Business context and reporting period
Park Aerospace Corp. develops and manufactures advanced composite materials and composite structures for aerospace markets. This filing covers the 13 weeks and 26 weeks ended August 30, 2020, compared with periods ended September 1, 2019. Although the request metadata says 2019 Q2, the filing itself is for fiscal 2021 Q2.
Financial performance
| Metric | 13 weeks ended Aug. 30, 2020 | Year-over-year change | 26 weeks ended Aug. 30, 2020 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $9.25 million | Down 33% | $21.46 million | Down 25% |
| Gross profit / margin | $2.64 million / 28.5% | Margin up from 27.8% | $6.31 million / 29.4% | Margin down from 30.1% |
| Continuing-operations earnings before tax | $1.61 million | Down 42% | $4.31 million | Down 35% |
| Continuing-operations net earnings | $1.15 million | Down 44% | $3.12 million | Down 34% |
| Net earnings, including discontinued operations | $0.95 million | Down 55% | $2.91 million | Down 38% |
| Diluted EPS | $0.05 | Versus $0.10 | $0.14 | Versus $0.23 |
For the 26 weeks, operating cash flow was $6.32 million from continuing operations ($6.11 million including discontinued operations), capital expenditures were $3.94 million, and dividends paid were $4.08 million. Cash and cash equivalents were $2.29 million and marketable securities were $116.40 million at August 30, 2020. Total current assets were $134.85 million, current liabilities $6.08 million, and working capital $128.77 million; the current ratio was 22.2:1. The company reported no long-term debt. Operating lease liabilities totaled $0.35 million; non-current income taxes payable were $14.30 million.
Material changes and management commentary
- COVID-19 and the resulting downturn in commercial and business aviation drove lower sales, reduced backlog, customer order delays and cancellations, and production-rate reductions. North American sales fell to $8.64 million in the quarter from $12.89 million.
- Quarterly gross margin improved on favorable sales mix, while first-half margin declined as lower volume and partially fixed overhead outweighed lower direct labor and supplies costs.
- SG&A declined 19% in the quarter and 17% for the half, mainly due to lower payroll, travel, trade-show and stock-option expenses. Interest and other income fell 39% and 35%, respectively, largely reflecting lower investment balances and rates.
- Management said available resources should fund operations, investment and general corporate needs for at least the next 12 months and the foreseeable future. No numerical sales or earnings guidance was provided; management cautioned that aerospace-market weakness could persist after the pandemic subsides.
Outlook, risks and unusual items
- A long-term customer contract represents a substantial portion of revenue but is requirements-based and does not guarantee purchase quantities; forecasts are updated periodically.
- The company expected to complete an approximately $18 million Kansas manufacturing facility in early calendar 2021. At quarter-end, construction-in-progress was $11.20 million and equipment purchase obligations were $0.96 million.
- Discontinued operations included a $0.20 million after-tax loss for the quarter, including restructuring charges related to the former Electronics Business and its vacated Fullerton facility. Management estimated approximately $0.14 million of remaining pre-tax consolidation charges, primarily in fiscal 2021.
- The company identified environmental matters at three sites and stated that insurance reimburses defense and remediation costs at two; it considers known matters not likely to materially affect results or financial position. Other litigation was described as immaterial. Management reported no material changes to previously disclosed risk factors.
- Approximately $29.7 million of cash and marketable securities was held by a wholly owned foreign subsidiary. The company intends to keep approximately $25 million of foreign undistributed earnings invested abroad; repatriation could require U.S. deferred taxes.
Important facts for investors to verify
- Whether customer order delays, cancellations, concentration and backlog reductions persist, and how they affect production and gross margins.
- Cash generation and spending requirements, including facility completion costs, dividends, and the company’s ability to sustain capital returns during lower demand.
- Progress and remaining commitments for the Kansas facility, and whether the expected completion timing and total cost change.
- Developments in the former Electronics Business restructuring, environmental matters, and tax exposures, including the $14.30 million non-current income-tax-payable balance.