Standex International Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2022, ended March 31, 2022. Fiscal year ends June 30. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context
Standex is a diversified industrial manufacturer with five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. It emphasizes customized products and services, organic growth, operational improvement, and strategic acquisitions. In the quarter, it acquired Sensor Solutions for approximately $9.9 million net of cash acquired; its results are included in Electronics.
Key financial results
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $189.3 million, up 9.9% from $172.2 million | $550.6 million, up 14.8% from $479.8 million |
| Gross profit / margin | $68.4 million / 36.1%, versus $62.7 million / 36.4% | $203.4 million / 36.9%, versus $175.5 million / 36.6% |
| Income from operations | $24.5 million, versus $5.7 million | $69.1 million, versus $36.7 million |
| Income from continuing operations | $17.4 million, versus $1.8 million | $48.3 million, versus $24.1 million |
| Net income | $17.3 million, versus $1.4 million | $48.1 million, versus $22.5 million |
| Diluted EPS | $1.43, versus $0.11 | $3.97, versus $1.84 |
| Operating cash flow, continuing operations | Not presented as a quarterly figure | $48.6 million, versus $49.3 million |
Quarterly gross margin eased 0.3 percentage points, reflecting project mix and raw-material and ocean-freight costs, partly offset by pricing and productivity. Nine-month margin improved 0.3 points. Quarter operating income benefited substantially from the prior-year $14.6 million loss on the Enginetics divestiture; organic growth and productivity also contributed.
- Segment trends, quarter: Electronics sales rose 22.7% and operating income rose 55.2%; Engraving sales rose 3.3% and operating income rose 27.0%; Scientific sales fell 21.9% and operating income fell 28.4%; Engineering Technologies sales rose 4.7% and operating income rose 86.9%; Specialty Solutions sales rose 20.2% while operating income fell 14.6%.
- Sales drivers: Organic sales increased $25.0 million in the quarter and $82.6 million year to date, primarily from pricing and demand. Foreign exchange reduced sales by $4.4 million in the quarter; the prior-year comparison also included Enginetics sales of $3.9 million in the quarter and $9.2 million year to date.
Financial position and capital allocation
- At March 31, cash was $133.9 million, long-term debt was $199.7 million, and net debt was $65.8 million. Cash and current assets were $410.6 million; current liabilities were $141.7 million.
- The $500 million revolving credit facility had $299.5 million of borrowing capacity available. The company reported compliance with its covenants; leverage ratio was 1.15 and interest coverage ratio was 15.9. Interest-rate swaps fixed the rate on $200 million of borrowings at a weighted-average 1.27%; the effective borrowing rate was 2.63%.
- Nine-month cash flow from operating activities was $48.3 million including discontinued operations. Investing activities used $17.3 million, including $13.1 million of capital expenditures and the Sensor Solutions acquisition. Financing activities used $30.4 million, including $21.4 million of treasury-share purchases and $9.1 million of dividends.
- Cash decreased $2.5 million from fiscal year-end. Of the ending cash balance, $100.6 million was held by foreign subsidiaries. Management expected to repatriate $10–$15 million during the fourth quarter, subject to operating needs and tax considerations.
- On April 28, 2022, the Board authorized a new share repurchase program of up to $100 million after completion of the remaining amount under the prior authorization.
Outlook, risks, and unusual items
- Management expected year-over-year improvement in key financial metrics for the remainder of fiscal 2022, supported by orders and productivity initiatives. No specific full-year revenue or earnings guidance was provided.
- For the fourth quarter, management expected continued strength in Electronics, food-service demand in Specialty Solutions, and commercial aviation and space demand in Engineering Technologies. It anticipated lower Scientific demand related to COVID-19 vaccine storage, a delay in sales from COVID-related China lockdowns, and segment-specific project or mix effects. Electronics was expected to see a sequential revenue and margin decline; outlooks for other segments ranged from stable to improving.
- Backlog realizable within one year was $267.0 million at March 31, up 50.7% from $177.1 million a year earlier. Total backlog was $304.9 million. The filing cautions that orders may be delayed or canceled and backlog is not necessarily predictive of sales, except that Engineering Technologies has long-term agreements.
- Management cited supply-chain shortages, labor availability, inflation, raw-material and freight costs, customer demand, and pandemic effects as uncertainties. Pricing and productivity actions may not fully offset cost pressures. China lockdowns were expected to delay sales.
- In the MPC sensor litigation, Standex accrued $1.7 million; it estimated reasonably possible additional loss of $0–$6.3 million. Trial was scheduled for July 2022. Management stated it did not expect other existing legal matters to materially affect the company.
- Fiscal 2022 restructuring costs were $2.5 million for the first nine months; approximately $1.5 million more was expected for the remainder of the year. The company also recorded $1.7 million of litigation-related expense in the first nine months. The nine-month effective tax rate was 24.5%, versus 25.3%; the quarter rate was 24.0%, versus 56.3%, partly reflecting discrete tax items and the prior-year Enginetics-related valuation allowance.
- Disclosure controls were assessed as effective at March 31, 2022, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether organic growth, pricing, and productivity can offset persistent material, freight, labor, and inflation pressures.
- How much of the elevated backlog converts to revenue, particularly given customer cancellation or delay risks and the China lockdown impact.
- Whether Scientific demand normalizes as COVID-19 vaccine-storage demand declines, and whether segment margins recover where costs pressured results.
- The outcome and cash exposure from the MPC litigation, including any loss beyond the $1.7 million accrual.
- Sensor Solutions integration and returns, as well as remaining Renco and GS Engineering contingent consideration obligations.
- Use of the new $100 million repurchase authorization, foreign-cash repatriation, and continued covenant headroom and liquidity.