Kaman Reports 2019 First Quarter Results

Increases Full Year Outlook

First Quarter Highlights:

  • Diluted earnings per share of $0.50, or $0.57 adjusted*
  • Distribution sales up 2.5% or 4.1% on a sales per sales day* basis
    to $291.0 million
  • Aerospace operating margin increased 340 bps to 16.0%
  • Year-to-date operating cash flow of $22.6 million; Free Cash Flow*
    of $15.2 million
  • Consolidated backlog of $949.3 million

BLOOMFIELD, Conn.–(BUSINESS WIRE)–Kaman Corp. (NYSE:KAMN) today reported financial results for the first
fiscal quarter ended March 29, 2019, as follows:

     
Table 1. Summary of Financial Results (unaudited)

In thousands except per share amounts

 

For the Three Months Ended
March 29, March 30,
2019 2018 Change
Net sales:
Distribution $ 290,954 $ 283,932 $ 7,022
Aerospace 166,434   179,395   (12,961 )
Net sales $ 457,388   $ 463,327   $ (5,939 )
 
Operating income:
Distribution $ 12,697 $ 11,834 $ 863
% of sales 4.4 % 4.2 % 0.2 %
Aerospace 26,612 22,662 3,950
% of sales 16.0 % 12.6 % 3.4 %
Net gain on sale of assets 61 63 (2 )
Corporate expense (16,006 ) (13,835 ) (2,171 )
Operating income $ 23,364   $ 20,724   $ 2,640  
 
Adjusted EBITDA*:
Net earnings $ 14,125 $ 14,066 $ 59
Adjustments 21,710   22,041   (331 )
Adjusted EBITDA* $ 35,835   $ 36,107   $ (272 )
% of sales 7.8 % 7.8 % %
 
Earnings per share:
Diluted earnings per share $ 0.50 $ 0.50 $
Adjustments 0.07   0.05   0.02  
Adjusted Diluted Earnings per Share* $ 0.57   $ 0.55   $ 0.02  
 

Neal J. Keating, Chairman, President and Chief Executive Officer,
commented, “We were pleased to start 2019 with very strong first quarter
results. Diluted earnings per share for the quarter of $0.50, or $0.57
adjusted*, resulted from sales and operating profit growth at
Distribution and improved profitability at Aerospace.

At Distribution, sales increased 2.5%, or 4.1% on a sales-per-sales day*
basis to $4.6 million, our 6th consecutive quarter of sales-per-sales
day* growth and our highest first quarter daily sales rate since 2015.
Higher sales growth increased our ability to leverage our fixed cost
base and contributed to operating margin of 4.4%, an increase of 20 bps
over the first quarter of 2018 and 30 bps over the fourth quarter of
2018. Highlighting Distribution performance was top line growth across
all three product platforms and year-over-year growth in a number of our
end markets, including paper manufacturing, merchant wholesalers durable
goods, primary metal manufacturing, and food processing. In addition,
during the quarter we increased our backlog 5%. Overall this is a strong
start to the year and provides us confidence in our 2019 outlook.

Aerospace’s operating profit increased 17.4% to $26.6 million. We ended
the quarter with operating margins of 16.0%, or 16.1% adjusted*, a 340
bps increase over the 12.6% operating margin in the first quarter of
2018. The increase in operating margin resulted from the mix of sales in
the period and improved performance resulting from our prior period
restructuring actions. Lower sales in the quarter primarily resulted
from a shift in the delivery of the tenth new build K-MAX®
aircraft into the second quarter, the sale of our tooling and
engineering services businesses, and a $2.5 million foreign currency
headwind. Also during the quarter, we announced a number of investments
at Aerospace and continue to make progress in those areas where we see a
significant opportunity for growth. One area in particular is the
development of our next generation K-MAX® unmanned aircraft
system for use in commercial and military applications.

Through the balance of the year, we expect continued growth from
Distribution with increased profitability as we continue to benefit from
improved fixed cost leverage. Aerospace operating profit performance is
expected to remain strong due to the sales and profit mix of our
specialty bearings and JPF products and the continued realization of the
benefit from our restructuring actions. In addition, increased order
activity for our bearings products and our recently announced JPF DCS
award give us the confidence to increase our Aerospace outlook for the
remainder of the year.”

Chief Financial Officer, Robert D. Starr, commented, “We generated
operating cash flows of $22.6 million, and Free Cash Flows* of $15.2
million during the first quarter, further reducing our debt levels while
ending the quarter with a debt to capitalization ratio of 30.7%, a 100
bps reduction from the fourth quarter of 2018 and leverage at
approximately 1.9x. We are well positioned to meet our full year cash
flow forecast and our strong balance sheet allows us to continue to make
investments in key projects that support the long term growth of the
business while seeking strategic acquisition targets that continue to
broaden our engineered product offerings.

Our outlook for 2019 has improved. For Distribution, we are maintaining
our prior outlook as the strong start to the year provides us confidence
in achieving our full year expectations. At Aerospace, performance for
the year is ahead of our prior expectations and, based on the progress
we have made to date, we are increasing our outlook for sales and
operating profit for the remainder of the year. We now expect sales in
the range of $730.0 million to $760.0 million and operating margin in
the range of 16.7% to 17.2%, a 20 basis point increase over our prior
expectations.

Additionally, we are lowering the full year expectation for net periodic
pension benefit from $1.5 million to $0.4 million to reflect the
finalization of our pension assumptions for 2019.

Finally, our first quarter earnings were ahead of expectations and we
note that approximately 50% of this was due to a shift in earnings
previously expected in the second quarter, with the remainder
representing incremental earnings for the year. We continue to expect
nearly 40% of our full year earnings in the fourth quarter. As
previously discussed, the back half weighting of our earnings is largely
dependent on the timing of sales and profit for our specialty bearings
products and JPF DCS units.”

2019 Outlook

Our revised 2019 outlook is as follows:

  • Distribution:

    • Sales of $1.19 billion to $1.22 billion
    • Operating margins of 5.0% to 5.3%
    • Depreciation and amortization expense of approximately $16.0
      million
  • Aerospace:

    • Sales of $730.0 million to $760.0 million
    • Operating margins of 16.7% to 17.2%
    • Depreciation and amortization expense of approximately $21.0
      million
  • Interest expense of approximately $20.0 million
  • Corporate expenses of approximately $58.0 million to $59.0 million
  • Net periodic pension benefit of approximately $0.4 million
  • Estimated annualized tax rate of approximately 24.0%
  • Consolidated depreciation and amortization expense of approximately
    $41 million
  • Capital expenditures of approximately $35.0 million
  • Cash flows from operations in the range of $105.0 million to $125.0
    million; Free Cash Flow* in the range of $70.0 million to $90.0 million
  • Weighted average diluted shares outstanding of 28.1 million

Please see the MD&A section of the Company’s Form 10-Q filed with the
Securities and Exchange Commission concurrently with the issuance of
this release for greater detail on our results and various company
programs.

A conference call has been scheduled for tomorrow, May 2, 2019, at
8:30 AM ET.
Listeners may access the call live by telephone at (844)
473-0975 and from outside the U.S. at (562) 350-0826 using the
Conference ID: 8984206; or, via the Internet at www.kaman.com.
A replay will also be available two hours after the call and can be
accessed at (855) 859-2056 or (404) 537-3406 using the Conference ID:
8984206. In its discussion, management may reference certain non-GAAP
financial measures related to company performance. A reconciliation of
that information to the most directly comparable GAAP measures is
provided in this release.

About Kaman Corporation

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman,
and headquartered in Bloomfield, Connecticut conducts business in the
aerospace and industrial distribution markets. The company produces and
markets proprietary aircraft bearings and components; super precision,
miniature ball bearings; complex metallic and composite aerostructures
for commercial, military and general aviation fixed and rotary wing
aircraft; safe and arming solutions for missile and bomb systems for the
U.S. and allied militaries; subcontract helicopter work; restoration,
modification and support of our SH-2G Super Seasprite maritime
helicopters; manufacture and support of our K-MAX® manned and unmanned
medium-to-heavy lift helicopters. The company is a leading distributor
of industrial parts, and operates approximately 220 service facilities,
including distribution centers, assembly, fabrication and repair
facilities across the U.S. and Puerto Rico. Kaman offers more than six
million items including electro-mechanical products, bearings, power
transmission, motion control and electrical and fluid power components,
automation and MRO supplies to customers in virtually every industry.
Additionally, Kaman provides engineering, design and support for
automation, electrical, linear, hydraulic and pneumatic systems as well
as belting and rubber fabrication, customized mechanical services, hose
assemblies, repair, fluid analysis and motor management. More
information is available at www.kaman.com.

Table 2. Summary of Segment Information (in thousands) (unaudited)    
For the Three Months Ended
March 29, March 30,
2019 2018
Net sales:
Distribution $ 290,954 $ 283,932
Aerospace 166,434   179,395  
Net sales $ 457,388   $ 463,327  
 
Operating income:
Distribution $ 12,697 $ 11,834
Aerospace 26,612 22,662
Net gain (loss) on sale of assets 61 63
Corporate expense (16,006 ) (13,835 )
Operating income $ 23,364   $ 20,724  
 
 
Table 3. Depreciation and Amortization by Segment (in thousands)
(unaudited)
For the Three Months Ended
March 29, March 30,
2019 2018
Depreciation and Amortization:
Distribution $ 3,892 $ 3,506
Aerospace 5,318 6,310
Corporate 804   845  
Consolidated Total $ 10,014   $ 10,661  
 

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP (i.e. Financial measures that are
noted computed in accordance with Generally Accepted Accounting
Principles) financial measures identified by an asterisk (*) used in
this release or in other disclosures provide important perspectives into
the Company’s ongoing business performance. The Company does not intend
for the information to be considered in isolation or as a substitute for
the related GAAP measures. Other companies may define the measures
differently. We define the Non-GAAP measures used in this release and
other disclosures as follows:

Organic Sales – Organic Sales is defined as “Net Sales” less
sales derived from acquisitions completed during the preceding twelve
months. We believe that this measure provides management and investors
with a more complete understanding of underlying operating results and
trends of established, ongoing operations by excluding the effect of
acquisitions, which can obscure underlying trends. We also believe that
presenting Organic Sales separately for our segments provides management
and investors with useful information about the trends impacting our
segments and enables a more direct comparison to other businesses and
companies in similar industries. Management recognizes that the term
“Organic Sales” may be interpreted differently by other companies and
under different circumstances. No other adjustments were made during the
three-month fiscal periods ended March 29, 2019 and March 30, 2018. The
following table illustrates the calculation of Organic Sales using the
GAAP measure, “Net Sales”.

Table 4. Organic Sales (in thousands) (unaudited)  
For the Three Months Ended
March 29,   March 30,
2019 2018
Distribution
Net sales $ 290,954 $ 283,932
Acquisition Sales  
Organic Sales $ 290,954   $ 283,932
Aerospace
Net sales $ 166,434 $ 179,395
Acquisition Sales  
Organic Sales $ 166,434   $ 179,395
Consolidated
Net sales $ 457,388 $ 463,327
Acquisition Sales  
Organic Sales $ 457,388   $ 463,327
 

Organic Sales per Sales Day – Organic Sales per Sales Day is
defined as GAAP “Net sales of the Distribution segment” less sales
derived from acquisitions completed during the preceding twelve months
divided by the number of Sales Days in a given period. Sales days
(“Sales Days”) are the days that the Distribution segment’s branch
locations were open for business and exclude weekends and holidays.
Management believes Organic Sales per Sales Day provides an important
perspective on how net sales may be impacted by the number of days the
segment is open for business and provides a basis for comparing periods
in which the number of Sales Days differs.

The following table illustrates the calculation of Organic Sales per
Sales Day using “Net sales: Distribution” from the “Segment and
Geographic Information” footnote in the “Notes to Consolidated Financial
Statements” included in the Company’s Form 10-Q filed with the
Securities and Exchange Commission on May 1, 2019.

Table 5. Distribution – Organic Sales Per Sales Day (in
thousands, except days) (unaudited)

 

    For the Three Months Ended
March 29,   March 30,
2019   2018
 
Current period
Net sales $ 290,954 $ 283,932
Sales days 63   64  
Sales per Sales Day for the current period a $ 4,618   $ 4,436  
 
Prior period
Net sales from the prior year $ 283,932 $ 271,618
Sales days from the prior year 64   64  
Sales per Sales day from the prior year b $ 4,436   $ 4,244  
 
% change (a-b)÷b 4.1 % 4.5 %
 
Table 6. Distribution – Sales Days        
First Quarter Second Quarter Third Quarter Fourth Quarter
Distribution Sales Days
2019 Sales Days by quarter 63 64 63 63
2018 Sales Days by quarter 64 64 63 62
2017 Sales Days by quarter 64 64 62 62
 

Adjusted EBITDA – Adjusted EBITDA is defined as net earnings
before interest, taxes, other expense (income), net, depreciation and
amortization and certain items that are not indicative of the operating
performance of the Company’s segments or corporate function for the
period presented. Adjusted EBITDA differs from net earnings, as
calculated in accordance with GAAP, in that it excludes interest
expense, net, income tax expense, depreciation and amortization, other
expense (income), net and certain items that are not indicative of the
operating performance of the Company’s segments or corporate function
for the period presented. We have made numerous investments in our
business, such as acquisitions and capital expenditures, including
facility improvements, new machinery and equipment, improvements to our
information technology infrastructure and new ERP systems, which we have
adjusted for in Adjusted EBITDA. Adjusted EBITDA also does not give
effect to cash used for debt service requirements and thus does not
reflect funds available for distributions, reinvestments or other
discretionary uses.

Management believes Adjusted EBITDA provides an additional perspective
on the operating results of the organization and its earnings capacity
and helps improve the comparability of our results between periods
because it provides a view of our operations that excludes items that
management believes are not reflective of operating performance, such as
items traditionally removed from net earnings in the calculation of
EBITDA as well as Other expense (income), net and certain items that are
not indicative of the operating performance of the Company’s segments or
corporate function for the period presented. Adjusted EBITDA is not
presented as an alternative measure of operating performance, as
determined in accordance with GAAP. No other adjustments were made
during the three-month fiscal periods ended March 29, 2019 and March 30,
2018. The following table illustrates the calculation of Adjusted EBITDA
using GAAP measures:

Table 7. Adjusted EBITDA (in thousands) (unaudited)  
For the Three Months Ended
March 29,   March 30,
2019 2018
Adjusted EBITDA
Consolidated Results
Sales $ 457,388 $ 463,327
 
Net earnings $ 14,125 $ 14,066
 
Interest expense, net 5,313 5,352
Income tax expense 4,116 4,677
Other income, net (91 ) (342 )
Depreciation and amortization 10,014 10,661
Other Adjustments:
Restructuring and severance costs 266 1,693
Costs associated with corporate development activities 2,092    
Adjustments $ 21,710 $ 22,041
   
Adjusted EBITDA $ 35,835   $ 36,107  
Adjusted EBITDA margin 7.8 % 7.8 %
 

Free Cash Flow – Free Cash Flow is defined as GAAP “Net cash
provided by (used in) operating activities” in a period less
“Expenditures for property, plant & equipment” in the same period.
Management believes Free Cash Flow provides an important perspective on
our ability to generate cash from our business operations and, as such,
that it is an important financial measure for use in evaluating the
Company’s financial performance. Free Cash Flow should not be viewed as
representing the residual cash flow available for discretionary
expenditures such as dividends to shareholders or acquisitions, as it
may exclude certain mandatory expenditures such as repayment of maturing
debt and other contractual obligations. Management uses Free Cash Flow
internally to assess overall liquidity. The following table illustrates
the calculation of Free Cash Flow using “Net cash provided by (used in)
operating activities” and “Expenditures for property, plant &
equipment”, GAAP measures from the Condensed Consolidated Statements of
Cash Flows included in this release.

Table 8. Free Cash Flow (in thousands) (unaudited)  

For the Three Months Ended

March 29,
2019
Net cash provided by operating activities $ 22,636
Expenditures for property, plant & equipment (7,425 )
Free Cash Flow $ 15,211  
 
Table 9. Free Cash Flow – 2019 Outlook (in millions)   2019 Outlook
Free Cash Flow:
Net cash provided by operating activities $ 105.0 to $ 125.0
Less: Expenditures for property, plant and equipment (35.0 ) to (35.0 )
Free Cash Flow $ 70.0   to $ 90.0  
 

Debt to Capitalization Ratio – Debt to Capitalization Ratio is
calculated by dividing debt by capitalization. Debt is defined as GAAP
“Current portion of long-term debt” plus “Long-term debt, excluding
current portion”. Capitalization is defined as Debt plus GAAP “Total
shareholders’ equity”. Management believes that Debt to Capitalization
Ratio is a measurement of financial leverage and provides an insight
into the financial structure of the Company and its financial strength.
The following table illustrates the calculation of Debt to
Capitalization Ratio using GAAP measures from the Condensed Consolidated
Balance Sheets included in this release.

Table 10. Debt to Capitalization Ratio (in thousands) (unaudited)    
March 29, December 31,
2019 2018
Current portion of long-term debt $ 10,000 $ 9,375
Long-term debt, excluding current portion, net of debt issuance costs 274,176   284,256  
Debt $ 284,176   $ 293,631  
Total shareholders’ equity 642,167   633,157  
Capitalization $ 926,343   $ 926,788  
Debt to Capitalization Ratio 30.7 % 31.7 %
 

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share
Adjusted Net Earnings and Adjusted Diluted Earnings per Share are
defined as GAAP “Net earnings” and “Diluted earnings per share”, less
items that are not indicative of the operating performance of the
business for the periods presented. These items are included in the
reconciliation below. Management uses Adjusted Net Earnings and Adjusted
Diluted Earnings per Share to evaluate performance period over period,
to analyze the underlying trends in our business and to assess its
performance relative to its competitors. We believe that this
information is useful for investors and financial institutions seeking
to analyze and compare companies on the basis of operating performance.

The following table illustrates the calculation of Adjusted Net Earnings
and Adjusted Diluted Earnings per Share using “Net earnings” and
“Diluted earnings per share” from the “Consolidated Statements of
Operations” included in the Company’s Form 10-Q filed with the
Securities and Exchange Commission on May 1, 2019.

Table 11. Adjusted Net Earnings and Adjusted Diluted Earnings per
Share
(In thousands except per share amounts) (unaudited)
  For the Three Months Ended
March 29,   March 30,
2019   2018
Adjustments to Net Earnings, pre tax
Restructuring and severance costs at Aerospace $ 266 $ 1,693
Costs associated with corporate development activities 2,092  
Adjustments, pre tax $ 2,358   $ 1,693
 
Tax Effect of Adjustments to Net Earnings
Restructuring and severance costs at Aerospace $ 60 $ 423
Costs associated with corporate development activities 472  
Tax effect of Adjustments $ 532   $ 423
 
Adjustments to Net Earnings, net of tax
GAAP Net Earnings, as reported $ 14,125 $ 14,066
Restructuring and severance costs at Aerospace 206 1,270
Costs associated with corporate development activities 1,620  
Adjusted Net Earnings $ 15,951   $ 15,336
 
Calculation of Adjusted Diluted Earnings per Share
GAAP diluted earnings per share $ 0.50 $ 0.50
Restructuring and severance costs at Aerospace 0.01 0.05
Costs associated with corporate development activities 0.06  
Adjusted Diluted Earnings per Share $ 0.57   $ 0.55
 
Diluted weighted average shares outstanding 28,070 28,168
 

Adjusted Net Sales and Adjusted Operating Income – Adjusted Net
Sales is defined as net sales, less items not indicative of normal
sales, such as revenue recorded related to the settlement of claims.
Adjusted Operating Income is defined as operating income, less items
that are not indicative of the operating performance of the Company’s
segments or corporate function for the period presented. These items are
included in the reconciliation below. Management uses Adjusted Net Sales
and Adjusted Operating Income to evaluate performance period over
period, to analyze underlying trends in our segments and corporate
function and to assess their performance relative to their competitors.
We believe that this information is useful for investors and financial
institutions seeking to analyze and compare companies on the basis of
operating performance. The following table illustrates the calculation
of Adjusted Operating Income using information found in Note 17, Segment
and Geographic Information, to the Consolidated Financial Statements
included in the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 1, 2019.

Table 12. Adjusted Net Sales and Adjusted Operating Income
(In thousands) (unaudited)
  For the Three Months Ended
March 29,   March 30,
2019   2018
DISTRIBUTION SEGMENT OPERATING INCOME:
Net Sales $ 290,954 $ 283,932
GAAP Operating income – Distribution segment 12,697 11,834
% of GAAP net sales 4.4 % 4.2 %
Adjusted Operating Income – Distribution segment $ 12,697 $ 11,834
% of net sales 4.4 % 4.2 %
AEROSPACE SEGMENT OPERATING INCOME:
Net Sales $ 166,434 $ 179,395
GAAP Operating income – Aerospace segment 26,612 22,662
% of GAAP net sales 16.0 % 12.6 %
Restructuring and severance costs 266   1,693  
Adjusted Operating Income – Aerospace segment $ 26,878 $ 24,355
% of GAAP net sales 16.1 % 13.6 %
CORPORATE EXPENSE:
GAAP Corporate Expense $ (16,006 ) $ (13,835 )
Cost associated with corporate development activities 2,092    
Adjusted Corporate Expense $ (13,914 ) $ (13,835 )
CONSOLIDATED OPERATING INCOME:
Net Sales $ 457,388 $ 463,327
GAAP – Operating income 23,364 20,724
% of GAAP net sales 5.1 % 4.5 %
Restructuring and severance costs at Aerospace 266 1,693
Costs associated with corporate development activities 2,092    
Adjusted Operating Income $ 25,722 $ 22,417
% of GAAP net sales 5.6 % 4.8 %
 

FORWARD-LOOKING STATEMENTS

This release contains “forward-looking statements” within the meaning of
the safe harbor provisions of the U.

Contacts

James Coogan
V.P., Investor Relations
(860) 243-6342
[email protected]

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