Standex Reports Fourth-Quarter 2016 Financial Results
Sales Decreased 3.0% in the Quarter Driven by Lower Refrigeration Sales
Gross Margin Improved 180 Basis Points Despite a $6 Million Sales Decline
Divested the US Roll, Plate, and Machinery Business Resulting in Non-Cash Pre-Tax Charge of $7.3 Million

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

Fourth-Quarter Fiscal 2016 Results from Continuing Operations

  • Net sales decreased 3.0% to $193.8 million from $199.8 million in the fourth quarter of fiscal 2015. Organic, continuing sales decreased 3.7%, foreign exchange had a negative effect of 0.5%, and acquisitions contributed positive 1.5% year over year. Sales of the recently divested U.S. Roll, Plate and Machinery (“RPM”) business were $4.3 million in the most recent quarter as compared to $4.9 million in the fourth quarter of last year. Adjusted Sales excluding the RPM business were $189.5 million versus adjusted sales in 2015 of $194.9 million, a reduction of 2.7%
  • Income from operations was $14.0 million, compared with $23.7 million in the fourth quarter of fiscal 2015. Income from operations in 2016 was impacted by a $7.3 million charge to write the RPM business down to its net realizable value along with $0.8 million of restructuring expenses and a $0.2 million loss on sale of real estate. Fiscal 2015 income from operations was negatively impacted by $1.1 million of restructuring charges partially offset by a $0.5 million gain on insurance proceeds. Excluding the aforementioned items from both periods, income from operations for the quarter was $21.8 million in fiscal 2016 as compared to $24.2 million in the prior year.
  • Net income from continuing operations was $12.1 million, or $0.94 per diluted share, including tax-effected $4.5 million of charges related to the RPM sale, $0.6 million of restructuring charges, $0.1 million of loss on sale of real estate, all offset by $0.3 million of discrete tax benefits. This compares with fourth-quarter fiscal 2015 net income from continuing operations of $16.3 million, or $1.27 per diluted share, including tax-effected $0.8 million of restructuring charges and a tax effected gain on insurance proceeds of $0.4 million. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $16.8 million, or $1.31 per diluted share, compared with $16.6 million, or $1.30 per diluted share, in the fourth quarter of fiscal 2015
  • Net working capital (defined as accounts receivable plus inventories less accounts payable) was $132.3 million at the end of the fourth quarter of fiscal 2016, compared with $138.0 million a year earlier. Working capital turns were 5.9 in the fourth quarter of fiscal 2016 and 5.8 in the year-earlier quarter.
  • The Company closed the quarter with a net cash position of $29.9 million, compared with a net debt position of $5.6 million a year ago.
  • 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 made good progress operationally during the quarter as we continued to face top line challenges in Refrigeration and Engineering Technologies while Engraving, Electronics and Hydraulics all increased their sales,” commented President and CEO David Dunbar. “Our operational improvement initiatives are having a positive effect as seen by our gross margin expansion of 180 basis points as compared to the fourth quarter of 2015. GAAP EPS was $0.94 per diluted share as compared to $1.27 in the prior year. On an adjusted basis, our EPS grew slightly to $1.31 per share as compared to $1.30 adjusted in the fourth quarter of last year.”

Segment Review

Food Service Equipment sales decreased 9.0% year-over-year, and operating income was down 12.1%.

“Sales for the quarter decreased 9% from last year, driven primarily by continued softness in Refrigeration,” said Dunbar. “We continue to make significant progress operationally, with operating margins only declining 40 basis points on the drop in revenue. Refrigeration sales decreased 20.7% in the quarter as a result of continued softness in sales to large, national chains and small footprint retail. In Cooking Solutions, revenue increased 5.9% year-over-year, primarily driven by sales through dealers. The improvements that we have made in our factories have increased on-time deliveries and expanded margins.

“In fiscal 2017, we anticipate seeing at least two more difficult quarters in Refrigeration. As we have communicated in prior quarters, we continue to see slower spending from our small footprint retail customers and our large national chains. The consolidation activities in the small footprint retail segment have slowed our customers’ capital spending, and we expect increased spending in the latter half of our fiscal year. In our Specialty Solutions group, our Procon pump business has a number of new opportunities in the carbonated beverage market that we look to capitalize on in the coming year. On the bottom line, we expect that our operational excellence activities will continue to improve overall operating performance in the coming year.”

Engraving sales increased 3.2% year-over-year, with 7.7% of organic growth partially offset by a 2.3% negative effect from foreign exchange and 2.2% of sales declines related to the RPM business. Operating income was up 23.6% compared with last year.

“The Engraving segment had another good quarter, with sales increasing 3.2% over the fourth quarter of last year,” said Dunbar. “Sales were driven by auto mold-texturizing increases in Asia and Europe where new model rollouts remain strong. We anticipate that the momentum in Engraving will continue in the new fiscal year as we focus on meeting automotive Mold-Tech demand in North America, Europe and Asia.

“Subsequent to our fiscal 2016 year-end, we sold our RPM business as it no longer fit our long term strategy and did not meet our growth and return expectations. This divestiture also allows our Engraving management to focus on higher growth and better return businesses within the segment. In preparation for the sale, we recorded a $7.3 million charge to adjust the business to its net realizable value. RPM operating income in the most recent quarter was $0.5 million as compared to $0.1 million in the fourth quarter of the prior year. RPM net income in the most recent quarter was $0.2 million as compared to $0.1 million in the fourth quarter of the prior year.”

Engineering Technologies sales declined 8.7% year-over-year, and operating income decreased 6.4%.

“Sales were down 8.7% year-over-year, primarily due to 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. Our ramp-up in aviation continues and we are creating the capacity to fulfill customer needs. Our new Aluminum Center of Excellence in Wisconsin is now operational. The long term aviation awards are beginning to ramp and operational improvement initiatives are benefitting the bottom line as evidenced by a 16% operating income margin during the quarter.”

Electronics Products sales were up 11% year-over-year. Organic growth and acquisitions contributed 0.8% and 10.5% respectively, partially offset by a negative currency effect of 0.3%. Operating income was up 8.8%.

“Electronics sales increased 11% due to the acquisition earlier this year of Northlake as well as program launches in Europe, partially offset by softness in China,” said Dunbar. “We won attractive new applications in the North American market that will begin to drive growth in fiscal 2017. We have a healthy list of new business opportunities that we continue to pursue, particularly in the power distribution and automotive industries.”

Hydraulics Products reported a 15.3% year-over-year sales increase, while operating income rose 15.5%.

“Our Hydraulics segment had a very strong quarter,” said Dunbar. “Sales were up 15.3% year-over-year, primarily due to continued strength in our traditional North America dump truck and trailer markets, which are tied to the North American construction environment. We continue to capture new OEM platforms in the refuse space by providing custom telescopic hydraulic cylinders manufactured in North America, combined with rod cylinders from our operation in China. We also are seeking new business outside of our traditional markets and the refuse space.”

Business Outlook

The outlook for all of our businesses remains positive with the exception of our Refrigeration Solutions business over the next couple of quarters. We anticipate continued topline challenges in Refrigeration due to the aforementioned decrease in spending of national accounts, which we expect to increase in the latter half of the year. To strengthen all of our businesses, we continue to build on the Standex Value Creation System to drive performance and create value for our shareholders. We look forward to executing on our growth initiatives, while driving bottom line improvement through our operational excellence initiatives in the coming year,” concluded Dunbar.

Conference Call Details

Standex will host a conference call for investors today, August 25, 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 59635996. 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, results of assets held for sale, acquisition costs, and gains on insurance proceeds help investors to obtain a better understanding of our operating results and future 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, Engineering Technologies, Engraving, Electronics Products, and Hydraulics Products with operations in the United States, Europe, Canada, Australia, Singapore, Mexico, Brazil, Argentina, Turkey, South Africa, India and China. For additional information, visit the Company's website at http://standex.com/.

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, the impact of foreign exchange, increases in raw material costs, the ability to substitute less expensive alternative raw materials, the heavy construction vehicle market, 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, including the Annual Report on Form 10-K for the fiscal year ending June 30, 2016 which we anticipate filing within the next few days 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       Year Ended
      June 30,       June 30,
(In thousands, except per share data)     2016         2015         2016         2015  
                               
Net sales   $ 193,775       $ 199,779       $ 751,586       $ 772,142  
Cost of sales     126,947         134,463         499,333         524,656  
Gross profit     66,828         65,316         252,253         247,486  
                               
Selling, general and administrative expenses     44,506         41,001         170,219         165,837  
Restructuring costs     845         1,089         4,232         3,443  
Other operating (income) expense, net     7,458         (497 )       7,458         (438 )
                               
Income from operations     14,019         23,723         70,344         78,644  
                               
Interest expense     689         792         2,871         3,161  
Other non-operating (income) expense, net     (683 )       (78 )       (1,052 )       (634 )
Total     6         714         1,819         2,527  
                               
Income from continuing operations before income taxes     14,013         23,009         68,525         76,117  
Provision for income taxes     1,941         6,721         16,295         20,874  
Net income from continuing operations     12,072         16,288         52,230         55,243  
                               
Income (loss) from discontinued operations, net of tax     116         93         (174 )       (500 )
                               
Net income   $ 12,188       $ 16,381       $ 52,056       $ 54,743  
                               
Basic earnings per share:                              
Income from continuing operations   $ 0.95       $ 1.29       $ 4.12       $ 4.37  
Income (loss) from discontinued operations     0.01         0.01         (0.01 )       (0.04 )
Total   $ 0.96       $ 1.30       $ 4.11       $ 4.33  
                               
Diluted earnings per share:                              
Income from continuing operations   $ 0.94       $ 1.27       $ 4.09       $ 4.31  
Income (loss) from discontinued operations     0.01         0.01         (0.01 )       (0.04 )
Total   $ 0.95       $ 1.28       $ 4.08         4.27  
                               
Average Shares Outstanding                              
Basic     12,688         12,655         12,682         12,655  
Diluted     12,793         12,792         12,784         12,805  
                                       
 
Standex International Corporation
Consolidated Balance Sheets
                 
        June 30,       June 30,
(In thousands)       2016       2015
                 
ASSETS                
Current assets:                
Cash and cash equivalents     $ 121,988     $ 96,128
Accounts receivable, net       103,974       110,478
Inventories       105,402       108,305
Prepaid expenses and other current assets       4,784       7,070
Income taxes receivable       1,325       747
Deferred tax asset       16,013       12,674
Assets held for sale       2,363       -
Total current assets       355,849       335,402
                 
Property, plant, equipment, net       106,686       108,536
Intangible assets, net       40,412       38,048
Goodwill       157,354       154,732
Deferred tax asset       11,361       917
Other non-current assets       18,795       21,428
Total non-current assets       334,608       323,661
                 
Total assets     $ 690,457     $ 659,063
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
Accounts payable     $ 77,099     $ 80,764
Accrued liabilities       50,785       47,742
Income taxes payable       4,695       10,285
Liabilities held for sale       1,528       -
Total current liabilities       134,107       138,791
                 
Long-term debt       92,114       101,753
Accrued pension and other non-current liabilities       94,277       69,949
Total non-current liabilities       186,391       171,702
                 
Stockholders' equity:                
Common stock       41,976       41,976
Additional paid-in capital       52,374       47,254
Retained earnings       678,002       632,864
Accumulated other comprehensive loss       (117,975)       (93,017)
Treasury shares       (284,418)       (280,507)
Total stockholders' equity       369,959       348,570
                 
Total liabilities and stockholders' equity     $ 690,457     $ 659,063
                 
Standex International Corporation and Subsidiaries
Statements of Consolidated Cash Flows
        Year Ended
        June 30,
(In thousands)       2016         2015  
                 
Cash Flows from Operating Activities                
Net income     $ 52,056       $ 54,743  
Income (loss) from discontinued operations       (174 )       (500 )
Income from continuing operations       52,230         55,243  
                 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization       17,953         16,684  
Stock-based compensation       5,089         3,764  
Non-cash portion of restructuring charge       2,323         (171 )
Loss on assets held for sale       7,267         -  
Disposal of real estate and equipment       191         -  
Excess tax benefit from share-based payment activity       (795 )       (2,088 )
Contributions to defined benefit plans       (1,320 )       (1,484 )
Net changes in operating assets and liabilities       (1,717 )       (5,781 )
Net cash provided by operating activities - continuing operations       81,221         66,167  
Net cash provided by (used in) operating activities - discontinued operations       (897 )       (2,128 )
Net cash provided by (used in) operating activities       80,324         64,039  
Cash Flows from Investing Activities                
Expenditures for property, plant and equipment       (17,851 )       (22,561 )
Expenditures for acquisitions, net of cash acquired       (13,700 )       (57,149 )
Proceeds from sale of real estate and equipment       383         66  
Other investing activities       (417 )       1,128  
Net cash (used in) investing activities from continuing operations       (31,585 )       (78,516 )
Net cash (used in) investing activities from discontinued operations       2,803         -  
Net cash (used in) investing activities       (28,782 )       (78,516 )
Cash Flows from Financing Activities                
Proceeds from borrowings       65,000         274,700  
Payments of debt       (75,000 )       (216,700 )
Stock issued under employee stock option and purchase plans       942         696  
Excess tax benefit from share-based payment activity       795         2,088  
Purchase of treasury stock       (5,636 )       (10,356 )
Cash dividends paid       (6,846 )       (5,820 )
Net cash provided by (used in) financing activities       (20,745 )       44,608  
                 
Effect of exchange rate changes on cash       (4,937 )       (8,263 )
                 
Net changes in cash and cash equivalents       25,860         21,868  
Cash and cash equivalents at beginning of year       96,128         74,260  
Cash and cash equivalents at end of period     $ 121,988       $ 96,128  
                     
Standex International Corporation
Selected Segment Data
                                 
        Three Months Ended       Year Ended
        June 30,       June 30,
(In thousands)       2016       2015       2016       2015
Net Sales                                
Food Service Equipment     $ 95,774     $ 105,276     $ 381,867     $ 408,706
Engraving       30,104       29,172       124,120       110,781
Engineering Technologies       23,455       25,704       82,235       97,018
Electronics Products       32,074       28,897       118,319       114,196
Hydraulics Products       12,368       10,730       45,045       41,441
Total     $ 193,775     $ 199,779     $ 751,586     $ 772,142
                                 
Income from operations                                
Food Service Equipment     $ 10,959     $ 12,467     $ 40,142     $ 37,456
Engraving       6,924       5,603       29,579       24,250
Engineering Technologies       3,746       4,004       8,258       13,097
Electronics Products       5,766       5,302       21,104       20,884
Hydraulics Products       2,445       2,116       7,947       7,013
Restructuring       (845)       (1,089)       (4,232)       (3,443)
Other operating income (expense), net       (7,458)       497       (7,458)       438
Corporate       (7,518)       (5,177)       (24,996)       (21,051)
Total     $ 14,019     $ 23,723     $ 70,344     $ 78,644
                                 
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
                                               
          Three Months Ended             Year Ended      
          June 30,             June 30,      

(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     $ 14,019       $ 23,723       -40.9 %     $ 70,344       $ 78,644       -10.6 %
Adjustments:                                            

Restructuring charges

      845         1,089               4,232         3,443        
Loss on Sale of Real Estate       191         -               191         -        
Sale of RPM       7,267         -               7,267         -        
RPM EBIT       (339 )       (146 )             (860 )       (91 )      
Net gain on insurance proceeds       -         (497 )             -         (497 )      
Acquisition-related costs       -         -               423         1,696        
Adjusted income from operations     $ 21,983       $ 24,169       -9.0 %     $ 81,597       $ 83,195       -1.9 %
Interest and other income (expense), net       (6 )       (714 )             (1,819 )       (2,527 )      
Provision for income taxes       (1,941 )       (6,721 )             (16,295 )       (20,874 )      
Discrete tax items       (317 )       -               (1,038 )       (239 )      
Tax impact of above adjustments       (2,909 )       (106 )             (3,729 )       (1,235 )      
Net income from continuing operations, as adjusted    

$

16,810      

$

16,628

     

1.1

%

   

$

58,716      

$

58,320

     

0.7

%

                                               
EBITDA and Adjusted EBITDA:                                            
Net income from continuing operations, as reported     $ 12,072       $

16,288

            $ 52,230       $

55,243

       
Add back:                                            

Provision for income taxes

      1,941         6,721               16,295         20,874        
Interest expense       689         792               2,871         3,161        
Depreciation and amortization       4,636         4,082               17,953         16,684        
EBITDA     $ 19,338       $ 27,883       -30.6 %     $ 89,349       $ 95,962       -6.9 %
Adjustments:                                            
Restructuring charges       845         1,089               4,232         3,443        
Loss on Sale of Real Estate       191         -               191         -        
Sale of RPM       7,267         -               7,267         -        
RPM EBIT       (339 )       (146 )             (860 )       (91 )      
RPM depreciation       (124 )       (129 )             (508 )       (506 )      
Net gain on insurance proceeds       -         (497 )             -         (497 )      
Acquisition-related costs       -         -               423         1,696        
Adjusted EBITDA     $ 27,178       $ 28,200       -3.6 %     $ 100,094       $ 100,007       0.1 %
                                               
Free operating cash flow:                                            
Net cash provided by operating activities - continuing operations, as reported    

$

33,925

     

 

$

 

43,092

           

 

$

81,221

     

 

$

 

66,167

       
Less: Capital expenditures       (4,587 )       (3,714 )             (17,851 )       (22,561 )      
Free operating cash flow     $ 29,338       $ 39,378             $ 63,370       $ 43,606        
Net income from continuing operations       12,072         16,288               52,230         55,243        
Conversion of free operating cash flow       243.0 %       241.8 %            

121.3

%

     

78.9

%

     
                                                     
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
                                             
          Three Months Ended         Year Ended      
        June 30,           June 30,      
Adjusted earnings per share from continuing operations       2016         2015     %

Change

   

 

   

2016

        2015       % Change  
                                             

Diluted earnings per share from continuing 
operations, as reported

    $

0.94

      $ 1.27    

-26.0

%

    $

4.09

      $

4.31

     

-5.1

%

                                             
Adjustments:                                          
Restructuring charges       0.05         0.07             0.24         0.20        
Loss on Sale of Real Estate       0.01         -             0.01         -        
Sale of RPM       0.35         -             0.35         -        
RPM activity       (0.02 )       (0.01 )           (0.04 )       -        
Net gain on Insurance Proceeds       -         (0.03 )           -         (0.03 )      
Acquisition-related costs       -         -             0.02         0.10        
Discrete tax items       (0.02 )       -             (0.08 )       (0.02 )      
Diluted earnings per share from continuing operations, as adjusted     $

1.31

       

1.30

    0.8 %     $

4.59

      $

4.56

     

0.7

%

                                                       

 

Contact:

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