OREANDA-NEWS. 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 July 2, 2016.  Earnings per share for 2015 are adjusted for the 3 for 20 (15%) distribution of Class B Stock for shareholders of record on October 8, 2015.

 
  Three Months Ended     Six Months Ended
    July 2,
2016		   July 4,
2015		 % Change     July 2,
2016		   July 4,
2015		 % Change
                       
                       
Sales $   164,426   $   173,156     -5.0 %   $   323,956   $   334,794     -3.2 %
Gross profit $   44,835   $   49,452     -9.3 %   $   84,318   $   89,614     -5.9 %
  Gross margin     27.3 %     28.6 %         26.0 %     26.8 %  
SG&A $   22,224   $   21,297     4.4 %   $   44,108   $   43,916     0.4 %
  SG&A percent of sales     13.5 %     12.3 %         13.6 %     13.1 %  
Income from Operations $   22,611   $   28,155     -19.7 %   $   40,210   $   45,698     -12.0 %
  Operating margin %     13.8 %     16.3 %         12.4 %     13.6 %  
Net Income $   14,980   $   17,690     -15.3 %   $   26,465   $   28,373     -6.7 %
  Net Income %     9.1 %     10.2 %         8.2 %     8.5 %  
                                       

Peter J. Gundermann, President and Chief Executive Officer, commented, “We had strong second quarter performance with our Aerospace business setting new records for sales, operating profit and bookings.  Our Test Systems business, as expected, continues to struggle with lower 2016 volume, but is making solid progress on promising programs for the future.  All in all, we feel well-positioned and our major initiatives remain on track.”

Consolidated Review

Second Quarter 2016 Results

Consolidated sales were down $8.7 million from the same period last year as record Aerospace segment sales of $142.5 million, which were up 7.8%, or $10.3 million, helped to offset lower Test Systems segment sales which were down 46.5% to $21.9 million. 

Lower consolidated gross margin was the result of lower volume and marginally higher engineering and development (“E&D”) costs.  E&D was $21.9 million in the quarter, up slightly from $21.3 million of E&D costs in last year’s second quarter.  As a percent of sales, E&D was 13.3% and 12.3% in the second quarters of 2016 and 2015, respectively. 

Selling, general and administrative (“SG&A”) expenses increased $0.9 million compared with the 2015 second quarter.  However, the second quarter of 2015 benefited from a $1.3 million reduction to the contingent consideration liability related to prior acquisitions. 

The effective tax rate for the quarter was 30.5%, compared with 34.6% in the second quarter of 2015.  The second quarter 2016 tax rate was favorably impacted by the permanent reinstatement of the federal research and development tax credit in the fourth quarter of 2015. 

Net income of $15 million translated to $.57 per diluted share.

Year-to-Date 2016 Results

Consolidated sales for the first six months of 2016 decreased by $10.8 million, or 3.2%, to $324.0 million.  Aerospace segment sales were up 2.3% year-over-year to $280.8 million, while Test Systems segment sales were down 28.4% to $43.1 million.

Solid gross margin performance was the result of improved operational efficiencies as well as product mix, which partially offset $1.6 million higher E&D costs.  E&D costs were 14.0% of sales, or $45.2 million, compared with $43.6 million, or 13.0% of sales, in the prior year’s first six months. 

SG&A expenses were $44.1 million, or 13.6% of sales, in the first six months of 2016 compared with $43.9 million, or 13.1% of sales, in the same period last year.  The first half of 2015 benefited from a $1.3 million reduction to the contingent consideration liability related to prior acquisitions in the second quarter. 

The effective tax rate for the first six months of 2016 was 30.5%, compared with 34.5% in the first six months of 2015.  The tax rate in the first six months of 2016 was favorably impacted by the permanent reinstatement of the federal research and development tax credit in the fourth quarter of 2015. 

Net income for the first half of 2016 totaled $26.5 million, or $1.00 per diluted share.

During the second quarter, the Company repurchased approximately 231,000 shares at an aggregate cost of $7.9 million under its share repurchase program.  Since the inception of the program in February 2016, the Company has repurchased 360,000 shares at an aggregate cost of $12.2 million. 

Aerospace Segment Review (refer to sales by market and segment data in accompanying tables)

Aerospace Second Quarter 2016 Results

Aerospace segment sales increased by $10.3 million, or 7.8%, when compared with the prior year’s second quarter to $142.5 million, which represents a record level for the Aerospace segment.

Electrical Power & Motion sales grew $7.7 million, or 11.4%, largely driven by higher sales of in-seat power products, which were up 13.1%.  Additionally, Lighting & Safety products increased by $4.1 million, or 10.7%.  These increases were offset by a $2.3 million decline in Avionics products, which was largely due to lower sales of satellite antenna systems and in-flight entertainment/cabin management systems for VVIP aircraft. 

Aerospace operating profit for the second quarter of 2016 also set an all-time high of $24.9 million, or 17.4% of sales, compared with $20.3 million, or 15.3% of sales, in the same period last year.  Operating margins gained on higher volume were partially offset by increased E&D spending and a general increase in operating costs.  Aerospace E&D costs were $19.0 million in the quarter compared with $18.5 million in the same period last year.

Aerospace orders in the second quarter of 2016 were its best ever, at $163.5 million, an increase of 21.6% over orders of $134.5 million in the 2015 second quarter.  The Aerospace segment book to bill ratio for the quarter was 1.15.  Backlog was $235.8 million at the end of the second quarter of 2016, also a new record.

Aerospace Year-to-Date 2016 Results

Aerospace segment sales increased by $6.3 million, or 2.3%, when compared with the prior year’s first six months to $280.8 million. 

Electrical Power & Motion sales grew $13.5 million, or 9.9%, largely driven by higher sales of in-seat power products, which were up 10.2%.  This increase was offset by a $12.2 million decline in Avionics products, which was largely due to lower sales of satellite antenna systems. 

Aerospace operating profit for the first six months of 2016 was $43.5 million, or 15.5% of sales, compared with $43.7 million, or 15.9% of sales, in the same period last year.  Operating leverage gained on increased volume for the business was offset by higher E&D costs of approximately $1.4 million.  E&D costs for Aerospace were $39.4 million and $38.0 million in the first half of 2016 and 2015, respectively.  Aerospace SG&A expense increased $0.7 million in the first six months of 2016 as compared with 2015.  The first six months of 2015 included inventory step-up costs of $0.7 million that reduced normal operating margins for that period.

Mr. Gundermann commented, “Our Aerospace business continues to perform very well.  We continue to see strong demand for both new build and retrofit programs.  We remain confident in our belief that our compelling array of products that we provide to the industry are favored by airframe manufacturers, airlines, and passengers.”

Test Systems Segment Review (refer to sales by market and segment data in accompanying tables)

Test Systems Second Quarter 2016 Results

Sales in the second quarter of 2016 decreased approximately $19.0 million to $21.9 million compared with the same period in 2015, a decrease of 46.5%.  Sales to the Semiconductor market decreased $21.6 million compared with the same period in 2015, which was partially offset by increased sales of $2.6 million to the Aerospace & Defense market.

Operating profit was $1.1 million, or 4.9% of sales, compared with $9.9 million or 24.1% of sales in last year’s second quarter.  E&D costs remained relatively consistent at $2.9 million and $2.8 million in the second quarters of 2016 and 2015, respectively. 

Orders for the Test Systems segment in the quarter were $17.9 million, up $5.7 million, or 46.7%, over the prior year period.  Backlog was $58.0 million at the end of the second quarter of 2016.

Test Systems Year-to-Date 2016 Results

Sales in the first six months of 2016 decreased 28.4% to $43.1 million compared with sales of $60.3 million for the same period in 2015, due to lower shipments to the Semiconductor market.  Sales to the Semiconductor market decreased $19.3 million compared with the same period in 2015, which was partially offset by increased sales of $2.1 million to the Aerospace & Defense market.

Operating profit was $3.3 million, or 7.6% of sales, compared with $7.6 million, or 12.7% of sales, in the first six months of 2015.  E&D costs were $5.9 million in the first six months of 2016 compared with $5.6 million in the prior year period.

Mr. Gundermann commented, “As expected, our Test business is operating with lower volume this year as demand from the semiconductor industry dropped.  At the same time, we are involved in a significant number of development programs which hold great promise for the future.  We have very positive expectations for Test Systems in 2017.”

Forecast

Consolidated sales in 2016 are forecasted to be in the range of $655 million to $685 million, which represents a decline from the previous range which was $665 million to $710 million.  Approximately $560 million to $580 million of revenue is expected from the Aerospace segment.  Expectations for Test Systems segment revenue in 2016 remains relatively unchanged at approximately $95 million to $105 million.     

Consolidated backlog at July 2, 2016 was $293.8 million, of which approximately $199.9 million is expected to ship in 2016.

Mr. Gundermann commented, “Our backlog and prospect lists are in pretty good shape, but customer schedules suggest that we may see some revenue weakness in the second half of the year, particularly in the third quarter.  These scheduling challenges seem to be rooted in the weaker bookings we saw in the second half of 2015, particularly on the Aerospace side.  This being said, our stronger bookings of today, combined with our prospects in Test Systems, have us looking forward already to a stronger 2017.”

The effective tax rate for 2016 is expected to be approximately 29% to 32%.

Capital equipment spending in 2016 is planned to be in the range of $17 million to $20 million.  E&D costs are expected to be similar to 2015. 

 

About Astronics Corporation
Astronics Corporation (NASDAQ:ATRO) is a leading supplier of advanced technologies and products to the global aerospace, defense, electronics and semiconductor industries.  Astronics’ products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting & 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.  Astronics Corporation, through its wholly-owned subsidiaries, has a reputation for high-quality designs, exceptional responsiveness, strong brand recognition and best-in-class manufacturing practices.

FINANCIAL TABLES FOLLOW

ASTRONICS CORPORATION
CONSOLIDATED INCOME STATEMENT DATA
(Unaudited, $ in thousands except per share data)
       
  Three Months Ended   Six Months Ended
  7/2/2016 7/4/2015   7/2/2016 7/4/2015
Sales $   164,426   $   173,156     $   323,956   $   334,794  
Cost of products sold   119,591     123,704       239,638     245,180  
Gross profit   44,835     49,452       84,318     89,614  
Gross margin   27.3 %   28.6 %     26.0 %   26.8 %
           
Selling, general and administrative   22,224     21,297       44,108     43,916  
SG&A % of sales   13.5 %   12.3 %     13.6 %   13.1 %
Income from operations   22,611     28,155       40,210     45,698  
Operating margin   13.8 %   16.3 %     12.4 %   13.6 %
           
Interest expense, net   1,056     1,111       2,143     2,357  
Income before tax   21,555     27,044       38,067     43,341  
Income tax expense   6,575     9,354       11,602     14,968  
Net income $   14,980   $   17,690     $   26,465   $   28,373  
Net income % of sales   9.1 %   10.2 %     8.2 %   8.5 %
           
           
*Basic earnings per share: $ 0.59   $ 0.70     $ 1.04   $ 1.12  
*Diluted earnings per share: $ 0.57   $ 0.67     $ 1.00   $ 1.08  
           
*Weighted average diluted shares
  outstanding (in thousands)		   26,284     26,261       26,339     26,243  
           
Capital expenditures $ 3,726   $ 5,218     $ 6,176   $ 12,277  
Depreciation and amortization $ 6,600   $ 6,418     $ 13,146   $ 12,545  
                           

*All 2015 share quantities and per-share data have been restated to reflect the impact of the fifteen percent Class B stock distribution to shareholders of record on October 8, 2015.

ASTRONICS CORPORATION
CONSOLIDATED BALANCE SHEET DATA
(Unaudited, $ in thousands)
  7/2/2016   12/31/2015
ASSETS    
Cash and cash equivalents $ 20,411   $ 18,561  
Accounts receivable   106,316     95,277  
Inventories   119,329     115,467  
Other current assets   11,308     20,662  
Property, plant and equipment, net   123,709     124,742  
Other long-term assets   11,966     10,889  
Intangible assets, net   103,598     108,276  
Goodwill   115,614     115,369  
  Total assets $   612,251   $   609,243  
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current maturities of long term debt   2,691   $ 2,579  
Accounts payable and accrued expenses   60,828     62,896  
Customer advances and deferred revenue   28,729     38,757  
Long-term debt   163,898     167,210  
Other liabilities   37,661     37,576  
Shareholders' equity   318,444     300,225  
  Total liabilities and shareholders' equity $   612,251   $   609,243  
             
ASTRONICS CORPORATION
Segment Data
(Unaudited, $ in thousands)
  Three Months Ended Six Months Ended
    7/2/2016   7/4/2015   7/2/2016   7/4/2015
Sales                
Aerospace $   142,528   $   132,170     $ 281,177     $ 274,522  
Less Inter-segment     (27 )     -       (367 )     -  
Total Aerospace     142,501       132,170       280,810       274,522  
                 
Test Systems     21,925       40,986       43,146       60,327  
Less Inter-segment     -       -       -       (55 )
Total Test Systems     21,925       40,986       43,146       60,272  
Total sales     164,426       173,156       323,956       334,794  
                 
Operating profit and margins                
Aerospace     24,851       20,271       43,542       43,673  
      17.4 %     15.3 %     15.5 %     15.9 %
Test Systems     1,074       9,863       3,284       7,638  
      4.9 %     24.1 %     7.6 %     12.7 %
Total operating profit     25,925       30,134       46,826       51,311  
                 
                 
Interest expense     1,056       1,111       2,143       2,357  
Corporate expenses and other     3,314       1,979       6,616       5,613  
Income before taxes $   21,555   $   27,044   $   38,067   $   43,341  
                                 
ASTRONICS CORPORATION
SALES BY MARKET
(Unaudited, $ in thousands)
         
  Three Months Ended   Six Months Ended  
  7/2/2016 7/4/2015 % change   7/2/2016 7/4/2015 % change 2016 YTD
Aerospace Segment                
Commercial Transport $ 116,423   $ 107,629     8.2 %   $ 229,818   $ 227,823     0.9 %   71.0 %
Military   13,973     10,569     32.2 %     26,254     19,827     32.4 %   8.1 %
Business Jet   7,707     9,061     -14.9 %     14,232     17,153     -17.0 %   4.4 %
Other   4,398     4,911     -10.4 %     10,506     9,719     8.1 %   3.2 %
Aerospace Total   142,501     132,170     7.8 %     280,810     274,522     2.3 %   86.7 %
                 
Test Systems Segment                
Semiconductor   9,848     31,507     -68.7 %     16,985     36,258     -53.2 %   5.2 %
Aerospace & Defense   12,077     9,479     27.4 %     26,161     24,014     8.9 %   8.1 %
Test Systems Total   21,925     40,986     -46.5 %     43,146     60,272     -28.4 %   13.3 %
                 
Total $ 164,426   $ 173,156     -5.0 %   $ 323,956   $ 334,794     -3.2 %  
                                         
ASTRONICS CORPORATION
SALES BY PRODUCT LINE
(Unaudited, $ in thousands)
         
  Three Months Ended   Six Months Ended  
  7/2/2016 7/4/2015 % change   7/2/2016 7/4/2015 % change 2016 YTD
                 
Aerospace Segment                
Electrical Power & Motion $ 75,564   $ 67,844     11.4 %   $ 150,957   $ 137,415     9.9 %   46.6 %
Lighting & Safety   41,979     37,907     10.7 %     82,544     79,985     3.2 %   25.5 %
Avionics   9,344     11,663     -19.9 %     16,818     29,030     -42.1 %   5.2 %
Systems Certification   5,391     5,771     -6.6 %     9,997     10,344     -3.4 %   3.1 %
Structures   5,825     4,074     43.0 %     9,988     8,029     24.4 %   3.1 %
Other   4,398     4,911     -10.4 %     10,506     9,719     8.1 %   3.2 %
Aerospace Total   142,501     132,170     7.8 %     280,810     274,522     2.3 %   86.7 %
                 
Test Systems   21,925     40,986     -46.5 %     43,146     60,272     -28.4 %   13.3 %
                 
Total $ 164,426   $ 173,156     -5.0 %   $ 323,956   $ 334,794     -3.2 %  
                                         
ASTRONICS CORPORATION
ORDER AND BACKLOG TREND
(Unaudited, $ in thousands)
 
          Q3
2015		   Q4
2015		   Q1
2016		   Q2
2016		   Trailing
Twelve
          10/3/2015   12/31/2015   4/2/2016   7/2/2016   Months
Sales                          
Aerospace       $ 138,728 $ 136,488 $ 138,309 $ 142,501 $ 556,026
Test Systems         61,417   20,852   21,221   21,925   125,415
Total Sales       $ 200,145 $ 157,340 $ 159,530 $ 164,426 $ 681,441
                           
Bookings                          
Aerospace       $ 129,807 $ 121,796 $ 140,427 $ 163,532 $ 555,562
Test Systems         15,352   12,860   21,503   17,941   67,656
Total Bookings       $ 145,159 $ 134,656 $ 161,930 $ 181,473 $ 623,218
                           
Backlog                          
Aerospace       $ 227,345 $ 212,651 $ 214,769 $ 235,800    
Test Systems         69,705   61,713   61,995   58,011    
Total Backlog       $ 297,050 $ 274,364 $ 276,764 $ 293,811   N/A
                           
Book:Bill Ratio                          
Aerospace         0.94   0.89   1.02   1.15   1.00
Test Systems         0.25   0.62   1.01   0.82   0.54
Total Book:Bill         0.73   0.86   1.02   1.10   0.91