiscal 2017, we adopted Accounting
Standards Update (ASU) 2016-09 requiring the recognition of excess tax
benefits as a component of income tax expense which were historically
recognized in equity. As the ASU requires a prospective adoption, our
Q1-Q3 2017 results have been recast to allocate $0.6M of the overall
benefit to the applicable periods. The Q4 2017 impact was immaterial to
that quarter's results.

 
Standex International Corporation
Consolidated Balance Sheets
   
June 30, June 30,
(In thousands)     2018     2017
 
ASSETS
Current assets:
Cash and cash equivalents $ 109,602 $ 88,566
Accounts receivable, net 134,228 127,060
Inventories 127,223 119,401
Prepaid expenses and other current assets 10,558 8,397
Income taxes receivable 2,348 2,469
Deferred tax asset - 14,991
Total current assets 383,959 360,884
 
Property, plant, equipment, net 144,570 133,160
Intangible assets, net 98,075 102,503
Goodwill 251,762 242,690
Deferred tax asset 7,447 1,135
Other non-current assets 31,124 27,304
Total non-current assets 532,978 506,792
 
Total assets $ 916,937 $ 867,676
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 89,707 $ 96,487
Accrued liabilities 65,575 58,694
Income taxes payable 6,059 4,783
Total current liabilities 161,341 159,964
 
Long-term debt 193,772 191,976
Accrued pension and other non-current liabilities 111,029 107,072
Total non-current liabilities 304,801 299,048
 
Stockholders' equity:
Common stock 41,976 41,976
Additional paid-in capital 61,328 56,783
Retained earnings 761,430 716,605
Accumulated other comprehensive loss (121,859) (115,938)
Treasury shares (292,080) (290,762)
Total stockholders' equity 450,795 408,664
 
Total liabilities and stockholders' equity $ 916,937 $ 867,676
 
 
Standex International Corporation and Subsidiaries
Statements of Consolidated Cash Flows
  Year Ended
June 30,
(In thousands)     2018     2017
 
Cash Flows from Operating Activities
Net income $ 36,604 $ 46,545
Income (loss) from discontinued operations (28) (32)
Income from continuing operations 36,632 46,577
 
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 29,163 20,315
Stock-based compensation 4,962 5,023
Non-cash portion of restructuring charge (1,264) 1,414
Gain on disposal of real estate and equipment (655) (652)
Contributions to defined benefit plans (6,966) (1,443)
Net changes in operating assets and liabilities 3,131 (7,201)
Net cash provided by operating activities - continuing operations 65,003 64,033
Net cash provided by (used in) operating activities - discontinued
operations
(78) (594)
Net cash provided by (used in) operating activities 64,925 63,439
Cash Flows from Investing Activities
Expenditures for property, plant and equipment (26,539) (26,448)
Expenditures for acquisitions, net of cash acquired (10,397) (153,815)
Proceeds from sale of real estate and equipment 2,852 1,106
Other investing activities 1,819 106
Net cash (used in) investing activities (32,265) (179,051)
Cash Flows from Financing Activities
Proceeds from borrowings 163,500 263,700
Payments of debt (164,788) (164,200)
Stock issued under employee stock option and purchase plans 915 848
Purchase of treasury stock (2,652) (7,806)
Cash dividends paid (8,888) (7,852)
Net cash provided by (used in) financing activities (11,913) 84,690
 
Effect of exchange rate changes on cash 289 (2,500)
Net changes in cash and cash equivalents 21,036 (33,422)
Cash and cash equivalents at beginning of year 88,566 121,988
Cash and cash equivalents at end of period $ 109,602 $ 88,566
 
 
Standex International Corporation
Selected Segment Data (unaudited)
       
Three Months Ended Year Ended
June 30, June 30,
(In thousands)     2018     2017     2018     2017

Net Sales

Food Service Equipment $ 101,121 $ 103,388 $ 396,866 $ 380,970
Engraving 35,818 27,859 136,275 105,943
Engineering Technologies 25,161 29,558 90,781 90,506
Electronics Products 52,208 45,234 196,291 136,689
Hydraulics Products 13,200 11,050 48,169 41,150
Total $ 227,508 $ 217,089 $ 868,382 $ 755,258
 

Income from operations

Food Service Equipment $ 9,803 $ 9,324 $ 34,853 $ 33,436
Engraving 7,720 5,674 28,966 25,584
Engineering Technologies 2,613 3,847 6,449 9,662
Electronics Products 13,679 8,599 45,310 27,663
Hydraulics Products 2,239 1,930 7,316 6,712
Restructuring (1,287) (2,747) (7,594) (5,825)
Acquisition related costs (749) (918) (3,749) (7,843)
Gain / (Loss) on sale of real estate - 652 - 652
Corporate (7,632) (5,772) (27,512) (25,015)
Total $ 26,386 $ 20,589 $ 84,039 $ 65,026
 
 
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures (unaudited)
         
Three Months Ended Year Ended
June 30, June 30,

(In thousands, except percentages)

    2018     2017  

%
Change

    2018     2017

 

%
Change

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

Income from operations, as reported $ 26,386 $ 20,589 28.2% $ 84,039 $ 65,026 29.2%
Adjustments:
Restructuring charges 1,287 2,748 7,594 5,825
(Gain) / Loss on Sale of Real Estate - (652) - (652)
Acquisition-related costs 749 918 3,749 7,843
Purchase accounting expenses - 1,998   205 3,084  
Adjusted income from operations $ 28,422 $ 25,601 11.0% $ 95,587 $ 81,126 17.8%
Interest and other income (expense), net (1,749) (1,414) (6,787) (3,094)
Provision for income taxes (12,020) (5,044) (40,620) (15,355)
Discrete tax items 6,285 - 20,844 (475)
Tax impact of above adjustments (503) (1,283)   (2,843) (4,122)  
Net income from continuing operations, as adjusted

$

20,435

$

17,860

14.4%

$

66,181

$

58,080

13.9%

 
EBITDA and Adjusted EBITDA:
Net income from continuing operations, as reported $ 12,617 $

14,131

$ 36,632 $

46,577

Add back:
Provision for income taxes 12,020 5,044 40,620 15,355
Interest expense 2,230 1,544 8,030 4,043
Depreciation and amortization 7,700 6,492   29,163 20,315  
EBITDA $ 34,567 $ 27,211 27.0% $ 114,445 $ 86,290 32.6%
Adjustments:
Restructuring charges 1,287 2,748 7,594 5,825
(Gain) / Loss on sale of real estate - (652) - (652)
Acquisition-related costs 749 918 3,749 7,843
Purchase accounting expenses - 1,998   205 3,084  
Adjusted EBITDA $ 36,603 $ 32,223 13.6% $ 125,993 $ 102,390 23.1%
 
Free operating cash flow:
Net cash provided by operating activities - continuing
operations, as reported

$

36,219

$

33,150 $ 65,003 $ 64,033
Add: Voluntary penson contribution 5,500 - 5,500 -
Less: Capital expenditures (5,149) (8,624) (26,539) (26,448)
Free operating cash flow $ 36,570 $ 24,526 $ 43,964 $ 37,585
 
Net income from continuing operations 12,617 14,131 36,632 46,577
Discrete tax item – tax on foreign cash 6,285 - 20,844 -
Adjusted net income 18,902 14,131 57,476 46,577
Conversion of free operating cash flow 193.5% 173.6% 76.5%

80.7%

During the fourth quarter of fiscal 2017, we adopted Accounting
Standards Update (ASU) 2016-09 requiring the recognition of excess tax
benefits as a component of income tax expense which were historically
recognized in equity. As the ASU requires a prospective adoption, our
Q1-Q3 2017 results have been recast to allocate $0.6M of the overall
benefit to the applicable periods. The Q4 2017 impact was immaterial to
that quarter's results.

 
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures (unaudited)
                 
Three Months Ended Year Ended
June 30, June 30,
Adjusted earnings per share from continuing operations     2018     2017

 

%
Change

 

 

2018

    2017  

%
Change

 
Diluted earnings per share from continuing operations, as reported $ 0.99 $ 1.11

-10.8%

$

2.86

$

3.65

-21.6%

 
Adjustments:
Restructuring charges 0.08 0.16 0.45 0.34
(Gain) / Loss on Sale of Real Estate - (0.04) - (0.04)
Acquisition-related costs 0.04 0.05 0.22 0.46
Purchase accounting - 0.12 0.01 0.18
Discrete tax items 0.49 -   1.63 (0.04)  
Diluted earnings per share from continuing operations, as adjusted $ 1.60 $

1.40

14.3% $ 5.17 $

4.55

13.6%

During the fourth quarter of fiscal 2017, we adopted Accounting
Standards Update (ASU) 2016-09 requiring the recognition of excess tax
benefits as a component of income tax expense which were historically
recognized in equity. As the ASU requires a prospective adoption, our
Q1-Q3 2017 results have been recast to allocate $0.6M of the overall
benefit to the applicable periods. The Q4 2017 impact was immaterial to
that quarter's results

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, unanticipated legal
judgments, fines or settlements, uncertainty in conditions in the
financial and banking markets, general domestic and international
economic conditions in the markets we serve, the impact of foreign
exchange, increases in raw material costs, the ability to substitute
less expensive alternative raw materials, changes in the heavy
construction vehicle market, the ability to continue to successfully
implement productivity improvements, market acceptance of our products,
our ability to design, introduce and sell new products and related
product components, the ability to redesign certain of our products to
continue meeting evolving regulatory requirements, the impact of delays
initiated by our customers, our ability to increase manufacturing
production to meet demand, 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,
changes in pension funding requirements, the impact of recently passed
tax reform legislation in the United States and the other factors
discussed in the Annual Report of Standex on Form 10-K for the fiscal
year ending June 30, 2017, 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.

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