Astronics Corporation reported financial results for the three and six months ended July 2, 2016

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