Business context and reporting period
Standex International Corporation’s Form 10-Q covers the quarter and nine months ended March 31, 2021 (fiscal 2021 Q3), not calendar 2020 Q3 as indicated in the request metadata. Standex is a diversified industrial manufacturer with five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Results are unaudited; interim results are not necessarily indicative of a full year.
Financial performance
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise indicated.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Continuing-operations sales | $172.2 | $155.5 | $479.8 | $465.2 |
| Gross margin | 36.4% | 33.8% | 36.6% | 36.2% |
| Operating income | $5.7 | $16.9 | $36.7 | $50.4 |
| Continuing-operations net income | $1.8 | $12.1 | $24.1 | $34.9 |
| Net income (loss), including discontinued operations | $1.4 | $(6.3) | $22.5 | $18.4 |
| Diluted EPS, total | $0.11 | $(0.51) | $1.84 | $1.48 |
Quarterly sales rose 10.8%; the filing attributes growth to organic sales of $6.1 million, Renco acquisition sales of $6.4 million, and favorable currency effects of $4.3 million. Nine-month sales increased 3.1%, as Renco and currency gains more than offset a $13.3 million organic decline. Gross margin improved, but operating income fell 66.6% in the quarter and 27.1% year to date, primarily because of the Enginetics sale loss.
Q3 SG&A was $41.7 million, or 24.2% of sales, versus $34.9 million, or 22.4%, a year earlier. Interest expense declined to $1.3 million from $1.8 million for the quarter and to $4.4 million from $5.8 million for nine months. The Q3 effective tax rate on continuing operations was 56.3%, versus 21.6%, affected by the Enginetics-related deferred-tax valuation allowance and other tax factors; the nine-month rates were 25.3% and 22.7%.
Cash flow, debt and liquidity
For the nine months, continuing-operations operating cash flow was $49.3 million, compared with $29.5 million; total operating cash flow, including discontinued operations, was $51.6 million. Investing activities used $32.8 million, including $27.4 million for Renco and $15.6 million of capital expenditures, partly offset by $11.7 million of Enginetics sale proceeds. Financing activities used $23.6 million, including $16.2 million for share repurchases and $8.5 million in dividends. Cash ended at $118.0 million, down $0.8 million from June 30, 2020.
At March 31, 2021, long-term debt was $200.1 million and net debt was $82.1 million. The $500 million revolving facility had $209.2 million of borrowing capacity available; the company reported compliance with its covenants, a 1.44:1 leverage ratio against a 3.5:1 maximum, and an 11.4:1 interest coverage ratio against a 2.75:1 minimum. The effective borrowing rate, including swaps, was 2.62%. Current assets were $350.8 million and current liabilities $131.9 million. Management stated that liquidity and financing access were sufficient for its plans.
Material changes and unusual items
- Enginetics divestiture: Sold the jet-engine-components business on March 31, 2021 for $11.7 million cash and recorded a $14.6 million pretax loss, including $7.6 million of goodwill impairment and a $5.4 million intangible-asset write-down. Enginetics had approximately $9.0 million of FY2021 nine-month revenue. The sale remained in continuing operations.
- Renco acquisition: Acquired Renco Electronics in Q1 FY2021. The filing reports $27.4 million cash expenditure and a preliminary purchase allocation including $14.0 million goodwill, $10.4 million identifiable intangibles, and $3.0 million contingent consideration.
- Segment performance: Q3 sales and operating income grew in Electronics and Scientific; Engineering Technologies and Specialty Solutions declined, while Engraving sales were broadly flat. Scientific sales benefited from demand for vaccine cold-storage equipment. Engineering Technologies remained pressured by commercial aviation weakness and project timing.
- Discontinued operations: Refrigerated Solutions Group, sold in FY2020, is excluded from continuing-operations results. Its prior-year Q3 included a $20.0 million impairment charge.
- Other notable items: Nine-month share repurchases totaled $16.2 million; declared dividends were $0.70 per share for the nine months. A customer lawsuit alleges faulty sensors; management says liability is possible but not probable, estimates potential exposure at $0–$4.0 million, and recorded no accrual.
Outlook, commentary and risks
No consolidated revenue or earnings guidance is provided. For fiscal Q4, management expected moderate sequential sales growth and slight margin improvement in Electronics; slight sales growth and stronger margin improvement in Engraving; lower Scientific revenue and margin as vaccine-storage demand eases and freight costs rise; Engineering Technologies revenue similar to Q3 after the Enginetics sale, with a significant sequential margin increase; and slightly higher Specialty Solutions revenue but slightly lower operating income due to material inflation. Management expected approximately $0.7 million of restructuring expense for the remainder of FY2021 and $22–$25 million of full-year capital spending.
Management cited ongoing COVID-19 uncertainty affecting demand, supply chains, and operations. Other risks include raw-material and freight inflation, supply availability, foreign exchange, commercial aviation and other end-market conditions, successful execution of restructuring and acquisitions, customer order delays or cancellations, and pension funding requirements. Management reported no specific COVID-19-driven estimate adjustment required as of the filing date. The filing also notes that future pension contributions may be affected by actuarial valuations; U.S. funded-plan contributions for FY2021 were reduced to zero following the American Rescue Plan Act.
Important facts for investors to verify
- Confirm the period: the filing is for fiscal Q3 ended March 31, 2021, rather than 2020 Q3.
- Assess underlying operating trends excluding the $14.6 million Enginetics loss, and track whether margin improvement offsets inflation and freight costs.
- Monitor the sustainability of Scientific’s vaccine-related demand, Electronics backlog growth, and recovery in aviation and Specialty Solutions markets.
- Review Renco’s integration, final purchase-price allocation, and contingent-payment exposure; the purchase accounting remained preliminary.
- Track cash conversion, working-capital use, capital spending, repurchases, and debt/covenant headroom.
- Follow the sensor litigation, Enginetics-related tax-loss carryforward and valuation allowance, and continuing COVID-19 and supply-chain risks.