Standex International Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended September 30, 2021, the first quarter of fiscal 2022 (fiscal year ends June 30), compared with the same quarter in 2020. Standex is a diversified industrial manufacturer with five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2021 | Prior-year quarter |
|---|---|---|
| Net sales | $175.6 million | $151.3 million |
| Gross profit / margin | $66.2 million / 37.7% | $54.7 million / 36.2% |
| Operating income / margin | $22.8 million / 13.0% | $14.4 million / 9.5% |
| Continuing-operations income | $15.8 million | $10.3 million |
| Net income | $15.8 million | $9.7 million |
| Diluted EPS | $1.30 | $0.79 |
| Operating cash flow | $13.1 million | $9.2 million from continuing operations |
Sales increased 16.1% year over year; organic sales rose 16.9%, with a positive $1.8 million foreign-exchange impact and a $3.0 million reduction from divestitures. Operating income increased 59.0%. Gross margin improvement reflected organic growth and productivity, partly offset by raw-material and freight costs, a one-time Engineering Technologies charge, and a temporary Specialty Solutions work stoppage.
Cash and equivalents were $130.7 million at September 30, versus $136.4 million at June 30. Debt was $200.0 million gross ($199.6 million net of issuance costs); net debt was $68.9 million. The company reported $267.1 million of additional borrowing availability, a 1.24 leverage ratio, and compliance with credit covenants. Current assets were $376.3 million and current liabilities $135.2 million. Cash used in investing was $5.1 million, chiefly capital expenditures; financing used $12.6 million, including $9.5 million in share repurchases and $2.9 million in dividends.
Material changes and segment trends
- Electronics sales rose 37.2% to $75.8 million; operating income more than doubled to $18.3 million, with margin rising to 24.1%. Backlog growth was particularly strong.
- Scientific sales increased 29.2% to $21.5 million, supported in part by vaccine-storage demand; operating margin declined to 20.9% from 24.5%.
- Engraving sales fell 3.4% to $35.2 million and operating income fell 17.0%, reflecting project timing, weaker hard-trim markets, and mix.
- Engineering Technologies sales were essentially flat at $17.6 million; operating income increased to $0.9 million, despite a $1.1 million one-time project charge. The comparison was affected by the prior-year Enginetics business, which was divested in fiscal 2021.
- Specialty Solutions sales were nearly flat at $25.5 million, but operating income fell 27.9% to $2.8 million amid labor and materials costs and a temporary work stoppage.
- Backlog under one year increased 55.7% to $236.4 million, led by Electronics; management cautions backlog is not necessarily an indicator of future sales.
Outlook, commentary, risks and unusual items
Management expected year-over-year improvement in key financial metrics for the remainder of fiscal 2022, supported by order growth and productivity initiatives. Its segment expectations included strength in Electronics, higher soft-trim demand in Engraving, lower COVID-19 vaccine-storage demand in Scientific, commercial aviation and space growth in Engineering Technologies, and food-service recovery in Specialty Solutions. Near-term segment commentary included a slight sequential decline in Electronics revenue and margin, and expected improvement in several other segments. Fiscal 2022 capital spending was projected at $25–$30 million; approximately $1.6 million of additional restructuring costs were expected for the remainder of the year.
Management cited COVID-19 uncertainty, supply-chain and logistics constraints, labor shortages, inflation, higher materials and freight costs, customer demand and production variability, and execution risks from restructuring and acquisitions. It also noted foreign-cash repatriation may have tax or capital-control effects. A customer lawsuit involving allegedly faulty sensors remains pending; management considers liability possible but not probable and estimates a potential range of $0–$4.0 million; no liability was accrued. The quarter included $0.4 million of restructuring costs, $0.2 million of acquisition-related costs, and the $1.1 million project-related charge noted above. No material goodwill impairment was recorded.
Important facts for investors to verify
- Whether the substantial Electronics backlog converts to sales and whether supply-chain constraints or labor shortages delay fulfillment.
- Whether pricing and productivity actions can offset materials, freight, wage, and other inflationary pressures and sustain margin gains.
- How demand develops in vaccine-related Scientific products, commercial aviation, space, food service, and other end markets.
- Progress and costs of restructuring, and the outcome of the sensor litigation and acquisition-related contingent payments.
- Availability of foreign cash for U.S. needs, repatriation timing and tax effects, and continued compliance with credit-facility covenants.