Héroux-Devtek reports fiscal 2014 second quarter results
-- Sales from continuing operations of $56.4 million, versus $57.7 million last year -- Net income from continuing operations stable at $2.6 million -- Cash and cash equivalents of $92.7 million, equivalent to $2.94 per share, as at September 30, 2013 -- Funded backlog of $347 million -- Signature of a Memorandum of Agreement with Boeing during the quarter to supply complete landing gear systems for the 777 program LONGUEUIL, QC, Nov. 8, 2013 /CNW Telbec/ - Héroux-Devtek Inc. (TSX: HRX), ("Héroux-Devtek" or the "Corporation"), a leading Canadian manufacturer of aerospace products, today reported its results for the second quarter of fiscal 2014 ended September 30, 2013. Unless otherwise indicated, all amounts are in Canadian dollars. Net income from discontinued operations for the three- and six-month periods ended September 30, 2012 includes the results of substantially all of the Corporation's Aerostructure and Industrial Products operations sold to Precision Castparts Corp. (NYSE: PCP) on August 31, 2012 and the gain from the sale of discontinued operations. "The strength of the commercial aerospace market was Héroux-Devtek's main driver in the second-quarter of fiscal 2014, as sales in this market rose nearly 10%. However, uncertainty in the U.S. military market with reduced base defense budget funding and the ongoing sequestration resulted in a marked decline in sales of military products. More importantly, the main highlight of the quarter was the signature, by our wholly-owned subsidiary HDI Landing Gear USA Inc., of a Memorandum of Agreement ("MOA") with Boeing to supply complete landing gear systems for the B-777 program. A multi-year contract is expected to be signed before the end of calendar 2013 and would be the largest contract ever for our landing gear operations. This landmark achievement represents a major step up for Héroux-Devtek in the global supply chain, as it provides a solid foundation to leverage in our quest to sustain long-term growth," said Gilles Labbé, President and CEO of Héroux-Devtek. FINANCIAL Quarters ended September Six months ended September HIGHLIGHTS 30, 30, (in thousands of dollars, except per share data) 2013 2012 2013 2012 Sales from continuing operations 56,402 57,684 119,374 121,464 EBITDA from continuing operations 6,254 6,989 14,001 15,260 Net income from continuing operations 2,584 2,645 5,398 5,591 Per share - diluted ($) 0.08 0.09 0.17 0.18 Net income from discontinued operations - 110,000 - 113,258 Net income 2,584 112,645 5,398 118,849 Per share - diluted ($) 0.08 3.64 0.17 3.86 Weighted-average shares outstanding (diluted, in '000s) 31,688 30,985 31,678 30,824
Consolidated sales from continuing operations amounted to $56.4 million, down slightly from $57.7 million in the second quarter of fiscal 2013. Sales to the commercial aerospace market increased 8.8% to $27.0 million resulting from new actuator business with Boeing on the B-777 program and production rate increases on the B-777 and A-320 programs, partially offset by lower aftermarket sales on the Bombardier CL-415 program. Sales to the military aerospace market declined 10.6% to $29.4 million due to lower customer demand on certain programs, mainly the B-2, Global Hawk, F-15 and C-17, partially offset by new business with Boeing on the CH-47 Chinook helicopter program. Lower military sales also reflect a weak U.S. military market due to reduced base defense budget funding and the continued sequestration situation.
Fluctuations in the value of the Canadian currency versus the US currency increased second-quarter sales by $0.4 million but had a negative effect of $0.2 million, or 0.3% of sales, on gross profit compared with last year's second quarter. The impact of currency movements on the Corporation's gross profit is mitigated by the use of forward foreign exchange sales contracts and the natural hedging from the purchase of materials made in U.S. dollars.
Gross profit was relatively stable, both in monetary terms and as a percentage of sales, as a higher under-absorption of manufacturing overhead costs resulting from lower military customer requirements was offset by a reduction in non-quality costs. Meanwhile, selling and administrative expenses rose mainly due to higher R&D expenses and professional fees, including those related to the B-777 MOA. As a result, earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations totalled $6.3 million, or 11.1% of sales, compared with $7.0 million, or 12.1% of sales, last year.
Net income from continuing operations was stable at $2.6 million, or $0.08 per diluted share, in the second quarter of fiscal 2014, versus $2.6 million, or $0.09 per diluted share, in the second quarter of fiscal 2013. In the second quarter of fiscal 2014, the Corporation recorded a favourable adjustment of deferred income tax liabilities of $0.9 million.
FINANCIAL POSITION REMAINS HEALTHY As at September 30, 2013, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $92.7 million, or $2.94 per share. At that same date, total debt was $62.2 million, including $22.7 million drawn against the Corporation's authorized Credit Facility of $150.0 million, but excluding net deferred financing costs. As a result, the Corporation's net cash position stood at $30.5 million as at September 30, 2013.
SIX MONTHS RESULTS For the first six months of fiscal 2014, consolidated sales from continuing operations reached $119.4 million, versus $121.5 million a year earlier. Currency variations increased sales by $0.2 million, but reduced gross profit by $0.4 million in the first six months of fiscal 2014. EBITDA from continuing operations stood at $14.0 million, or 11.7% of sales, compared with $15.3 million, or 12.6% of sales, a year earlier. Net income from continuing operations totalled $5.4 million, or $0.17 per diluted share, versus $5.6 million, or $0.18 per diluted share, in the prior year.
OUTLOOK Conditions remain favourable in the commercial aerospace market. Large commercial aircraft manufacturers continue to proceed with production rate increases for certain leading programs and are forecasting higher deliveries in calendar 2013 than a year earlier. Their backlogs remain strong, representing seven to eight years of production at current rates. In the business jet market, key indicators point to a recovery and shipments should experience sustained growth in the next few years driven by a better economy and the introduction of several new aircraft, including three models for which Héroux-Devtek is currently developing the landing gear. The military aerospace market is expected to remain difficult. Given the uncertainty regarding the duration of sequestration, the Corporation may continue to be affected by U.S. defense cutbacks beyond the current fiscal year, despite having a diversified military portfolio, balanced between new component manufacturing and aftermarket products and services, that should lessen this impact.
As at September 30, 2013, Héroux-Devtek's funded (firm orders) backlog stood at $347 million, versus $361 million at the beginning of the fiscal year, and remains well diversified. The decline is essentially attributable to the weakness of the U.S. military market.
"Through its solid reputation as a world-class provider of integrated services, Héroux-Devtek is well positioned to seize opportunities that will arise in the landing gear market. In the short-term, the joint effect of U.S. military spending restrictions, the persistent sequestration and the government shutdown in October, will further impact consolidated sales for the fiscal year ending March 31, 2014, which we now expect to be slightly lower than last year, offsetting robust commercial aerospace activity that should yield sales growth of approximately 10% in this market. Given the weak military market, we must proactively optimize our asset utilization and adapt supply to demand, as evidenced by the workforce reduction announced earlier this week. Over the long run, Héroux-Devtek's financial strength is a key factor to shareholder value creation, as capital will be deployed, internally and through strategic acquisition, in initiatives that will further enhance our product and service offering," concluded Mr. Labbé.
CONFERENCE CALL Héroux-Devtek Inc. will hold a conference call to discuss these results on Friday, November 8, 2013 at 10:00 AM Eastern Time. Interested parties can join the call by dialling (514) 807-9895 (Montreal or overseas) or 1-888-231-8191 (elsewhere in North America). The conference call can also be accessed via live webcast at Héroux-Devtek's website, www.herouxdevtek.com, www.newswire.ca or www.q1234.com.
If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-855-859-2056 and entering the passcode 74423839 on your phone. This tape recording will be available on Friday, November 8, 2013 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Friday, November 15, 2013.
PROFILE Héroux-Devtek Inc. (TSX: HRX) is a Canadian company specializing in the design, development, manufacture and repair and overhaul of landing gear systems and components for the Aerospace market. The Corporation is the third largest landing gear company worldwide, supplying both the commercial and military sectors of the Aerospace market with new landing gear systems and components, as well as aftermarket products and services. The Corporation also manufactures electronic enclosures, heat exchangers and cabinets for suppliers of airborne radar, electro-optic systems and aircraft controls through its Magtron operations. Approximately 70% of the Corporation's sales are outside Canada, mainly in the United States. The Corporation's head office is located in Longueuil, Québec with facilities in the Greater Montreal area (Longueuil, Laval and St-Hubert); Kitchener and Toronto, Ontario; as well as Springfield and Cleveland, Ohio.
FORWARD-LOOKING STATEMENTS Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Corporation. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Corporation's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.
NON-IFRS MEASURES Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a financial measure not prescribed by International Financial Reporting Standards ("IFRS") and is not likely to be comparable to similar measures presented by other issuers. Management considers this to be useful information to assist investors in evaluating the Corporation's profitability, liquidity and ability to generate funds to finance its operations.
Note to readers: Complete unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis are available on Héroux-Devtek's website at www.herouxdevtek.com.
SOURCE Héroux-Devtek Inc.
Héroux-Devtek Inc. Gilles Labbé President and Chief Executive Officer Tel.: (450) 679-3330
Héroux-Devtek Inc. Stéphane Arsenault Chief Financial Officer Tel.: (450) 679-3330
MaisonBrison Martin Goulet, CFA Tel.: (514) 731-0000
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