Park Electrochemical Corp. — Form 10-Q Summary
Reporting period: 13 weeks ended June 2, 2019 (fiscal 2020 first quarter), compared with the 13 weeks ended May 27, 2018. The filing identifies the registrant as Park Electrochemical Corp.; the request metadata’s company name and “2018 Q1” period do not match the filing.
Business context
Following the December 4, 2018 sale of its Electronics Business for $145 million in cash, the company’s continuing operations comprise its aerospace business. It develops and manufactures advanced composite materials and composite parts and structures for aerospace markets.
Financial results
Amounts below are in millions of dollars except per-share data; figures are for continuing operations unless noted.
| Metric | Q1 fiscal 2020 | Comparable 2018 period |
|---|---|---|
| Net sales | $14.950 | $10.393 |
| Gross profit / gross margin | $4.804 / 32.1% | $2.852 / 27.4% |
| SG&A | $1.922 | $2.101 |
| Operating earnings | $2.882 | $0.751 |
| Interest and other income | $0.948 | $0.340 |
| Pre-tax earnings | $3.830 | $1.091 |
| Income tax provision | $1.116 | $0.275 |
| Continuing-operations net earnings | $2.714 | $0.816 |
| Total net earnings, including discontinued operations | $2.587 | $3.168 |
| Diluted EPS, continuing operations / total | $0.13 / $0.13 | $0.04 / $0.16 |
Management attributed sales growth to ramping programs for which the company’s materials are qualified. Higher sales and relatively fixed overhead lifted gross margin, partly offset by increased direct labor and supplies costs. Lower payroll, travel, and stock-option expenses reduced SG&A. Higher average marketable-security balances and interest rates drove the increase in interest income.
Continuing-operations operating cash flow was $2.775 million, versus cash use of $1.592 million in the prior-year period. Capital expenditures were $1.860 million, compared with $0.010 million; dividends paid were $2.049 million. Cash and cash equivalents declined to $49.967 million from $71.007 million, while marketable securities rose to $101.090 million from $80.617 million. Combined cash and marketable securities were $151.057 million at quarter-end; $126.8 million was held by foreign subsidiaries. Working capital was $156.280 million and the current ratio was 15.8:1. The company reported no long-term debt.
Changes, outlook, and risks
- Sales increased 44% year over year; gross margin rose 4.7 percentage points. Continuing-operations net earnings increased to $2.714 million, but total net earnings fell 18% because the prior-year period included $2.352 million of discontinued-operations earnings, while the current period included a $0.127 million discontinued-operations loss.
- The company is building an approximately 90,000-square-foot aerospace manufacturing facility in Newton, Kansas. Estimated total cost is approximately $20 million, with completion expected in the first half of calendar 2020. Equipment purchase obligations were $2.173 million at June 2, 2019.
- No formal earnings or revenue guidance was provided. Management said financial resources should be adequate for working capital, investment, and general corporate purposes for at least the next 12 months and the foreseeable future.
- Risks include aerospace-industry conditions, customer relationships and demand, competition, international economic conditions, and raw-material, transportation, and utility costs. Long-term customer contracts are primarily requirements-based and do not guarantee volumes.
- The company disclosed environmental matters at three sites; it said insurance covers defense and remediation costs at two sites and expects no material adverse effect from known contingencies. It also expects approximately $0.778 million of remaining pre-tax costs related to the discontinued-business consolidation, primarily in fiscal 2021.
- The effective tax rate was 29.1%, versus 25.2%, reflecting state and local taxes, stock-compensation tax items, and accrued interest related to unrecognized tax benefits. The filing gives differing amounts for a discrete tax provision: $0.153 million in the tax note and $0.144 million in MD&A.
Important facts for investors to verify
- Confirm the reporting period and issuer identity: the filing is Park Electrochemical Corp.’s 10-Q for the quarter ended June 2, 2019, not a 2018 quarter.
- Reconcile the differing disclosed discrete tax provision amounts ($0.153 million and $0.144 million) and related EPS impact.
- Track aerospace-program ramp rates, customer concentration and order forecasts, and whether requirements-based contracts convert into sustained sales.
- Monitor construction costs, timing, equipment commitments, and expected public assistance for the Newton facility.
- Consider the location of liquidity: $126.8 million of combined cash and marketable securities was held by foreign subsidiaries, and the company intended to keep approximately $25 million of undistributed foreign earnings invested abroad.