Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”)
today reported results for its third quarter ended
September 30, 2017.
Third Quarter 2017
Highlights
- Revenue of $138.7 million
- Net income of $4.7 million, or $0.41 per diluted share
- Adjusted EBITDA of $14.5 million
- Backlog of $655 million
- Completed the acquisition of LDS
“I am pleased to announce we posted solid
operating results for the third quarter, including an increase in
backlog to $655 million, growth in our defense business
year-over-year, and improved margins sequentially within our
Structural Systems segment. We also completed the acquisition of
LDS, an innovative aerospace technology provider, in September,
strengthening our electronic offerings across a number of key
aircraft platforms,” said Stephen G. Oswald, president and chief
executive officer. “In addition, and as I alluded to earlier this
year, it is clearly necessary that we undertake some strategic
measures to improve the cost structure of our business and, in
doing so, drive margin expansion. We are therefore announcing a
restructuring plan that is expected to increase operating
efficiency and better position the Company for higher profitability
and growth going forward.
“The Company currently anticipates this
initiative will result in approximately $22.0 million to $25.0
million in total pre-tax restructuring charges through the end of
2018, with approximately $10.5 million recorded during the fourth
quarter of 2017. Of these charges, approximately $9.0 million to
$10.0 million are expected to be cash outlays for employee
separation and other facility consolidation related expenses and
$13.0 million to $15.0 million to be non-cash charges for the
write-down of inventory and the impairment of long-lived assets. On
an annualized basis, beginning in 2019, the Company anticipates
these restructuring actions will result in total cost savings of
approximately $14 million. We are taking such steps to build
Ducommun into a more cost efficient, focused, higher margin
enterprise best able to meet the demands of our customers, invest
in innovative structural and electronic solutions, and achieve
higher returns for our shareholders.”
Third Quarter Results
Net revenue for the third quarter of 2017 was
$138.7 million compared to $132.6 million for the third quarter of
2016. The year-over-year increase was primarily due to the
following:
- $8.1 million higher revenue in the Company’s military and space
end-use markets mainly driven by increased demand, which favorably
impacted the Company’s fixed-wing, missile, and helicopter
platforms; and
- $0.9 million higher revenue in the Company’s industrial end-use
markets; partially offset by
- $2.8 million lower revenue in the Company’s commercial
aerospace end-use markets, reflecting the winding down of a
regional jet program and continued softness in demand within the
business jet market.
Net income for the third quarter of 2017 was
$4.7 million, or $0.41 per diluted share, compared to $5.0 million,
or $0.44 per diluted share, for the third quarter of 2016. The
year-over-year decrease was primarily due to the following:
- $1.6 million higher selling, general, and administrative
(“SG&A”) expense mainly due to higher compensation and benefit
costs of $1.5 million; partially offset by
- $0.3 million of lower income tax expense.
Gross profit for the third quarter of 2017 was
$26.0 million, or 18.8% of revenue, compared to gross profit of
$25.2 million, or 19.0% of revenue, for the third quarter of 2016.
The decrease in gross margin percentage year-over-year was
primarily due to unfavorable product mix, partially offset by lower
manufacturing costs as a result of ongoing cost reduction
initiatives.
Operating income for the third quarter of 2017
was $7.2 million, or 5.2% of revenue, compared to $8.1 million, or
6.1% of revenue, in the comparable period last year. The
year-over-year decrease was primarily due to higher SG&A
expense mainly due to higher compensation and benefit costs.
Interest expense for the third quarter of 2017
was $2.1 million compared to $1.9 million in the comparable period
of 2016. The year-over-year increase was primarily due to a higher
utilization of the revolving credit facility during the current
three-month period, including the acquisition of Lightning
Diversion Systems, LLC (“LDS”), partially offset by a lower
outstanding term loan balance as a result of voluntary principal
prepayments on the Company’s credit facilities.
Adjusted EBITDA for the third quarter of 2017
was $14.5 million, or 10.4% of revenue, compared to $14.9 million,
or 11.2% of revenue, for the comparable period in 2016.
During the third quarter of 2017, the Company
generated $11.1 million of cash flow from operations compared to
$15.5 million during the third quarter of 2016. The year-over-year
decrease reflects an increase in inventories and accounts
receivable, partially offset by higher accounts payable.
The Company’s firm backlog as of September 30,
2017 was $655 million compared to $630 million as of July 1,
2017.
Structural Systems
Structural Systems segment net revenue for the
current-year third quarter was $59.7 million, compared to $60.9
million for the third quarter of 2016. The year-over-year decrease
was primarily due to the following:
- $1.6 million lower revenue within the Company’s commercial
aerospace end-use markets mainly due to the winding down of a
regional jet program and continued softness in demand within the
business jet market; partially offset by
- $0.3 million higher revenue within the Company’s military and
space end-use markets due to increased demand, which favorably
impacted the Company’s helicopter platforms.
Structural Systems segment operating income for
the current-year third quarter was $3.5 million, or 5.8% of
revenue, compared to $5.9 million, or 9.7% of revenue, for the
third quarter of 2016. The year-over-year decrease was primarily
due to the impact of new program development on large airframe
platforms and lower manufacturing volume.
Electronic Systems
Electronic Systems segment net revenue for the
current-year third quarter was $79.0 million, compared to $71.6
million for the third quarter of 2016. The year-over-year increase
was primarily due to the following:
- $7.7 million higher revenue within the Company’s military and
space end-use markets mainly due to higher demand, which favorably
impacted the Company’s fixed-wing, missile, and helicopter
platforms; and
- $0.9 million higher revenue in the Company’s industrial end-use
markets; partially offset by
- $1.3 million lower revenue within the Company’s commercial
aerospace end-use markets mainly due to continued softness in
demand in the business jet market.
Electronic Systems’ segment operating income was
$8.2 million, or 10.4% of revenue, for the third quarter of 2017
compared to $6.6 million, or 9.2% of revenue, for the comparable
quarter in 2016. The year-over-year increase was primarily due to
higher manufacturing volume and lower manufacturing costs as a
result of ongoing cost reduction initiatives, partially offset by
unfavorable product mix.
Corporate General and Administrative
(“CG&A”) Expenses
CG&A expenses for the third quarter of 2017
were $4.5 million, or 3.2% of total Company revenue, compared to
$4.4 million, or 3.3% of total Company revenue, for the comparable
quarter in the prior year.
Conference Call
A teleconference hosted by Stephen G. Oswald,
the Company’s president and chief executive officer, and Douglas L.
Groves, the Company’s vice president, chief financial officer and
treasurer, will be held tomorrow, November 2, 2017 at 5:30 a.m. PT
(8:30 a.m. ET) to review these financial results. To participate in
the teleconference, please call 844-239-5278 (international
574-990-1017) approximately ten minutes prior to the conference
time. The participant passcode is 99301365. Mr. Oswald and Mr.
Groves will be speaking on behalf of the Company and anticipate the
call (including Q&A) to last approximately 45 minutes.
This call is being webcast and can be accessed
directly at the Ducommun website at www.ducommun.com. Conference
call replay will be available after that time at the same link or
by dialing 855-859-2056, passcode 99301365.
About Ducommun Incorporated
Ducommun Incorporated delivers value-added innovative
manufacturing solutions to customers in the aerospace, defense and
industrial markets. Founded in 1849, the Company specializes in two
core areas - Electronic Systems and Structural Systems - to produce
complex products and components for commercial aircraft platforms,
mission-critical military and space programs, and sophisticated
industrial applications. For more information, visit
www.ducommun.com.
Forward Looking Statements
This press release and any attachments include
“forward-looking statements,” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, in
particular, earnings guidance, the Company’s restructuring plan and
any statements about the Company’s plans, strategies and prospects.
The Company generally uses the words “may,” “will,” “could,”
“expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” and
similar expressions in this press release and any attachments to
identify forward-looking statements. The Company bases these
forward-looking statements on its current views with respect to
future events and financial performance. Actual results could
differ materially from those projected in the forward-looking
statements. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, among other things:
whether the anticipated pre-tax restructuring charges will be
sufficient to address all anticipated restructuring costs,
including related to employee separation, facilities consolidation,
inventory write-down and other asset impairments; whether the
expected cost savings from the restructuring will ultimately be
obtained in the amount and during the period anticipated; whether
the restructuring in the affected areas will be sufficient to build
a more cost efficient, focused, higher margin enterprise with
higher returns for the Company's shareholders; the impact of the
Company’s debt service obligations and restrictive debt covenants;
the Company’s end-use markets are cyclical; the Company depends
upon a selected base of industries and customers; a significant
portion of the Company’s business depends upon U.S. Government
defense spending; the Company is subject to extensive regulation
and audit by the Defense Contract Audit Agency; contracts with some
of the Company’s customers contain provisions which give the its
customers a variety of rights that are unfavorable to the Company;
further consolidation in the aerospace industry could adversely
affect the Company’s business and financial results; the Company’s
ability to successfully make acquisitions or enter into joint
ventures, including its ability to successfully integrate, operate
or realize the projected benefits of such businesses; the Company
relies on its suppliers to meet the quality and delivery
expectations of its customers; the Company uses estimates when
bidding on fixed-price contracts which estimates could change and
result in adverse effects on its financial results; the impact of
existing and future laws and regulations; the impact of existing
and future accounting standards and tax rules and regulations;
environmental liabilities could adversely affect the Company’s
financial results; cyber security attacks, internal system or
service failures may adversely impact the Company’s business and
operations; and other risks and uncertainties, including those
detailed from time to time in the Company’s periodic reports filed
with the Securities and Exchange Commission. You should not put
undue reliance on any forward-looking statements. You should
understand that many important factors, including those discussed
herein, could cause the Company’s results to differ materially from
those expressed or suggested in any forward-looking statement.
Except as required by law, the Company does not undertake any
obligation to update or revise these forward-looking statements to
reflect new information or events or circumstances that occur after
the date of this news release or to reflect the occurrence of
unanticipated events or otherwise. Readers are advised to review
the Company’s filings with the Securities and Exchange Commission
(which are available from the SEC’s EDGAR database at www.sec.gov,
at various SEC reference facilities in the United States and
through the Company’s website).
Note Regarding Non-GAAP Financial
Information
This release contains non-GAAP financial
measures, including Adjusted EBITDA (which excludes interest
expense, income tax expense, depreciation, amortization,
stock-based compensation expense, and restructuring charges).
The Company believes the presentation of these
non-GAAP measures provide important supplemental information to
management and investors regarding financial and business trends
relating to its financial condition and results of operations. The
Company’s management uses these non-GAAP financial measures along
with the most directly comparable GAAP financial measures in
evaluating the Company’s actual and forecasted operating
performance, capital resources and cash flow. The non-GAAP
financial information presented herein should be considered
supplemental to, and not as a substitute for, or superior to,
financial measures calculated in accordance with GAAP. The Company
discloses different non-GAAP financial measures in order to provide
greater transparency and to help the Company’s investors to more
meaningfully evaluate and compare Ducommun’s results to its
previously reported results. The non-GAAP financial measures that
the Company uses may not be comparable to similarly titled
financial measures used by other companies.
CONTACTS:
Douglas L. Groves, Vice President, Chief Financial Officer and
Treasurer, 657.335.3665 Chris Witty, Investor Relations,
646.438.9385, cwitty@darrowir.com
[Financial Tables Follow]
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
(In thousands) |
|
|
|
September 30, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
|
Current Assets |
|
|
|
|
Cash and
cash equivalents |
|
$ |
3,689 |
|
|
$ |
7,432 |
|
Accounts
receivable, net |
|
78,459 |
|
|
76,239 |
|
Inventories |
|
137,157 |
|
|
119,896 |
|
Production cost of contracts |
|
11,389 |
|
|
11,340 |
|
Other
current assets |
|
11,090 |
|
|
11,034 |
|
Total
Current Assets |
|
241,784 |
|
|
225,941 |
|
Property and equipment,
Net |
|
114,034 |
|
|
101,590 |
|
Goodwill |
|
117,435 |
|
|
82,554 |
|
Intangibles, net |
|
117,285 |
|
|
101,573 |
|
Non-current deferred
income taxes |
|
286 |
|
|
286 |
|
Other assets |
|
3,025 |
|
|
3,485 |
|
Total
Assets |
|
$ |
593,849 |
|
|
$ |
515,429 |
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Current
portion of long-term debt |
|
$ |
— |
|
|
$ |
3 |
|
Accounts
payable |
|
68,509 |
|
|
57,024 |
|
Accrued
liabilities |
|
29,799 |
|
|
29,279 |
|
Total
Current Liabilities |
|
98,308 |
|
|
86,306 |
|
Long-term debt, less
current portion |
|
222,394 |
|
|
166,896 |
|
Non-current deferred
income taxes |
|
31,253 |
|
|
31,417 |
|
Other long-term
liabilities |
|
17,245 |
|
|
18,707 |
|
Total
Liabilities |
|
369,200 |
|
|
303,326 |
|
Commitments and
contingencies |
|
|
|
|
Shareholders’
Equity |
|
|
|
|
Common
stock |
|
113 |
|
|
112 |
|
Additional paid-in capital |
|
78,624 |
|
|
76,783 |
|
Retained
earnings |
|
151,880 |
|
|
141,287 |
|
Accumulated other comprehensive loss |
|
(5,968 |
) |
|
(6,079 |
) |
Total
Shareholders’ Equity |
|
224,649 |
|
|
212,103 |
|
Total
Liabilities and Shareholders’ Equity |
|
$ |
593,849 |
|
|
$ |
515,429 |
|
|
|
|
|
|
|
|
|
|
|
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED INCOME STATEMENTS |
(Unaudited) |
(In thousands, except per share amounts) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2017 |
|
October 1, 2016 |
|
September 30, 2017 |
|
October 1, 2016 |
Net Revenues |
|
$ |
138,690 |
|
|
$ |
132,571 |
|
|
$ |
415,925 |
|
|
$ |
408,156 |
|
Cost of Sales |
|
112,681 |
|
|
107,348 |
|
|
338,798 |
|
|
329,749 |
|
Gross Profit |
|
26,009 |
|
|
25,223 |
|
|
77,127 |
|
|
78,407 |
|
Selling, General and
Administrative Expenses |
|
18,814 |
|
|
17,171 |
|
|
59,361 |
|
|
58,796 |
|
Operating Income |
|
7,195 |
|
|
8,052 |
|
|
17,766 |
|
|
19,611 |
|
Interest Expense |
|
(2,088 |
) |
|
(1,945 |
) |
|
(5,588 |
) |
|
(6,279 |
) |
Gain on
Divestitures |
|
— |
|
|
— |
|
|
— |
|
|
18,815 |
|
Other Income |
|
488 |
|
|
141 |
|
|
488 |
|
|
141 |
|
Income Before
Taxes |
|
5,595 |
|
|
6,248 |
|
|
12,666 |
|
|
32,288 |
|
Income Tax Expense |
|
940 |
|
|
1,234 |
|
|
2,073 |
|
|
9,863 |
|
Net Income |
|
$ |
4,655 |
|
|
$ |
5,014 |
|
|
$ |
10,593 |
|
|
$ |
22,425 |
|
Earnings Per Share |
|
|
|
|
|
|
|
|
Basic
earnings per share |
|
$ |
0.41 |
|
|
$ |
0.45 |
|
|
$ |
0.94 |
|
|
$ |
2.01 |
|
Diluted
earnings per share |
|
$ |
0.41 |
|
|
$ |
0.44 |
|
|
$ |
0.92 |
|
|
$ |
1.99 |
|
Weighted-Average Number
of Common Shares Outstanding |
|
|
|
|
|
|
|
|
Basic |
|
11,241 |
|
|
11,169 |
|
|
11,276 |
|
|
11,141 |
|
Diluted |
|
11,486 |
|
|
11,310 |
|
|
11,556 |
|
|
11,261 |
|
|
|
|
|
|
|
|
|
|
Gross Profit % |
|
18.8 |
% |
|
19.0 |
% |
|
18.5 |
% |
|
19.2 |
% |
SG&A % |
|
13.6 |
% |
|
12.9 |
% |
|
14.3 |
% |
|
14.4 |
% |
Operating Income % |
|
5.2 |
% |
|
6.1 |
% |
|
4.2 |
% |
|
4.8 |
% |
Net Income % |
|
3.4 |
% |
|
3.8 |
% |
|
2.5 |
% |
|
5.5 |
% |
Effective Tax Rate |
|
16.8 |
% |
|
19.8 |
% |
|
16.4 |
% |
|
30.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
BUSINESS SEGMENT PERFORMANCE |
(Unaudited) |
(In thousands) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
%Change |
|
September 30, 2017 |
|
October 1, 2016 |
|
%of Net Revenues2017 |
|
%of Net Revenues2016 |
|
%Change |
|
September 30, 2017 |
|
October 1, 2016 |
|
%of Net Revenues2017 |
|
%of Net Revenues2016 |
Net
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
(2.0 |
)% |
|
$ |
59,685 |
|
|
$ |
60,931 |
|
|
43.0 |
% |
|
46.0 |
% |
|
(5.0 |
)% |
|
$ |
176,372 |
|
|
$ |
185,642 |
|
|
42.4 |
% |
|
45.5 |
% |
Electronic Systems |
|
10.3 |
% |
|
79,005 |
|
|
71,640 |
|
|
57.0 |
% |
|
54.0 |
% |
|
7.7 |
% |
|
239,553 |
|
|
222,514 |
|
|
57.6 |
% |
|
54.5 |
% |
Total Net
Revenues |
|
4.6 |
% |
|
$ |
138,690 |
|
|
$ |
132,571 |
|
|
100.0 |
% |
|
100.0 |
% |
|
1.9 |
% |
|
$ |
415,925 |
|
|
$ |
408,156 |
|
|
100.0 |
% |
|
100.0 |
% |
Segment
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
3,466 |
|
|
$ |
5,893 |
|
|
5.8 |
% |
|
9.7 |
% |
|
|
|
$ |
8,147 |
|
|
$ |
13,347 |
|
|
4.6 |
% |
|
7.2 |
% |
Electronic Systems |
|
|
|
8,234 |
|
|
6,600 |
|
|
10.4 |
% |
|
9.2 |
% |
|
|
|
24,158 |
|
|
19,769 |
|
|
10.1 |
% |
|
8.9 |
% |
|
|
|
|
11,700 |
|
|
12,493 |
|
|
|
|
|
|
|
|
32,305 |
|
|
33,116 |
|
|
|
|
|
Corporate
General and Administrative Expenses (1) |
|
|
|
(4,505 |
) |
|
(4,441 |
) |
|
(3.2 |
)% |
|
(3.3 |
)% |
|
|
|
(14,539 |
) |
|
(13,505 |
) |
|
(3.5 |
)% |
|
(3.3 |
)% |
Total
Operating Income |
|
|
|
$ |
7,195 |
|
|
$ |
8,052 |
|
|
5.2 |
% |
|
6.1 |
% |
|
|
|
$ |
17,766 |
|
|
$ |
19,611 |
|
|
4.3 |
% |
|
4.8 |
% |
Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
|
$ |
3,466 |
|
|
$ |
5,893 |
|
|
|
|
|
|
|
|
$ |
8,147 |
|
|
$ |
13,347 |
|
|
|
|
|
Other
Income |
|
|
|
200 |
|
|
141 |
|
|
|
|
|
|
|
|
200 |
|
|
141 |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
2,220 |
|
|
2,851 |
|
|
|
|
|
|
|
|
6,879 |
|
|
6,683 |
|
|
|
|
|
Restructuring Charges |
|
|
|
64 |
|
|
— |
|
|
|
|
|
|
|
|
64 |
|
|
— |
|
|
|
|
|
|
|
|
|
5,950 |
|
|
8,885 |
|
|
10.0 |
% |
|
14.6 |
% |
|
|
|
15,290 |
|
|
20,171 |
|
|
8.7 |
% |
|
10.9 |
% |
Electronic Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
|
8,234 |
|
|
6,600 |
|
|
|
|
|
|
|
|
24,158 |
|
|
19,769 |
|
|
|
|
|
Other
Income |
|
|
|
288 |
|
|
— |
|
|
|
|
|
|
|
|
288 |
|
|
— |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
3,345 |
|
|
3,232 |
|
|
|
|
|
|
|
|
10,207 |
|
|
10,661 |
|
|
|
|
|
|
|
|
|
11,867 |
|
|
9,832 |
|
|
15.0 |
% |
|
13.7 |
% |
|
|
|
34,653 |
|
|
30,430 |
|
|
14.5 |
% |
|
13.7 |
% |
Corporate
General and Administrative Expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss |
|
|
|
(4,505 |
) |
|
(4,441 |
) |
|
|
|
|
|
|
|
(14,539 |
) |
|
(13,505 |
) |
|
|
|
|
Depreciation and Amortization |
|
|
|
54 |
|
|
6 |
|
|
|
|
|
|
|
|
63 |
|
|
76 |
|
|
|
|
|
Stock-Based Compensation Expense |
|
|
|
1,100 |
|
|
594 |
|
|
|
|
|
|
|
|
4,264 |
|
|
2,579 |
|
|
|
|
|
|
|
|
|
(3,351 |
) |
|
(3,841 |
) |
|
|
|
|
|
|
|
(10,212 |
) |
|
(10,850 |
) |
|
|
|
|
Adjusted
EBITDA |
|
|
|
$ |
14,466 |
|
|
$ |
14,876 |
|
|
10.4 |
% |
|
11.2 |
% |
|
|
|
$ |
39,731 |
|
|
$ |
39,751 |
|
|
9.6 |
% |
|
9.7 |
% |
Capital
Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
4,449 |
|
|
$ |
3,555 |
|
|
|
|
|
|
|
|
$ |
17,217 |
|
|
$ |
10,149 |
|
|
|
|
|
Electronic Systems |
|
|
|
1,793 |
|
|
947 |
|
|
|
|
|
|
|
|
4,256 |
|
|
1,701 |
|
|
|
|
|
Corporate
Administration |
|
|
|
127 |
|
|
— |
|
|
|
|
|
|
|
|
775 |
|
|
— |
|
|
|
|
|
Total
Capital Expenditures |
|
|
|
$ |
6,369 |
|
|
$ |
4,502 |
|
|
|
|
|
|
|
|
$ |
22,248 |
|
|
$ |
11,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes costs not allocated to either the Structural
Systems or Electronic Systems operating segments.
Ducommun (NYSE:DCO)
Historical Stock Chart
From Apr 2024 to May 2024
Ducommun (NYSE:DCO)
Historical Stock Chart
From May 2023 to May 2024