Business context and reporting period
Standex International Corporation (NYSE: SXI) is a diversified industrial manufacturer with five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. This Form 10-K covers the fiscal year ended June 30, 2021; it is an annual report, not a standalone 2020 fourth-quarter filing. Comparisons below are primarily with fiscal 2020.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales from continuing operations | $656.2 million | $604.5 million |
| Gross profit / gross margin | $241.3 million / 36.8% | $215.5 million / 35.6% |
| Operating income | $59.2 million | $60.5 million |
| Income from continuing operations | $38.5 million | $41.0 million |
| Net income, including discontinued operations | $36.5 million | $20.2 million |
| Diluted EPS | $2.97 | $1.63 |
| Cash provided by continuing operating activities | $81.9 million | $54.7 million |
- Sales grew 8.6%: acquisitions contributed $25.6 million, foreign exchange $14.5 million, organic growth $15.3 million, and divestitures reduced sales by $3.6 million.
- Gross margin improved 1.2 percentage points. Operating income fell 2.3%, principally because of the $14.6 million Enginetics sale loss and material-cost inflation; operating margin was approximately 9.0% versus 10.0% in FY2020.
- At June 30, cash was $136.4 million, including $92.2 million held outside the U.S. Long-term debt was $199.5 million, and net debt was $63.1 million, down from $80.3 million. Net debt to capitalization declined to 11.1% from 14.8%.
- The company had $200.0 million drawn on its $500 million revolving facility and reported $245.2 million of additional borrowing capacity. Leverage ratio was 1.31:1 versus a 3.5:1 maximum; interest coverage was 13.1:1 versus a 2.75:1 minimum. Debt matures in December 2023.
- Current assets were $374.4 million and current liabilities $143.7 million. Capital expenditures were $21.8 million in the cash-flow statement; dividends paid were $11.4 million and share repurchases were $21.2 million.
Material changes versus the prior period
- FY2021 sales rebounded from the pandemic-affected FY2020, but performance varied by business. Electronics sales rose 36.7% and Scientific sales 38.1%; Engineering Technologies sales fell 27.4% and Specialty Solutions sales fell 11.5%.
- Electronics operating income rose to $46.6 million from $29.7 million; Scientific operating income rose to $18.2 million from $13.7 million. Engineering Technologies operating income declined to $6.2 million from $14.0 million, while Specialty Solutions declined to $14.4 million from $18.5 million.
- Standex acquired Renco Electronics in July 2020 for $27.4 million cash consideration, adding $25.6 million of FY2021 sales. It divested Enginetics on March 31, 2021, receiving $11.7 million and recording a $14.6 million pretax loss, including $7.6 million of goodwill impairment and a $5.4 million intangible-asset write-down.
- Cash from continuing operations increased by $27.2 million. The prior-year comparison also reflects discontinued operations, including the 2020 divestiture of Refrigerated Solutions Group.
Outlook, commentary, risks and unusual items
- Management expects FY2022 to build on FY2021 momentum, with continued improvement in key financial metrics supported by order growth and productivity initiatives. Segment outlook includes strength in Electronics, higher soft-trim demand in Engraving, lower COVID-19 vaccine-storage demand in Scientific, commercial aviation and space opportunities in Engineering Technologies, and food-service recovery in Specialty Solutions.
- For FY2022 first-quarter sequential comparisons, management expects slight revenue growth and moderate margin improvement in Electronics; slight-to-moderate declines in Engraving; lower Scientific revenue and slightly lower margin; slight-to-moderate declines in Engineering Technologies; and slight improvement in Specialty Solutions revenue and margin. FY2022 capital spending is expected to be $25–30 million; approximately $2.0 million of additional restructuring costs are expected.
- COVID-19 continued to affect customer demand, operations and supply chains. Management also cites inflation and availability of materials, freight costs, tariffs, competition, execution of cost savings and acquisitions, foreign-exchange exposure, and cyclical end markets as risks.
- All $200.0 million of borrowings were converted to fixed-rate exposure through swaps; the effective borrowing rate was 2.59%. The U.S. defined-benefit pension plan is frozen and was not fully funded under ERISA at year-end; required U.S. funded-plan contributions for FY2022 were estimated at approximately $1.0 million.
- A customer lawsuit over allegedly faulty sensors remains pending. The company considers liability possible but not probable, estimates a potential range of $0–$4.0 million, and recorded no accrual. Non-current liabilities for uncertain tax positions were $9.4 million; the timing of any payments is unclear.
- The financial-statement auditor issued an unqualified opinion, and the auditor reported effective internal control over financial reporting. The ICFR audit excluded Renco, acquired during FY2021.
Important facts for investors to verify
- Whether the FY2022 outlook is being achieved, particularly the anticipated decline in vaccine-storage demand and recovery in food service and aviation.
- Whether pricing and productivity can offset steel, electronics-component, freight and other cost inflation without weakening margins.
- Whether the $245.2 million reported borrowing capacity and covenant headroom remain available as operating conditions and acquisition plans evolve.
- Progress and final costs from restructuring, the Enginetics divestiture, and integration and contingent payments related to Renco and other acquisitions.
- Developments in the sensor litigation, uncertain tax positions, and pension funding needs.