Kaman Reports 2021 First Quarter Results

First Quarter Highlights:

  • Net sales from continuing operations of $171.6 million, down 17.2% over prior year period
  • Gross profit from continuing operations of $52.9 million; Gross margin of 30.8%
  • Earnings from continuing operations of $8.0 million, up $8.4 million over the prior year period
  • Diluted earnings per share from continuing operations of $0.29
  • Adjusted EBITDA from continuing operations* of $17.1 million decreased from the first quarter of 2020 but flat with the fourth quarter of 2020 on lower sales
  • Net cash used in operating activities of $2.4 million; Adjusted Free Cash Flow* of $18.0 million

BLOOMFIELD, Conn.–(BUSINESS WIRE)–Kaman Corp. (NYSE:KAMN) today reported financial results for the first fiscal quarter ended April 2, 2021.

 

 

 

 

 

 

 

 

 

Table 1. Summary of Financial Results (unaudited)

 

 

 

 

 

 

In thousands except per share amounts

For the Three Months Ended

 

 

 

April 2,
2021

 

April 3,
2020

 

Change

 

 

 

 

 

 

 

 

 

 

Net sales from continuing operations

$

171,616

 

 

$

207,322

 

 

$

(35,706

)

 

 

 

 

 

 

 

 

 

 

Operating income from continuing operations:

 

 

 

 

 

 

 

Operating income (loss) from continuing operations

$

5,613

 

 

$

(4,422

)

 

$

10,035

 

 

 

% of sales

3.3

%

 

(2.1

)%

 

5.4

%

 

 

Adjustments

$

2,291

 

 

$

21,117

 

 

$

(18,826

)

 

 

Adjusted operating income from continuing operations*

$

7,904

 

 

$

16,695

 

 

$

(8,791

)

 

 

% of sales

4.6

%

 

8.1

%

 

(3.5

)%

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from continuing operations*:

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

$

7,984

 

 

$

(407

)

 

$

8,391

 

 

 

Adjustments

9,129

 

 

26,611

 

 

(17,482

)

 

 

Adjusted EBITDA from continuing operations*

$

17,113

 

 

$

26,204

 

 

$

(9,091

)

 

 

% of sales

10.0

%

 

12.6

%

 

(2.6

)%

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

$

0.29

 

 

$

(0.01

)

 

$

0.30

 

 

 

Adjustments

 

 

0.49

 

 

(0.49

)

 

 

Adjusted diluted earnings per share from continuing operations*

$

0.29

 

 

$

0.48

 

 

$

(0.19

)

 

 

 

 

 

 

 

 

 

Ian K. Walsh, Chairman, President and Chief Executive Officer, commented, “We begin the year with a solid quarter and confidence in our end-market recovery seeing significant sequential improvements in our Medical and Industrial end markets with strong order rates for these products. Sales for our Defense and Commercial, Business and General Aviation products declined both year-over-year and sequentially due to lower JPF volume and the impact of COVID-19, respectively. Looking to the remainder of the year, our JPF program remains on track and we anticipate a significant ramp up in sales for our Commercial, Business and General Aviation products in the second half of the year and are encouraged by increased air traffic and vaccination rates in the United States.”

“Our cost control efforts carried forward into the first quarter where we achieved Adjusted EBITDA* margin of 10.0%. This result demonstrates our ability to maintain profitability despite the year-over-year and sequential sales declines we experienced. We remain focused on implementing our operational excellence model that is designed to improve EBITDA Margin, Free Cash Flow, and Return on Invested Capital and we are starting to see positive results.”

“New product development remains an important part of our future growth and we have made significant progress on a number of these initiatives, including the opening of our first production cell for highly engineered products utilizing our proprietary Titanium Diffusion Hardening process and the successful test flight for our new unmanned K-MAX TITAN TM system. This test flight is a significant milestone in enabling us to meet the future unmanned logistics requirements of our commercial and defense customers. As we look to the remainder of the year, we anticipate sequential organic growth and continued progress on our new product development efforts and our strategic acquisitions priorities.”

Management’s Commentary on First Quarter Results:

Net sales for the quarter decreased 17.2% when compared to the first quarter of 2020 and 7.4% sequentially. Organic sales*, which excludes sales from our former U.K. composite operations, decreased 14.5% from the first quarter of 2020 and decreased 5.6% from the fourth quarter of 2020. Sales declines were due to lower sales volume of our Defense products and our Commercial, Business and General Aviation products, partially offset by increased sales for our Medical and Industrial products.

Sales for our Defense products decreased 20.2% when compared to the first quarter of 2020 and 10.7% when compared to the fourth quarter of 2020. The sequential decrease was due in large part to lower volume for our Joint Programmable Fuze program offset by a modest increase in our other defense offerings. During the quarter we delivered 8,090 fuzes and we continue to expect to deliver 30,000 to 35,000 Joint Programmable Fuzes in the year.

Sales for our Commercial, Business and General Aviation products decreased 24.2% from the first quarter of 2020 and 14.8% from the fourth quarter of 2020. This sequential decrease was due to a 19.9% decrease in sales for our commercial aviation products and a 12.7% decrease in general and business aviation products. As we look to the remainder of the year we expect sales for these products to improve with a more significant increase in sales in the second half of the year.

Sales for our Medical products were relatively flat with the first quarter of 2020 and increased 22.8% when compared to the fourth quarter of 2020. This is our third straight quarter with improved sales for these product offerings and we saw very strong order intake in the first quarter for our medical miniature bearings, seals, springs, and contacts. Finally, our Industrial products also saw strong order activity in the quarter and delivered a 9.5% increase in sales over the first quarter of 2020 and 5.8% increase in sales over the fourth quarter of last year.

Commenting on the quarter, Chief Financial Officer, Robert D. Starr, stated, “First quarter diluted earnings per share was $0.29 on a GAAP and adjusted* basis. This result was led by solid gross margin in excess of 30% and, despite a sequential sales decline, selling, general, and administration expense as a percentage of sales remained flat with the fourth quarter of 2020 as we continued to focus on our cost control efforts. During the quarter, Net cash used in operating activities from continuing operations was $2.4 million and included a $25.1 million payment for the acquired retention plans at Bal Seal. Adjusted Free Cash Flow* for the period was $18.0 million and benefited from improved collections in the quarter. We are maintaining our previous full year outlook as we continue to anticipate a strong recovery in our Commercial Business and General Aviation products in the second half of the year.”

2021 Outlook

(in millions)

2020

 

2021 Outlook

 

Actual

 

Low End

High End

Sales

 

 

 

 

Sales from continuing operations

$

784.5

 

 

$

725.0

 

$

745.0

 

Sales of Disposed Business(1)

21.5

 

 

 

 

Organic Sales

$

763.0

 

 

$

725.0

 

$

745.0

 

 

 

 

 

 

Adjusted EBITDA*

 

 

 

 

Earnings from continuing operations

$

(70.4

)

 

$

43.5

 

$

52.5

 

Adjustments

173.3

 

 

41.5

 

44.0

 

Adjusted EBITDA* from continuing operations

$

102.9

 

 

$

85.0

 

$

96.5

 

Adjusted EBITDA margin* from continuing operations

13.1

%

 

11.7

%

13.0

%

 

 

 

 

 

Adjusted Diluted Earnings Per Share*

 

 

 

 

Diluted Earnings Per Share

$

(2.54

)

 

$

1.55

 

$

1.87

 

Adjustments

4.65

 

 

 

 

Adjusted Diluted Earnings Per Share

$

2.11

 

 

$

1.55

 

$

1.87

 

 

 

 

 

 

Cash Flow

 

 

 

 

Operating cash flow from continuing operations

$

16.5

 

 

$

25.0

 

$

35.0

 

Bal Seal Acquisition Retention Payment

 

 

25.1

 

25.1

 

Cash used for the purchase of property, plant and equipment

(17.8

)

 

(20.0

)

(20.0

)

Adjusted Free Cash Flow*

$

(1.3

)

 

$

30.1

 

$

40.1

 

 

 

 

 

 

Discretionary Pension Contribution

$

10.0

 

 

$

10.0

 

$

10.0

 

(1) In the first quarter of 2021 the Company sold its U.K Composites Business which did not qualify for reporting as a discontinued operation under GAAP. In 2021 we will record sales of $1.7 million for this business which was not contemplated as part of our outlook for the year.

(2) Operating cash flow from continuing operations include the $25.1 million payment to Bal Seal employees which represents purchase price paid to the former Bal Seal owners that was accounted for as compensation expense under ASC 805 in 2020.

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 5, 2021, at 8:30 AM ET. The call will be accessible by telephone within the U.S. at (844) 473-0975 and from outside the U.S. at (562) 350-0826 (using the Conference I.D.: 7396055) or via the Internet at www.kaman.com. Please go to the website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. 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 I.D.: 7396055.

About Kaman Corporation

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut, conducts business in the Aerospace, Defense, Industrial and Medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; 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.

More information is available at www.kaman.com.

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP financial measures (i.e. financial measures that are not computed in accordance with Generally Accepted Accounting Principles) 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 or businesses disposed of that did not qualify for accounting as a discontinued operation 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 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 April 2, 2021 and April 3, 2020, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, “Net Sales”.

Table 2. Organic Sales from continuing operations (in thousands) (unaudited)

 

 

 

 

For the Three Months Ended

 

 

April 2,
2021

 

April 3,
2020

Net sales

 

$

171,616

 

 

$

207,322

 

Acquisition Sales

 

 

 

 

Sales of Disposed Business

 

1,704

 

 

8,486

 

Organic Sales

 

$

169,912

 

 

$

198,836

 

$ Change

 

(28,924

)

 

 

% Change

 

(14.5

)%

 

 

Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations – Adjusted Net Sales from continuing operations is defined as net sales from continuing operations, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income from continuing operations is defined as operating income from continuing operations, less items that are not indicative of the operating performance of the Company for the period presented. These items are included in the reconciliation below. Management uses Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations to evaluate performance period over period, to analyze underlying trends and to assess our performance relative to our 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 from continuing operations to the Consolidated Financial Statements included in the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 4, 2021.

Table 3. Adjusted Net Sales and Adjusted Operating Income from Continuing Operations

(In thousands) (unaudited)

 

 

For the Three Months Ended

 

 

April 2,
2021

 

April 3,
2020

CONSOLIDATED OPERATING INCOME:

 

 

 

 

Net Sales from continuing operations

 

$

171,616

 

 

$

207,322

 

GAAP – Operating income (loss) from continuing operations

 

$

5,613

 

 

$

(4,422

)

% of GAAP net sales

 

3.3

%

 

(2.1

)%

 

 

 

 

 

Adjustments

 

 

 

 

Restructuring and severance costs

 

1,352

 

 

1,795

 

Costs associated with corporate development activities

 

 

 

1,787

 

Bal Seal acquisition costs

 

 

 

8,483

 

Cost of acquired Bal Seal retention plans

 

 

 

5,703

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

1,177

 

Costs from transition services agreement

 

705

 

 

4,140

 

Reversal of employee tax-related matters in foreign operations

 

 

 

(1,211

)

Reversal of environmental accrual at GRW

 

 

 

(264

)

Loss (gain) on sale business

 

234

 

 

(493

)

Total adjustments

 

$

2,291

 

 

$

21,117

 

 

 

 

 

 

Adjusted Operating Income

 

$

7,904

 

 

$

16,695

 

% of GAAP net sales

 

4.6

%

 

8.1

%

Adjusted EBITDA from continuing operations – Adjusted EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company for the periods presented. Adjusted EBITDA from continuing operations differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items that are not indicative of the operating performance of the Company for the periods 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 ERP systems, which we have adjusted for in Adjusted EBITDA from continuing operations. Adjusted EBITDA from continuing operations 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 from continuing operations 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 for the period presented. Adjusted EBITDA from continuing operations 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 April 2, 2021 and April 3, 2020. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures:

Table 4. Adjusted EBITDA from continuing operations (in thousands) (unaudited)

 

 

For the Three Months Ended

 

 

April 2,
2021

 

April 3,
2020

Adjusted EBITDA from continuing operations

 

 

 

 

Consolidated Results

 

 

 

 

Sales from continuing operations

 

$

171,616

 

 

$

207,322

 

 

 

 

 

 

Earnings (loss) from continuing operations, net of tax

 

7,984

 

 

(407

)

 

 

 

 

 

Interest expense, net

 

4,251

 

 

3,247

 

Income tax expense (benefit)

 

207

 

 

(443

)

Non-service pension and post retirement benefit income

 

(6,643

)

 

(4,063

)

Other expense, net

 

289

 

 

218

 

Depreciation and amortization

 

9,209

 

 

9,509

 

Other Adjustments:

 

 

 

 

Restructuring and severance costs

 

1,352

 

 

1,795

 

Cost associated with corporate development activities

 

 

 

1,787

 

Bal Seal acquisition costs

 

 

 

8,483

 

Cost of acquired Bal Seal retention plans

 

 

 

5,703

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

1,177

 

Costs from transition services agreement

 

705

 

 

4,140

 

Income from transition services agreement

 

(475

)

 

(2,974

)

Reversal of employee tax-related matters in foreign operations

 

 

 

(1,211

)

Reversal of environmental accrual at GRW

 

 

 

(264

)

Loss (gain) on sale of business

 

234

 

 

(493

)

Adjustments

 

$

9,129

 

 

$

26,611

 

 

 

 

 

 

Adjusted EBITDA from continuing operations

 

$

17,113

 

 

$

26,204

 

Adjusted EBITDA margin

 

10.0

%

 

12.6

%

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations – Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations”, 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 Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations 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 Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations using “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations” from the “Consolidated Statements of Operations” included in the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 4, 2021.

Table 5. Adjusted Earnings from continuing operations and Adjusted Diluted Earnings per Share from continuing operations

(In thousands except per share amounts) (unaudited)

 

 

For the Three Months Ended

 

 

April 2,
2021

 

April 3,
2020

Adjustments to Earnings from Continuing Operations

 

 

 

 

Restructuring and severance costs

 

$

1,352

 

 

$

1,795

 

Costs associated with corporate development activities

 

 

 

1,787

 

Bal Seal acquisition costs

 

 

 

8,483

 

Cost of acquired Bal Seal retention plans

 

 

 

5,703

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

1,177

 

Costs from transition services agreement

 

705

 

 

4,140

 

Income from transition services agreement

 

(475

)

 

(2,974

)

Reversal of employee tax-related matters in foreign operations

 

 

 

(1,211

)

Reversal of environmental accrual at GRW

 

 

 

(264

)

Tax benefit on sale of UK operations

 

(1,512

)

 

 

Loss (gain) on sale of business

 

234

 

 

(493

)

Adjustments, pre tax

 

$

304

 

 

$

18,143

 

 

 

 

 

 

Tax Effect of Adjustments to Earnings from Continuing Operations

 

 

 

 

Restructuring and severance costs

 

$

273

 

 

$

434

 

Costs associated with corporate development activities

 

 

 

432

 

Bal Seal acquisition costs

 

 

 

2,050

 

Cost of acquired Bal Seal retention plans

 

 

 

1,378

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

284

 

Costs from transition services agreement

 

142

 

 

1,001

 

Income from transition services agreement

 

(96

)

 

(719

)

Employee tax-related matters in foreign operations

 

 

 

(293

)

Reversal of environmental accrual at GRW

 

 

 

(64

)

Tax benefit on sale of UK operations

 

 

 

 

Loss (gain) on sale of business

 

 

 

(119

)

Tax effect of Adjustments

 

$

319

 

 

$

4,384

 

 

 

 

 

 

Adjustments to Earnings from Continuing Operations, net of tax

 

 

 

 

GAAP Earnings (loss) from continuing operations, as reported

 

$

7,984

 

 

$

(407

)

Restructuring and severance costs

 

1,079

 

 

1,361

 

Costs associated with corporate development activities

 

 

 

1,355

 

Bal Seal acquisition costs

 

 

 

6,433

 

Cost of acquired Bal Seal retention plans

 

 

 

4,325

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

893

 

Costs from transition services agreement

 

563

 

 

3,139

 

Income from transition services agreement

 

(379

)

 

(2,255

)

Employee tax-related matters in foreign operations

 

 

 

(918

)

Reversal of environmental accrual at GRW

 

 

 

(200

)

Tax benefit on sale of U.K. Operations

 

(1,512

)

 

 

Loss (gain) on sale of business

 

234

 

 

(374

)

Adjusted Earnings from continuing operations

 

$

7,969

 

 

$

13,352

 

 

 

 

 

 

Calculation of Adjusted Diluted Earnings per Share from Continuing Operations

 

 

 

 

GAAP diluted earnings (loss) per share from continuing operations

 

$

0.29

 

 

$

(0.01

)

Restructuring and severance costs

 

0.03

 

 

0.05

 

Costs associated with corporate development activities

 

 

 

0.05

 

Bal Seal acquisition costs

 

 

 

0.23

 

Cost of accrued Bal Seal retention plans

 

 

 

0.15

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

0.03

 

Costs from transition services agreement

 

0.02

 

 

0.11

 

Income from transition services agreement

 

(0.01

)

 

(0.08

)

Employee tax-related matters in foreign operations

 

 

 

(0.03

)

Reversal of environmental accrual at GRW

 

 

 

(0.01

)

Tax benefit on sale of UK operations

 

(0.05

)

 

 

Loss (gain) on sale of business

 

0.01

 

 

(0.01

)

Adjustments to diluted earnings per share from continuing operations

 

$

 

 

$

0.49

 

Adjusted Diluted Earnings per Share from continuing operations

 

$

0.29

 

 

$

0.48

 

Diluted weighted average shares outstanding

 

27,867

 

 

27,891

 

Adjusted Free Cash Flow from continuing operations – Adjusted Free Cash Flow from continuing operations is defined as GAAP “Net cash provided by (used in) operating activities from continuing operations” in a period less “Expenditures for property, plant & equipment” in the same period and any adjustments that are representative of the Company’s cash generation or usage in the period. For 2021 we will adjust free cash flow to remove the cash payment made to Bal Seal employees under the retention plan established by the former owners of Bal Seal. Management believes Free Cash Flow from continuing operations and Adjusted 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.

Contacts

James Coogan

V.P., Investor Relations and Corporate Development

(860) 243-6342

James.Coogan@kaman.com

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