Kaman Reports 2018 Second Quarter Results

August 8, 2018

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Aug 8, 2018--Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended June 29, 2018, as follows:

Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “Our second quarter results benefited from increased demand across our broad Aerospace product offerings and continued organic sales growth at Distribution. As we look to the remainder of the year we remain encouraged by the underlying performance of both of our operating segments.

“At Distribution, we have completed a significant portion of our national account onboarding processes, which we expect will lead to stronger sales in the second half of the year. As a result, we are increasing our expectations for organic sales growth for the full year to 5% to 8%. Operating margin for the segment was below expectations as a number of items impacted performance for the second quarter, including lower vendor incentives, higher than anticipated group health and employee costs, and increased freight costs. In addition, we began to implement restructuring actions to improve organizational effectiveness while reducing selling, general and administrative costs. These actions are expected to result in approximately $0.6 million of additional expense in 2018 and generate annual savings of approximately $2.5 million.

“At Aerospace, we won a number of contract awards that contributed to our backlog of $825 million at quarter end. We expect to conclude deliveries on Option 13 of our JPF USG Contract in the near term and continue to work through our more than $400 million of backlog for this product. Demand for the JPF remains strong, as evidenced by our recently announced $69.4 million USG order and we are working on a number of other significant new opportunities. We expect an increase in sales and margin for the remainder of the year at Aerospace as the sales mix shifts to higher margin JPF and specialty bearings products which are both benefiting from the strong order intake we have seen through the first half of the year.”

Chief Financial Officer Robert D. Starr commented, “We continued to generate strong cash flow in the second quarter leading to year-to-date cash flow from operations of $93.7 million and Free Cash Flow* of $77.9 million. As we discussed last quarter, we made an additional $10.0 million discretionary pension contribution in April bringing our year to date contributions to $20.0 million. We received a favorable tax benefit for the second quarter contribution and as a result recorded a discrete benefit in the period which helped lower our second quarter effective tax rate to 18.6%. Similar to the first quarter, sales and earnings in the second quarter benefited from the adoption of the new revenue standard.

“We are revising our outlook for the year to reflect the performance we achieved through the first half of 2018. For Aerospace we are tightening up our sales range and now expect sales in the range of $755 million to $775 million, while increasing our expectations for operating margin to 15.9% to 16.1%, or 16.6% to 16.8% when adjusted for the $5.5 million of anticipated restructuring costs. This new range implies a significant increase in margins in the back half of the year and is primarily due to the expected increase in sales of JPF and specialty bearings products, and the benefit from our restructuring actions.

“At Distribution, our prior sales outlook for the year implied an organic growth rate of 3% to 7%. To-date we have seen organic growth of 4.2% and with the completion of a significant portion of our onboarding processes for our new national accounts we are raising our full year sales expectations at Distribution to a range of $1,135 million to $1,170 million. We are lowering our expectations for operating margin at Distribution to reflect a shift in the anticipated sales mix, the anticipated cost of the restructuring activities and the impact from the forecasted continuation of increased group health costs for the remainder of the year. We now expect operating margin in the range of 4.8% to 5.0%, or 4.9% to 5.1% when adjusted for the $0.6 million of restructuring costs. We expect to realize a portion of the benefit from these restructuring actions in 2018 and this, when coupled with improved leverage from the anticipated increase in organic sales, provides us with confidence that operating margins will increase in the back half of the year.

“Looking at the remainder of the outlook, we are revising our expectations for Corporate expense and the effective tax rate for the year. The trends in employee related and group health costs that impacted Distribution are also impacting our expectations for Corporate expense, which we now expect to be $60.0 million, $1.0 million higher than our previous outlook.

“We are revising our expectations for the full year tax rate from 25.5% to 26.5% to 24.5% to account for the discrete benefit we received from the additional pension contribution in the second quarter. We are evaluating the benefits of making another discretionary pension contribution in the third quarter which would also allow us to receive a favorable tax benefit. If we make this contribution in the third quarter we would expect to record an additional discrete tax benefit in the third quarter; however, the potential cash outlay in the third quarter and the related tax benefit have not been included in our current outlook for the year.

“Finally, we are making a minor revision to our expected weighted average diluted shares outstanding from 28.0 million to 28.2 million.”

2018 Outlook

The Company’s revised 2018 outlook is as follows:

Distribution: Sales of $1,135 million to $1,170 millionOperating margins of 4.8% to 5.0%, or 4.9% to 5.1% when adjusted for the $0.6 million of restructuring costsDepreciation and amortization expense of approximately $15.0 million Aerospace: Sales of $755.0 million to $775.0 millionOperating margins of 15.9% to 16.1%, or 16.6% to 16.8% when adjusted* for approximately $5.5 million in anticipated restructuring and transition costsDepreciation and amortization expense of approximately $24.0 million Interest expense of approximately $20.0 million Corporate expenses of approximately $60.0 million Net periodic pension benefit of approximately $12.5 million Estimated annualized tax rate of approximately 24.5% Consolidated depreciation and amortization expense of approximately $43.0 million Capital expenditures of approximately $35.0 million Cash flows from operations in the range of $185.0 million to $210.0 million; Free Cash Flow* in the range of $150.0 million to $175.0 million, which includes $20 million of discretionary pension contributions Weighted average diluted shares outstanding of 28.2 million

Please see the MD&A section of the Company’s Form 10-Q filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.

A conference call has been scheduled for tomorrow, August 9, 2018, at 8:30 AM ET. Listeners may access the call live by telephone at (844) 473-0975 and from outside the U.S. at (562) 350-0826 using the Conference ID: 1088169; or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference ID: 1088169. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in this release.

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 markets proprietary aircraft bearings and components; super precision, miniature ball bearings; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our K-MAX® manned and unmanned medium-to-heavy lift helicopters; and engineering design, analysis and certification services. The company is a leading distributor of industrial parts, and operates approximately 220 customer service centers including five distribution centers across the U.S. and Puerto Rico. Kaman offers more than five million items including electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components, 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. More information is available at www.kaman.com.

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP (i.e. Financial measures that are noted computed in accordance with Generally Accepted Accounting Principles) financial measures identified 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 release and other disclosures as follows:

Organic Sales - Organic Sales is defined as “Net Sales” less sales derived from acquisitions completed during the preceding twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales separately for our segments provides management and investors with useful information about the trends impacting our segments and enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term “Organic Sales” may be interpreted differently by other companies and under different circumstances. No other adjustments were made during the three-month and six-month fiscal periods ended June 29, 2018 and June 30, 2017. The following table illustrates the calculation of Organic Sales using the GAAP measure, “Net Sales.”

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