Standex Reports Third-Quarter 2016 Financial Results
Food Service Equipment Group Expands Operating Margins 260 bps to 9.6%
Engineering Technologies Aviation Ramp-Up on Track
Operational Excellence and Top-Line Initiatives Continue Across All Businesses
Board Authorizes Share Repurchase of up to $100 Million

SALEM, N.H.--(BUSINESS WIRE)--Standex International Corporation (NYSE:SXI) today reported financial results for the third quarter of fiscal year 2016.

Third-Quarter Fiscal 2016 Results from Continuing Operations

  • Net sales decreased 2.0% to $177.5 million from $181.0 million in the third quarter of fiscal 2015. Organic sales decreased 2.0%, foreign exchange had a negative effect of 1.4%, and acquisitions contributed positive 1.4% year over year.
  • Income from operations was $17.2 million, compared with $17.8 million in the third quarter of fiscal 2015.Net income from continuing operations was $11.6 million, or $0.91 per diluted share, including tax-effected $0.3 million of restructuring charges. This compares with third-quarter fiscal 2015 net income from continuing operations of $12.8 million, or $1.00 per diluted share, including tax-effected $0.3 million of restructuring charges. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $11.9 million, or $0.93 per diluted share, compared with $13.1 million, or $1.02 per diluted share, in the third quarter of fiscal 2015.
  • EBITDA (earnings before interest, income taxes, depreciation and amortization) was $21.6 million, compared with $22.2 million in the third quarter of fiscal 2015. Excluding the previously mentioned restructuring charges from both periods, adjusted EBITDA for the third quarter of fiscal 2016 was $21.9 million, compared with $22.6 million in the year-earlier quarter.
  • Net working capital (defined as accounts receivable plus inventories less accounts payable) was $144.6 million at the end of the third quarter of fiscal 2016, compared with $149.5 million a year earlier. Working capital turns were 4.9 in the third quarter of fiscal 2016 and 4.8 in the prior year.
  • The Company closed the quarter with a net cash position of $7.4 million, compared with a net debt position of $44.4 million a year ago.

Management Comments

“We continued to make good progress operationally during the quarter as we faced challenges to the top line in certain of our end markets,” said President and CEO David Dunbar. “Third-quarter non-GAAP operating income was down 3.7% year-over-year on a 2.0% revenue decline. Significant operating income gains in the Food Service Equipment Group did not fully offset a decline in Engineering Technologies operating income as a result of the oil and gas downturn and the impact of planned growth investments in Engraving. We generated a 9.6% Food Service operating margin in Q3, up from 7.0% last year, despite a 3.4% decline in sales. Engraving had another great quarter on the top line as we invested in technology to drive future growth, and Electronics and Hydraulics continued to perform well. The repositioning of Engineering Technologies is progressing well as we ramp up capacity to capitalize on aviation growth opportunities.”

Segment Review

Food Service Equipment Group sales decreased 3.4% year-over-year, and operating income was up 32.0%.

“Our focus on margin improvement resulted in a significant increase in year-over-year Food Service Equipment operating income,” said Dunbar. “Operating income margins increased 260 basis points to 9.6% on a sales decrease of 3.4% from Q3 last year. The decrease in sales was driven primarily by lower Refrigeration sales as well as ongoing actions to eliminate less profitable products. With our operational excellence initiatives in place and demonstrating positive early results, the team is advancing its commercial strategic initiatives -- focusing on technological enhancements to our product lines, expansion into attractive market adjacencies and improving sales force structure and incentives. However, we anticipate top-line performance challenges to continue in the Refrigeration group in the near term.”

Engraving Group sales increased 6.2% year-over-year, with 11.6% organic growth partially offset by a 5.4% negative effect from foreign exchange. Operating income was down 7.9% compared with last year due to planned growth investments.

“Engraving Group sales increases were primarily driven by our Mold-Tech locations in Europe and China, as demand for automotive molds remain strong,” said Dunbar. “As a result of our planned investments in laser and nickel shell technologies and design services to meet demand and market trends, operating income margins declined 280 basis points to 18.6%. While we have begun to see softness in some of our Asian markets, we remain optimistic about our near term potential for global Mold-Tech sales growth.”

Engineering Technologies Group sales declined 21.3% year-over-year, and operating income decreased 52.3%.

“Organic sales were down 20.7% year-over-year, primarily due to significantly lower demand in the oil and gas markets, as well as contract timing in the space industry,” said Dunbar. “This was partially offset by increased sales in aviation. Demand in aviation continues to grow and we are creating the capacity to fulfill customer needs. Construction of our Aluminum Center of Excellence in Wisconsin is on track and we expect to be in production at that facility in June.

We anticipate improvement in year-over-year fourth-quarter margins due to improvements from higher sales and margin growth in aviation and an easier year-over-year comparison in the oil and gas market.”

Electronics Products Group sales were up 6.8% year-over-year. Acquisitions contributed 8.9%, partially offset by a negative currency effect of 2.3%. Operating income was down 0.7%.

“Electronics sales increased 6.8% due to the Q2 2016 acquisition of Northlake as well as program launches in Europe, partially offset by softness in Asia and North America and the effect of foreign exchange rate,” said Dunbar. “Operating income was nearly flat to prior year results. We continue to see increasing opportunities in sensors and expect our new sensor programs will drive growth in fiscal year 2017.”

The Hydraulics Products Group reported a 12.0% year-over-year sales increase, while operating income rose 16.5%.

“Sales were up 12.0% year-over-year, primarily due to the continued strengthening in our traditional North American dump truck and trailer markets, which is tied to the strong North American construction environment,” said Dunbar. “Our customers are optimistic that the passage of the new five-year highway bill could provide further growth opportunities. We continue to capture new OEM platforms in the refuse space and we are focused on entering new markets, such as airline support equipment. March was a record month for cylinder production and we are enhancing our capacity in China in order to meet increased demand in the fourth quarter and into fiscal 2017.”

Business Outlook

“Our fourth-quarter focus will be to continue our operational excellence and top-line initiatives, as we seek to finish the year strong. Across the organization we will be aggressively executing on the four pillars of the Standex Value Creation System to drive performance in the business. These include the balanced performance plan process, the growth disciplines, operational excellence, and talent management.”

Stock Repurchase

The Company today also is announcing that its Board of Directors has authorized a revision to its share repurchase program under which the Company may now repurchase up to an aggregate of $100 million of its outstanding common stock. Commenting on the Board’s authorization, Mr. Dunbar stated, “To date, we have used our stock repurchase program primarily to offset dilution caused by employee stock issuances. This revision provides the Company with the ability to make opportunistic share repurchases, is consistent with our disciplined capital allocation strategy and reflects the Board’s confidence in Standex’s ability to enhance shareholder value.” Under the program, purchases may be made from time to time on the open market, including through 10b5-1 trading plans, or through privately negotiated transactions, block transactions, or other techniques in accordance with prevailing market conditions and the requirements of the Securities and Exchange Commission. The Board’s authorization is open-ended and does not establish a timeframe for the purchases. The Company is not obligated to acquire a particular number of shares, and the program may be discontinued at any time at the Company’s discretion.

Conference Call Details

Standex will host a conference call for investors today, May 3, 2016 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 web site shortly after the conclusion of the presentation. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 87927611. 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

EBITDA, which is "Earnings Before Interest, Taxes, Depreciation and Amortization," non-GAAP income from operations, non-GAAP net income from continuing operations and free cash flow are non-GAAP financial measures and are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

About Standex

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

1 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, unforeseen legal judgments, fines or settlements, uncertainty in conditions in the financial and banking markets, general domestic and international economy including more specifically economic conditions in the oil and gas market, aerospace market, retail food and beverage market, and automotive and heavy construction vehicle markets, the impact of foreign exchange, increases in raw material costs, the ability to substitute less expensive alternative raw materials, the ability to continue to successfully implement productivity improvements, 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 and the other factors discussed in the Annual Report of Standex on Form 10-K for the fiscal year ending June 30, 2015, 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.

 
Standex International Corporation
Consolidated Statement of Operations
                                 
        Three Months Ended       Nine Months Ended
        March 31,       March 31,
(In thousands)       2016         2015         2016         2015  
                                 
Net sales     $ 177,465       $ 180,999       $ 557,811       $ 572,363  
Cost of sales       118,827         123,741         372,386         390,193  
Gross profit       58,638         57,258         185,425         182,170  
                                 
Selling, general and administrative expenses       41,087         39,028         125,713         124,836  
Restructuring costs       391         398         3,387         2,354  
Other operating (income) expense, net       -         -         -         59  
                                 
Income from operations       17,160         17,832         56,325         54,921  
                                 
Interest expense       807         938         2,182         2,369  
Other (income) expense, net       115         (103 )       (369 )       (556 )
Total       922         835         1,813         1,813  
                                 
Income from continuing operations before income taxes       16,238         16,997         54,512         53,108  
Provision for income taxes       4,667         4,232         14,354         14,153  
Net income from continuing operations       11,571         12,765         40,158         38,955  
                                 
Income (loss) from discontinued operations, net of tax       (55 )       (139 )       (290 )       (593 )
                                 
Net income     $ 11,516       $ 12,626       $ 39,868       $ 38,362  
                                 
Basic earnings per share:                                
Income from continuing operations     $ 0.91       $ 1.01       $ 3.17       $ 3.08  
Income (loss) from discontinued operations       -         (0.01 )       (0.02 )       (0.05 )
Total     $ 0.91       $ 1.00       $ 3.15       $ 3.03  
                                 
Diluted earnings per share:                                
Income from continuing operations     $ 0.91       $ 1.00       $ 3.14       $ 3.04  
Income (loss) from discontinued operations       -         (0.01 )       (0.02 )       (0.05 )
Total     $ 0.91       $ 0.99       $ 3.12         2.99  
                                 
Average Shares Outstanding                                
Basic       12,696         12,657         12,681         12,656  
Diluted       12,768         12,788         12,776         12,808  
                                 
 
Standex International Corporation
Condensed Consolidated Balance Sheets
                 
        March 31,       June 30,
(In thousands)       2016         2015  
                 
ASSETS                
Current assets:                
Cash and cash equivalents     $ 113,401       $ 96,128  
Accounts receivable, net       99,204         110,478  
Inventories       109,012         108,305  
Prepaid expenses and other current assets       6,261         7,070  
Income taxes receivable       5,292         747  
Deferred tax asset       13,178         12,674  
Total current assets       346,348         335,402  
                 
Property, plant, equipment, net       110,549         108,536  
Intangible assets, net       42,291         38,048  
Goodwill       158,589         154,732  
Deferred tax asset       865         917  
Other non-current assets       18,964         21,428  
Total non-current assets       331,258         323,661  
                 
Total assets     $ 677,606       $ 659,063  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
Accounts payable     $ 63,578       $ 80,764  
Accrued liabilities       46,643         47,742  
Income taxes payable       7,716         10,285  
Total current liabilities       117,937         138,791  
                 
Long-term debt       106,028         101,753  
Accrued pension and other non-current liabilities       71,341         69,949  
Total non-current liabilities       177,369         171,702  
                 
Stockholders' equity:                
Common stock       41,976         41,976  
Additional paid-in capital       51,063         47,254  
Retained earnings       667,607         632,864  
Accumulated other comprehensive loss       (96,250 )       (93,017 )
Treasury shares       (282,096 )       (280,507 )
Total stockholders' equity       382,300         348,570  
                 
Total liabilities and stockholders' equity     $ 677,606       $ 659,063  
 
Standex International Corporation and Subsidiaries
Statements of Consolidated Cash Flows
        Nine Months Ended
        March 31,
(In thousands)       2016         2015  
                 
Cash Flows from Operating Activities                
Net income     $ 39,868       $ 38,362  
Income (loss) from discontinued operations       (290 )       (593 )
Income from continuing operations       40,158         38,955  
                 

Adjustments to reconcile net income to net cash provided by operating
activities:

               
Depreciation and amortization       13,317         12,602  
Stock-based compensation       3,777         2,806  
Non-cash portion of restructuring charge       1,512         (215 )
Excess tax benefit from share-based payment activity       (795 )       (1,644 )
Contributions to defined benefit plans       (963 )       (1,069 )
Net changes in operating assets and liabilities       (9,710 )       (28,360 )
Net cash provided by operating activities - continuing operations       47,296         23,075  
Net cash provided by (used in) operating activities - discontinued operations       (748 )       (1,818 )
Net cash provided by (used in) operating activities       46,548         21,257  
Cash Flows from Investing Activities                
Expenditures for property, plant and equipment       (13,264 )       (18,847 )
Expenditures for acquisitions, net of cash acquired       (13,700 )       (57,149 )
Proceeds from sale of real estate and equipment       259         -  
Other investing activities       (417 )       1,197  
Net cash (used in) investing activities from continuing operations       (27,122 )       (74,799 )
Net cash (used in) investing activities from discontinued operations       2,803         -  
Net cash (used in) investing activities       (24,319 )       (74,799 )
Cash Flows from Financing Activities                
Proceeds from borrowings       58,000         267,500  
Payments of debt       (54,000 )       (182,700 )
Activity under share-based payment plans       816         675  
Excess tax benefit from share-based payment activity       795         1,644  
Cash dividends paid       (3,167 )       (9,835 )
Purchase of treasury stock       (5,071 )       (4,301 )
Net cash provided by (used in) financing activities       (2,627 )       72,983  
                 
Effect of exchange rate changes on cash       (2,329 )       (9,715 )
                 
Net changes in cash and cash equivalents       17,273         9,726  
Cash and cash equivalents at beginning of year       96,128         74,260  
Cash and cash equivalents at end of period     $ 113,401       $ 83,986  
                 
Standex International Corporation
Selected Segment Data
                                 
        Three Months Ended       Nine Months Ended
        March 31,       March 31,
(In thousands)       2016         2015         2016         2015  

Net Sales

                               
Food Service Equipment     $ 87,944       $ 91,064       $ 286,093       $ 303,430  
Engraving       28,560         26,896         94,016         81,609  
Engineering Technologies       19,358         24,590         58,780         71,314  
Electronics Products       29,909         28,006         86,245         85,299  
Hydraulics Products       11,694         10,443         32,677         30,711  
Total     $ 177,465       $ 180,999       $ 557,811       $ 572,363  
                                 

Income from operations

                               
Food Service Equipment     $ 8,455       $ 6,404       $ 29,183       $ 24,989  
Engraving       5,305         5,757         22,655         18,647  
Engineering Technologies       1,744         3,655         4,512         9,093  
Electronics Products       5,263         5,298         15,338         15,582  
Hydraulics Products       2,007         1,723         5,502         4,897  
Restructuring       (391 )       (398 )       (3,387 )       (2,354 )
Other operating income (expense), net       -         -         -         (59 )
Corporate       (5,223 )       (4,607 )       (17,478 )       (15,874 )
Total     $ 17,160       $ 17,832       $ 56,325       $ 54,921  
                                         
     
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
                                               
          Three Months Ended             Nine Months Ended      
          March 31,             March 31,      

(In thousands, except percentages)

     

2016

     

2015

    % Change      

2016

     

2015

    % Change

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

                             
Income from operations, as reported     $ 17,160     $ 17,832     -3.8%     $ 56,325     $ 54,921     2.6%
Adjustments:                                            
Restructuring charges       391       398             3,387       2,354      
Acquisition-related costs       -       -             423       1,696      
Adjusted income from operations     $ 17,551     $ 18,230     -3.7%     $ 60,135     $ 58,971     2.0%
Interest and other income (expense), net       (922)       (835)             (1,813)       (1,813)      
Provision for income taxes       (4,667)       (4,232)             (14,354)       (14,153)      
Discrete tax items       -       -             (721)       (239)      
Tax impact of above adjustments       (104)       (106)             (1,017)       (1,077)      
Net income from continuing operations, as adjusted    

$

11,858    

$

13,057

   

-9.2%

   

$

42,230    

$

41,689

   

1.3%

                                               

EBITDA and Adjusted EBITDA:

                                           

Income from continuing operations
before income taxes, as reported

    $ 16,238     $ 16,997           $ 54,512     $

53,108

     
Add back:                                            
Interest expense       807       938             2,182       2,369      
Depreciation and amortization       4,513       4,297             13,317       12,602      
EBITDA     $ 21,558     $ 22,232     -3.0%     $ 70,011     $ 68,079     2.8%
Adjustments:                                            
Restructuring charges       391       398             3,387       2,354      
Acquisition-related costs       -       -             423       1,696      
Adjusted EBITDA     $ 21,949     $ 22,630     -3.0%     $ 73,821     $ 72,129     2.3%
                                               

Free operating cash flow:

                                           
Net cash provided by operating activities - continuing operations, as reported     $ 16,429     $ 11,277           $

47,296

    $

23,075

     
Less: Capital expenditures       (4,540)       (4,886)             (13,264)       (18,847)      
Free operating cash flow     $ 11,889     $ 6,391           $ 34,032     $ (4,228)      
Net income from continuing operations       11,571       12,765             40.158       38,955      
Conversion of free operating cash flow      

102.7%

     

50.1%

           

84.7%

     

10.9%

     
                                             
                     
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
                                     
      Three Months Ended           Nine Months Ended      
      March 31,           March 31,      

Adjusted earnings per share from continuing operations

    2016     2015     %

Change

    2016    

2015

 

 

%

Change

                               

 

   

Diluted earnings per share from continuing
operations, as reported

  $

0.91

  $ 1.00    

-9.0%

  $

3.14

 

$

3.04

 

 

3.3%

                                     
Adjustments:                                    
Restructuring charges     0.02     0.02           0.19    

0.13

 

   
Acquisition-related costs     -     -           0.02    

0.10

 

   
Discrete tax items     -     -           (0.06)    

(0.02)

 

   

Diluted earnings per share from continuing
operations, as adjusted

  $

0.93

  $ 1.02    

-8.8%

  $

3.29

 

$

3.25

 

  1.2%
                                     

 

Contact:

Standex International Corporation
Thomas DeByle, 603-893-9701
CFO
InvestorRelations@Standex.com