Heroux-Devtek reports year end results
May 27, 2011, Longueuil, Que. - Héroux-Devtek Inc. today reported its results for the fourth quarter and fiscal year ended March 31, 2011.
May 27, 2011 By Carey Fredericks
Results include the contribution of Eagle Tool & Machine Co. ("Eagle") and of its subsidiary All Tools, Inc. ("E2"), acquired on April 28, 2010. Unless otherwise indicated, all amounts are in Canadian dollars.
RECORD FOURTH-QUARTER RESULTS
For the fourth quarter of fiscal 2011, consolidated sales reached $106.0 million, up from $85.0 million in the fourth quarter of fiscal 2010. This 24.8% increase includes a $12.8 million contribution from Eagle and E2, while fluctuations in the value of the Canadian dollar versus the US currency reduced sales by $2.3 million. Aerospace sales rose 25.7% to $99.5 million, while Industrial sales grew 11.2% to $6.5 million. As a result of a higher business volume, EBITDA was $18.4 million, or 17.3% of sales, versus $12.3 million, or 14.4% of sales, a year earlier. Operating income stood at $12.2 million, or 11.6% of sales, compared with $7.3 million, or 8.6% of sales, last year. Net income totalled $7.7 million, or $0.25 per share, fully diluted, versus $4.4 million, or $0.14 per share, fully diluted, in the prior year. Finally, reflecting improved profitability, cash flow from operations was $16.7 million, compared with $12.3 million in the corresponding period a year ago.
Financial highlights (in thousands of dollars, except per share data)
Quarters ended March 31, Fiscal years ended March 31,
2011 2010 2011 2010
Sales 105,994 84,965 357,572 320,354
EBITDA 18,365 12,268 54,830 48,437
Operating income 12,244 7,287 31,220 27,177
Net income 7,724 4,405 18,527 16,003
Per share – basic ($) 0.26 0.14 0.62 0.52
Per share – diluted ($) 0.25 0.14 0.61 0.52
Cash flows from operations 16,736 12,250 48,754 45,867
Weighted-average shares outstanding 30,135 30,490 30,112 30,662
FISCAL 2011 RESULTS
Consolidated sales reached $357.6 million, an increase of 11.6% over sales of $320.4 million in fiscal 2010. This growth reflects sales of $45.0 million from Eagle and E2 and a $3.1 million increase in Industrial sales, offset by an $11.7 million negative impact from fluctuations in the value of the Canadian dollar versus the US currency. Currency fluctuations also had a $1.6 million negative impact on gross profit. 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 US dollars.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") grew 13.2% to $54.8 million, or 15.3% of sales, excluding restructuring charges of $637,000 due to the closure of the Rivière-des-Prairies facility during the year, compared with $48.4 million, or 15.1% of sales, last year. This improvement essentially reflects a more favourable sales mix in the Landing Gear and Aerostructure product lines, as well as higher volume and efficiencies at the Industrial product line. Operating income stood at $31.2 million, or 8.7% of sales, compared with $27.2 million, or 8.5% of sales, last year. Net income totalled $18.5 million, or $0.61 per share, fully diluted, compared with $16.0 million, or $0.52 per share, fully diluted, a year ago. Cash flow from operations amounted to $48.8 million this year, up from $45.9 million last year.
As at March 31, 2011, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $32.9 million and long-term debt, including the current portion, of $99.5 million. As a result, the net debt-to-equity ratio stood at 0.29:1 at the end of the fourth quarter, compared to 0.28:1 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.
"Héroux-Devtek concluded fiscal 2011 with the strongest quarterly results in its history, as all of our product lines solidly contributed to sales and operating income," said President and CEO Gilles Labbé. "Fiscal 2011 was a successful year on many fronts. We broadened our global reach by adding to our customer base and completed a strategic acquisition that met our financial objective of a 10% accretion to profitability. We also reaffirmed our leadership in key markets by winning several multi-year contracts on important programs and, just after year end, announced a new facility in Mexico to further enhance our value proposition to our customers. More importantly, Héroux-Devtek continued to prosper despite the persistent strength in the value of the Canadian dollar driven by a more favourable sales mix and further efficiency gains."
Aerospace sales reached $332.0 million in fiscal 2011, up 11.5% from $297.9 million a year earlier. Sales of Landing Gear products increased 16.9% to $227.9 million, reflecting the contribution of Eagle and E2. Excluding the acquisition, Landing Gear sales decreased 6.2% due to the negative currency impact, lower production rates mainly on the B-777 program and reduced military manufacturing sales. These factors more than offset new business on the A-320, B-787 and Fokker programs, higher sales of business jet products and increased repair and overhaul throughput. Aerostructure product sales rose 1.7% to $103.5 million, as increased business jet sales, the ramp-up of the Bell 429 commercial helicopter program and higher F-16 and F-18 program sales were partially offset by unfavourable currency fluctuations and lower F-22 sales resulting from that program's conclusion. Operating income stood at $27.6 million, or 8.3% of sales in fiscal 2011, up from $24.7 million, or 8.3% of sales in fiscal 2010.
Industrial sales rose 13.7% to $25.6 million in fiscal 2011. This increase reflects solid demand for heavy equipment from the mining industry which more than offset an 11.8% decrease in sales of industrial gas turbine components. Operating income grew approximately 50% to $3.6 million, or 14.1% of sales in fiscal 2011, versus $2.4 million, or 10.8% of sales last year.
On April 29, 2011, Héroux-Devtek announced the construction of a new manufacturing facility in the Querétaro Aerospace Park in Mexico. The first phase of the project consists of the erection of a 47,200 square-foot facility equipped with state-of-the-art machinery for the production of aerostructure components. Construction begins during the second quarter of calendar year 2011, and the facility should be ready to produce its first components early in calendar year 2012. This first phase represents an investment of up to $20 million by Héroux-Devtek over the next three years.
Also in April 2011, unionized employees at the Longueuil Landing Gear products facility voted in favour of a three-year collective agreement which extends through May 1, 2014. The Longueuil operations consist of two facilities that manufacture as well as repair and overhaul landing gears for the military and commercial markets.
Conditions remain favourable in the commercial aerospace market. The large commercial aircraft segment remains strong with production rate increases on leading programs scheduled for calendars 2011, 2012 and 2013, further increases in new orders in early 2011 and solid backlogs. 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 industry shipments is only expected in calendar 2012. The military aerospace market is stabilizing as governments address their deficits. As to the JSF program, the ramp-up of two variants continues, albeit at a slightly more moderate pace over the near term. In Canada, the Government's decision to purchase 65 JSF aircraft should also benefit the Canadian aerospace industry. Finally, Conditions are favourable in the Corporation's main Industrial products markets. In the power generation industry, leading North American equipment manufacturers have reported increased new orders in the past quarters. Backlogs are also strongly rising for leading heavy equipment manufacturers.
As at March 31, 2011, Héroux-Devtek's funded (firm orders) backlog was $502 million, including the backlog of Eagle and E2, up from $423 million at the beginning of the fiscal year. The backlog also remains well diversified.
"The integration of Eagle and E2 is mostly completed and our priority for fiscal 2012 is to optimize operations and maximize efficiencies by further specialising facilities. This progress, combined with a solid balance sheet and the recent increase in our credit facility, places Héroux-Devtek in a position to consider another strategic acquisition that would complement its product portfolio and its technologies. Assuming the Canadian dollar remains at parity versus the US currency and considering forward foreign exchange contracts, we anticipate an internal sales growth of approximately 5% for the fiscal year ending March 31, 2012," concluded Mr. Labbé.