Héroux-Devtek reports solid first quarter results
Aug. 4, 2011, Longueuil, Que. - Héroux-Devtek Inc. (TSX: HRX), a leading Canadian manufacturer of aerospace and industrial products, today reported its results for the first quarter of fiscal 2012 ended June 30, 2011.
August 4, 2011 By Carey Fredericks
These results are the first presented by the Corporation following its adoption for reporting purposes, on April 1, 2011, of International Financial Reporting Standards ("IFRS"). Results for the prior year have been restated. Results include the contribution of Eagle Tool & Machine Co. and of its subsidiary All Tools Inc. ("Landing Gear USA") for the entire period, versus only two months in the prior year. Unless otherwise indicated, all amounts are in Canadian dollars.
Consolidated sales were $91.9 million, up 11.3% from $82.5 million for the same period last year. This increase reflects higher sales for the Aerostructure and Industrial product lines as well as an additional sales contribution of $5.3 million from Landing Gear USA. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $14.9 million, or 16.3% of sales, compared with $12.0 million, or 14.5% of sales. This improvement mainly results from a better absorption of manufacturing overhead costs due to higher Aerostructure and Industrial volumes. Operating income stood at $9.1 million, or 9.9% of sales, up from $5.9 million, or 7.1% of sales last year. Net income amounted to $5.8 million, or $0.19 per share, fully diluted, compared with $3.3 million, or $0.11 per share, fully diluted, a year ago. Results for the first quarter of 2012 include expenses of $180,000 net of income tax, or $0.01 per share, related to the start-up of the new facility in Mexico, while the first quarter of fiscal 2011 contained restructuring charges of $258,000 net of income tax, or $0.01 per share, related to the closure of the Rivière-des-Prairies facility. Finally, cash flow from operations reached $12.8 million this year, up from $10.6 million last year.
Fluctuations in the value of the Canadian dollar versus the US currency decreased first quarter sales by $3.4 million, or 4.2%, compared with last year, and reduced gross profit by $0.7 million, or 0.2% of sales. The impact of currency movements on the Corporation's gross profit is mitigated by the use of forward foreign exchange sales contracts and the natural hedging from the purchase of materials made in U.S. dollars.
FINANCIAL HIGHLIGHTS Quarters ended June 30,
(in thousands of dollars, except per share data) 2011 2010
Sales 91,873 82,541
EBITDA 14,948 11,966
Operating income 9,083 5,872
Net income 5,797 3,318
Per share – basic and diluted ($) 0.19 0.11
Cash flows from operations 12,811 10,592
Weighted-average shares outstanding 30,215 30,237
"Héroux-Devtek's first quarter results clearly highlight the positive momentum that is driving most of its strategic markets," said President and CEO Gilles Labbé. "The Landing Gear product line is increasingly benefitting from higher production rates for certain major large commercial aircraft programs, the ramp-up of several strategic programs is contributing to the growth of our Aerostructure product line, while demand for our main Industrial products remains solid. More importantly, this greater volume and further efficiency gains have resulted in a significant increase in profitability and cash flow."
As at June 30, 2011, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $40.1 million and long-term debt, including the current portion, of $105.3 million. As a result, the net debt-to-equity ratio stood at 0.28:1 at the end of the first quarter, compared with 0.32:1 three months earlier. The net-debt-to-equity ratio is defined as the total long-term debt, including the current portion, less cash and cash equivalents over shareholders' equity.
Aerospace sales were $84.6 million in the first quarter of fiscal 2012 compared with $76.0 million last year. Landing Gear product sales increased 9.5% to $59.4 million reflecting the additional one-month contribution from Landing Gear USA. Excluding this factor, sales were essentially stable as increased activity for certain large commercial aircraft, mainly the B-777, and business jet programs were offset by currency fluctuations and reduced customer requirements for certain helicopter and regional jet programs. Aerostructure product sales grew 15.0% to $24.9 million due to higher sales for business jet programs, the ramp-up of the Bell 429 helicopter program and increased JSF sales, which more than offset currency fluctuations.
Industrial sales totalled $7.2 million in the first three months of fiscal 2012, up from $6.5 million a year earlier. This increase reflects higher demand for heavy equipment in the mining industry and, to a lesser extent, higher sales to the power generation sector.
On June 21, 2011, Héroux-Devtek announced that it has been awarded a seven-year contract by Lockheed Martin Aeronautics Company to manufacture the landing gear for the C-130J Super Hercules aircraft. Under the terms of the agreement, Héroux-Devtek will manufacture and assemble the landing gear for Lockheed Martin's global production of C-130J aircraft and provide spare parts over a seven-year period beginning in January 2012. Based on current program expectations, the contract has a potential total value of approximately $70 million.
Conditions remain favourable in the commercial aerospace market. Large commercial aircraft manufacturers have announced several production rate increases on leading programs up to calendar 2014, new orders have significantly increased in the first half of 2011 and both Boeing and Airbus are forecasting higher deliveries for calendar 2011. The business jet market continues to see positive signs, such as greater aircraft utilization and fewer used aircraft for sale, but a significant recovery in deliveries is only expected in calendar 2012. The military aerospace market has stabilized as governments address their deficits. As to the JSF program, despite the two-year probation on the short take-off and vertical landing (STOVL) variant, the Corporation anticipates to produce a higher number of shipsets in fiscal 2012, compared to fiscal 2011. This results from the ramp-up of the other two variants, combined with a higher share of the total production. Finally, the Corporation's main industrial markets are showing further momentum, as new orders and backlogs for its main customers continue to increase.
As at June 30, 2011, Héroux-Devtek's funded (firm orders) backlog stood at $509 million, up from $502 million three months earlier, and remains well diversified.
"As the economy continues to progress, Héroux-Devtek is well positioned to leverage the strengths of its world-class organization by further broadening its product and service offering. Encouraging advances in our markets support an optimistic outlook despite the strong Canadian dollar. We are also looking forward to the start-up of our facility in Mexico, which should produce its first components early in calendar 2012, while a sound balance sheet enables us to consider other strategic acquisitions that would enhance our product portfolio and our technologies. In the mean time, we continue to anticipate an internal sales growth of approximately 5% for the current fiscal year, assuming the Canadian dollar remains at parity versus the U.S. currency. It is also important to remember that the second quarter has traditionally been a somewhat slower period owing to seasonal factors, such as plant shutdowns and summer vacations. However, as many important programs will ramp-up beyond this fiscal year, we are confident to achieve our long-term goal to grow internally and through strategic alliances at 10% per year, on average," concluded Mr. Labbé.