Astronics Corporation Reports 2018 Second Quarter Financial Results
EAST AURORA, N.Y.--(BUSINESS WIRE)--Aug 3, 2018--Astronics Corporation (NASDAQ: ATRO), a leading supplier of advanced technologies and products to the global aerospace, defense, and semiconductor industries, today reported financial results for the three and six months ended June 30, 2018. Results for the quarter and the first six months of 2018 include the results of Telefonix PDT, which was acquired on December 1, 2017 and Custom Control Concepts (“CCC”), which was acquired on April 3, 2017.
Peter J. Gundermann, President and Chief Executive Officer, commented, “We had record consolidated sales in the quarter of $208.6 million with both segments delivering solid results. Our Aerospace segment surpassed its previous quarterly sales record with the contribution of Telefonix, and our Test segment produced its best quarter in three years.”
He continued, “The strong top line expanded margins to levels more representative of our business. We are confident in our outlook for 2018, as opportunities and operating performance should make it a very good year for Astronics.”
Second Quarter 2018 Results
Consolidated sales were up 38%, or $57.5 million, from the same period last year, including $26.9 million in sales from the Telefonix PDT acquisition. Organic revenue was $181.7 million, up 20% compared with the same prior year period driven by 97% growth in Test and 7.5% organic growth in the Aerospace segment.
Consolidated gross margin was 23.8% compared with 22.6% in the prior-year period. Consolidated gross margin benefited from higher organic sales and the acquisition’s contribution in gross profit. This was partially offset by a $1.5 million program charge recognized due to the revision of estimated costs to complete a long-term contract assumed with the acquisition of the CCC business.
Consolidated Engineering and Development (“E&D”) costs were $28.9 million. Organic Engineering and Development (“E&D”) costs were $25.3 million, compared with $23.0 million in last year’s second quarter. As a percent of organic sales, organic E&D costs were 13.9% and 15.2% in the second quarters of 2018 and 2017, respectively.
Selling, general and administrative (“SG&A”) expenses were up $7.4 million to $29.4 million, or 14.1% of sales, compared with $22.1 million, or 14.6% of sales, in the same period last year. The acquisition contributed $5.1 million to SG&A, including $2.2 million of intangible asset amortization expense. Consolidated intangible asset amortization expense was $4.9 million compared with $2.7 million in the prior year. Consolidated intangible asset amortization expense is expected to be $4.3 million in both the third and fourth quarters of 2018.
The effective tax rate for the quarter was 18.4%, compared with 27.3% in the second quarter of 2017. The 2018 second quarter tax rate was favorably impacted by the decrease in the Federal statutory tax rate partially offset by the elimination of the domestic production activities deduction resulting from the Tax Cuts and Jobs Act.
Net income was $14.0 million, or $0.49 per diluted share, compared with $7.7 million, or $0.26 per diluted share in the prior year.
Bookings were up 18% to $186.9 million, for a book-to-bill ratio of 0.90:1. Backlog at the end of the quarter was $376.9 million. Approximately 82% of backlog is expected to ship in 2018.
Year-to-Date 2018 Results
Consolidated sales for the first six months of 2018 increased by $84.2 million, or 27.7%, including $52.0 million in acquired revenue. Aerospace segment sales were up $64.4 million to $330.8 million. Organic Aerospace sales were up 4.7%. The Test segment sales were up $19.7 million, or 53.1% to $56.9 million.
Consolidated gross margin was 22.4% in the first six months of 2018 compared with 23.9% in the first six months of 2017. Consolidated gross margin benefited from higher organic sales and the gross profit contribution of Telefonix PDT. Expense related to the fair value step-up of acquired inventory was $1.3 million and was fully expensed in the first quarter. Consolidated gross margin was negatively impacted by the lower margin profile of CCC due to low volume and a $3.6 million program charge due to the revision of estimated costs associated with the long-term contract, as previously discussed. Organic E&D costs were 14.8% of organic sales, or $49.6 million, compared with $45.8 million, or 15.1% of sales, in the prior year’s first six months. Acquisitions contributed E&D costs of $8.1 million in the first six months of 2018.
SG&A expenses were $59.9 million, or 15.5% of sales, in the first six months of 2018 compared with $43.5 million, or 14.3% of sales, in the same period last year. Acquisitions contributed $12.3 million to SG&A, including $5.5 million of intangible asset amortization expense. Also contributing to higher SG&A was a $1.0 million litigation reserve recorded in the first quarter of 2018 for an ongoing matter. Corporate expenses increased by $2.4 million due to increased headcount, legal and accounting costs.
The effective tax rate for the first six months of 2018 was 18.0%, compared with 26.0% in the first six months of 2017. The tax rate was favorably impacted by the decrease in the Federal statutory rate partially offset by the elimination of the domestic production activities deduction resulting from the Tax Cuts and Jobs Act, as well as the change in foreign tax rates in the first six months of 2017.
Net income for the first half of 2018 totaled $17.3 million, or $0.60 per diluted share.
Aerospace Segment Review (refer to sales by market and segment data in accompanying tables)
Aerospace Second Quarter 2018 Results
Aerospace segment sales increased by $36.7 million, or 28.3%, to $166.2 million, when compared with the prior year’s second quarter. Organic sales increased $9.8 million, or 7.5%, while Telefonix PDT contributed $26.9 million in sales in the 2018 second quarter.
Avionics sales were up $25.3 million, due to the addition of Telefonix PDT, which contributed $23.9 million. Electrical Power & Motion sales increased by $5.0 million, or 8.1%, due to higher sales of in-seat power and seat motion products. System Certification sales increased by $2.1 million on higher project activity. Sales of other products were up $2.1 million, due primarily to the acquisition.
Aerospace operating profit for the second quarter of 2018 was $18.2 million, or 11.0% of sales, compared with $14.0 million, or 10.8% of sales, in the same period last year. Organic Aerospace E&D costs were $22.7 million compared with $21.0 million in the same period last year. The acquisition added $3.6 million in E&D costs.
Aerospace operating profit benefited from higher organic sales and the addition of Telefonix PDT. This was partially offset by a $1.5 million program charge related to the aforementioned CCC long-term contract. Intangible asset amortization expense for Telefonix PDT was $2.2 million in the second quarter.
Aerospace orders in the second quarter of 2018 were up 18% to $158.9 million compared with the prior year period. The book-to-bill ratio was 0.96:1 for the quarter. Backlog was $298.6 million at the end of the second quarter of 2018.
Aerospace Year-to-Date 2018 Results
Aerospace segment sales increased by $64.4 million, or 24.2%, to $330.8 million when compared with the prior year’s first six months.
Avionics sales increased by $49.2 million to $69.3 million driven primarily by the acquisition, which contributed $43.7 million in Avionics sales. Electrical Power & Motion sales increased $5.3 million, or 3.9%, and Systems Certifications sales increased $4.7 million, both for similar reasons as in the quarter. Sales of other products were up $4.6 million to $13.7 million, due primarily to the Telefonix PDT acquisition.
Aerospace operating profit was $31.3 million, or 9.5% of sales, compared with $33.7 million, or 12.7% of sales, in the same period last year. Aerospace operating profit in the first six months of 2018 was negatively impacted by purchase accounting expenses and a $1.0 million litigation reserve, which are expected to decrease or not recur through the remainder of 2018. As is typical during the first few quarters following an acquisition, non-cash costs were higher than what is expected over the long-term, as short-lived intangible assets are amortized and the fair value step-up costs relating to the acquired inventory is expensed. Intangible asset amortization expense for the acquisitions was $5.7 million in the first six months and fair value inventory step-up expense of $1.3 million was recorded in the first quarter. Aerospace operating profit was also negatively impacted by the $3.6 million program charge related to the CCC long-term contract previously discussed.
Somewhat offsetting these costs were the operating leverage realized from higher organic sales. E&D costs for Aerospace were $52.2 million and $41.3 million in the first six months of 2018 and 2017, respectively. Acquisitions contributed $8.1 million in 2018 to Aerospace E&D expenses.
Mr. Gundermann commented, “Our Aerospace business is on very firm footing and our product offering is well suited for the advancing evolution of the connected aircraft which is developing demand for our products. Our Telefonix acquisition is contributing strongly, and has a critical role in our strategy involving connectivity. We expect the positive trends will continue, and that we will see more quarterly sales records established yet in 2018.”
Test Systems Segment Review (refer to sales by market and segment data in accompanying tables)
Test Systems Second Quarter 2018 Results
Sales in the second quarter of 2018 increased approximately $20.8 million to $42.4 million, almost doubling compared with the same period in 2017. A $24.3 million increase in sales to the Semiconductor market was offset by a $3.5 million decrease in sales to the Aerospace & Defense market when compared with the prior-year period.
Operating profit for the segment was $6.2 million, or 14.7% of sales, compared with $1.4 million, or 6.6% of sales, in last year’s second quarter. Higher margin was driven by the increase in volume and favorable sales mix compared with the same period last year. E&D costs were $2.6 million, up from $2.0 million in the second quarter of 2017.
Orders for the Test Systems segment in the quarter were $28.1 million, for a book-to-bill ratio of 0.66:1 for the quarter. Backlog was $78.3 million at the end of the second quarter of 2018.
Test Systems Year-to-Date 2018 Results
Sales in the first six months of 2018 increased 53.1% to $56.9 million compared with sales of $37.1 million for the same period in 2017. The growth was driven by a$26.8 million increase in higher sales to the Semiconductor market. This was somewhat offset by a decrease in Aerospace & Defense sales of $7.0 million.
Operating profit increased $2.5 million to $4.3 million, or 7.6% of sales, as a result of increased volume and improved product mix. E&D costs were $5.6 million in the first six months of 2018 compared with $4.5 million in the prior year period.
Mr. Gundermann commented, “Our Test business is delivering on its strong backlog and the second quarter was the best performance realized in recent years. We expect the third quarter to see more of the same, setting up a strong second half to the year.”
The outlook for 2018 remains unchanged with consolidated sales forecasted to be in the range of $765 million to $815 million, with $650 million to $680 million expected from the Aerospace segment and $115 million to $135 million from the Test segment.
Consolidated backlog at June 30, 2018 was $376.9 million. Approximately 82% of backlog is expected to ship in 2018.
The effective tax rate for 2018 is expected to be in the range of 18% to 21%.
Expectations for capital equipment spending in 2018 are unchanged from a range of $24 million to $28 million.
E&D costs for 2018 continue are expected to be in the range of $110 million to $115 million.
Mr. Gundermann concluded, “We believe we are on track for a strong second half to 2018. The mid-points of our predicted revenue range for the year suggest 26% consolidated sales growth over our 2017 total. Aerospace would see growth of 24%, while Test would see growth of 39%. As we work towards these targets we will also continue to improve our margins. The progress should be impressive in the last two quarters of the year.”
Second Quarter 2018 Webcast and Conference Call
The Company will host a teleconference today at 11:00 a.m. ET. During the teleconference, management will review the financial and operating results for the period and discuss Astronics’ corporate strategy and outlook. A question-and-answer session will follow.
The Astronics conference call can be accessed by calling (201) 493-6784. The listen-only audio webcast can be monitored at www.astronics.com. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13679520. The telephonic replay will be available from 2:00 p.m. on the day of the call through Friday, August 10, 2018. A transcript will also be posted to the Company’s Web site once available.
About Astronics Corporation Astronics Corporation (NASDAQ: ATRO) is a leading supplier of advanced technologies and products to the global aerospace, defense and semiconductor industries. Astronics’ products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification and automated test systems. Astronics’ strategy is to increase its value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to its targeted markets and other markets where its technology can be beneficial. Through its wholly owned subsidiaries, Astronics has a reputation for high-quality designs, exceptional responsiveness, strong brand recognition and best-in-class manufacturing practices. The Company routinely posts news and other important information on its website at www.astronics.com.
Safe Harbor Statement This news release contains forward-looking statements as defined by the Securities Exchange Act of 1934. One can identify these forward-looking statements by the use of the words “expect,” “anticipate,” “plan,” “may,” “will,” “estimate” or other similar expressions. Because such statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the statements. Important factors that could cause actual results to differ materially from what may be stated here include the state of the aerospace, defense, consumer electronics and semiconductor industries, the market acceptance of newly developed products, internal production capabilities, the timing of orders received, the status of customer certification processes and delivery schedules, the demand for and market acceptance of new or existing aircraft which contain the Company’s products, the need for new and advanced test and simulation equipment, customer preferences and other factors which are described in filings by Astronics with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this news release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.
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