Park Aerospace Corp. — Form 10-Q Summary
Period and scope: The filing covers the 13 and 39 weeks ended December 1, 2019, the third quarter and year-to-date period of fiscal 2020. Although the request labels this “2018 Q3,” the filing itself is for the quarter ended December 1, 2019. Results are unaudited. Continuing operations are the aerospace business; the Electronics Business was sold on December 4, 2018 and is reported as discontinued operations.
Financial performance
| Metric | 13 weeks ended Dec. 1, 2019 | Prior-year quarter | 39 weeks ended Dec. 1, 2019 | Prior-year period |
|---|---|---|---|---|
| Net sales, continuing operations | $15.847 million | $12.853 million | $44.520 million | $34.457 million |
| Gross profit | $5.022 million | $4.284 million | $13.639 million | $10.281 million |
| Gross margin | 31.7% | 33.3% | 30.6% | 29.8% |
| Operating earnings | $3.073 million | $2.301 million | $7.854 million | $4.081 million |
| Continuing-operations net earnings | $2.806 million | $2.078 million | $7.572 million | $4.718 million |
| Total net earnings | $2.446 million | $3.691 million | $7.168 million | $9.559 million |
| Basic and diluted EPS | $0.12 | $0.18 | $0.35 | $0.47 |
Interest and other income was $0.802 million for the quarter and $2.613 million year to date, up from $0.393 million and $1.090 million, respectively, primarily because of higher average marketable-securities balances and interest rates. SG&A was $1.949 million for the quarter and $5.785 million year to date.
Liquidity, cash flow and obligations
- At December 1, 2019, cash and cash equivalents were $6.680 million and marketable securities were $137.486 million, for combined liquidity of $144.166 million. The filing says $126.7 million was held by foreign subsidiaries.
- Working capital was $154.061 million; the current ratio was 27.7 to 1. The company reported no long-term debt.
- Year-to-date operating cash flow from continuing operations was $2.693 million, versus $5.225 million in the prior-year period. Capital expenditures were $4.363 million, compared with $0.399 million. Dividends paid were $6.150 million.
- Cash and marketable securities declined by $7.458 million from March 3, 2019. Cash alone fell from $71.007 million to $6.680 million, in part as funds were invested in marketable securities.
- The company estimates the new Kansas manufacturing facility will cost approximately $20 million; construction was in progress, with $5.385 million recorded, and equipment purchase obligations of $1.170 million at period end. Completion was expected in the second half of calendar 2020.
Changes, outlook and risks
- Sales rose 23% for the quarter and 29% year to date, which management attributed to ramping programs for which Park’s materials are qualified. Continuing-operations earnings before tax increased 44% and 102%, respectively.
- Quarterly gross margin declined, as higher direct labor and supplies costs partly offset sales growth and fixed-cost absorption. Year-to-date gross margin improved from 29.8% to 30.6%.
- Total net earnings fell year over year because the prior-year comparison included Electronics Business operating earnings, while the current period includes discontinued-business transition and restructuring costs. Current discontinued operations recorded net losses of $0.360 million for the quarter and $0.404 million year to date.
- Effective tax rates were 27.6% for the quarter and 27.7% year to date, versus 22.9% and 8.8% in the comparable periods. The prior-year year-to-date rate benefited from a one-time $0.788 million tax benefit. The current-period tax provision includes a discrete stock-compensation charge; the filing gives differing descriptions of its amount, including $0.144 million related to employees who transferred to the buyer.
- A substantial portion of revenue comes from one customer under a requirements-based contract that does not guarantee volumes; forecasts are updated periodically. Management cited aerospace-industry conditions, customer relationships, international economic conditions, and raw-material availability and costs as factors that could affect results.
- Management said resources should be sufficient for at least the 12 months following the filing and for the foreseeable future. No specific revenue or earnings guidance was provided. The company reported no material change in risk factors, no material adverse effect expected from disclosed litigation or environmental matters, and effective disclosure controls.
Important facts for investors to verify
- Confirm the reporting-period mismatch in the request: the filing is for the quarter ended December 1, 2019, not 2018 Q3.
- Review the tax-note descriptions and amounts for the discrete stock-option tax charge, and distinguish them from the prior-year one-time tax benefit.
- Assess dependence on the major customer and whether program ramps and order forecasts translate into sustained, guaranteed demand; the contract does not guarantee quantities.
- Track the Kansas facility’s cost, remaining commitments, timing and expected contribution, alongside capital spending and cash generation.
- Monitor discontinued-operation restructuring and vacated-facility costs, and the accessibility and intended use of the substantial foreign-held cash and securities.