Record Commercial Aerospace Revenue and Strong
Cash Flow in 2014
Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”)
today reported results for its fourth quarter and year ended
December 31, 2014.
Fourth Quarter 2014 Highlights
- Fourth quarter revenue was $187.6
million
- Net income was $5.2 million, or $0.46
per diluted share
- EBITDA for the quarter was $18.2
million
- Cash flow from operations of $32.5
million
- Ducommun made voluntary principal
prepayments totaling $20.1 million on its term loan during the
quarter -- resulting in a total of $42.6 million in voluntary
prepayments for fiscal 2014
“Ducommun posted its seventh consecutive quarter of
year-over-year commercial aerospace growth, ending 2014 with record
sales in this market of $242 million -- up 14% over 2013,” said
Anthony J. Reardon, chairman and chief executive officer.
“Continued strength on key Boeing and Airbus platforms and an
increase in demand from the regional and business jet markets were
the primary drivers of such growth, while non-A&D sales rose by
nearly 7% during the year. At the same time, we paid down $42.6
million in debt, bolstering our balance sheet.
“Looking ahead, we continue to see many opportunities to grow
the business even in an environment of lower defense spending. We
believe 2015 will be a transition year where the first half is
impacted by a reduction in sales to certain legacy military
programs and overall reduced government procurement activity,
partially offset by further expansion in Ducommun’s commercial
aerospace and non A&D end markets. However, we see a solid
second half of the year with continued strength in these areas
driving top line expansion and paving the way for further growth in
2016.
"We were also pleased with record annual cash flow of $53.4
million last year facilitating our de-leveraging success. In
addition, Ducommun is actively exploring the opportunity to
refinance its debt mid-year, market conditions permitting, which we
anticipate would result in much lower interest expense going
forward. Given this backdrop -- and our focus on margin improvement
-- we feel confident Ducommun is taking the right steps to position
the Company for increased growth and enhanced operational
performance in 2016 and beyond with the goal of improving our
shareholder returns.”
Fourth Quarter Results
Net revenue for the fourth quarter of 2014 was $187.6 million,
compared to $188.0 million for the fourth quarter of 2013. The flat
revenue year-over-year primarily reflects 18% lower revenue in the
Company’s military and space markets partially offset by 25% higher
revenue in the Company’s commercial aerospace end-use markets.
Net income for the fourth quarter of 2014 was $5.2 million, or
$0.46 per diluted share compared to a net loss of $5.2 million, or
$0.49 per diluted share, for the fourth quarter of 2013. Net income
for the fourth quarter of 2014 was higher on a comparison basis
primarily due to charges booked in the fourth quarter of 2013 of
approximately $14.1 million in the DAS segment related to the
Embraer Legacy 450/500 and Boeing 777 wing tip contracts; in
addition the fourth quarter of 2014 was positively impacted by
insurance recoveries related to property and equipment, and the
reversal of a forward loss reserve as a result of a customer
settlement, partially offset by higher accrued compensation and
benefit costs and lower tax benefits. The current quarter effective
income tax benefit rate was 27.8% compared to an effective tax
benefit rate of 28.7% in the prior year’s quarter. The fourth
quarter 2014 effective tax rate included a benefit of approximately
$2.4 million in federal research and development tax credits
(“Federal R&D Tax Credit”) as a result of the reinstatement of
the research and development tax credit for 2014 passed in fourth
quarter 2014, as compared to the fourth quarter 2013 which included
approximately $0.8 million of Federal R&D Tax Credits.
Operating income for the fourth quarter of 2014 was $10.1
million, or 5.4% of revenue, compared to an operating loss of $0.1
million, or 0.1% of revenue, for the comparable period in 2013. The
higher operating income in the fourth quarter of 2014 compared to
the prior year period was primarily due to charges of approximately
$14.1 million in the DAS segment related to the Embraer Legacy
450/500 and Boeing 777 wing tip contracts recorded in the fourth
quarter of 2013, and the reversal of a forward loss reserve as a
result of a customer settlement, partially offset by higher accrued
compensation and benefit costs.
Interest expense decreased to $7.0 million in the fourth quarter
of 2014, compared to $7.3 million in the previous year’s fourth
quarter, as the Company continued to de-lever its balance sheet.
Other income for the fourth quarter of fiscal 2014 included $1.0
million of insurance recoveries related to property and equipment
compared to none in the comparable period in 2013.
EBITDA for the fourth quarter of 2014 was $18.2 million, or 9.7%
of revenue, compared to $16.4 million, or 8.7% of revenue, for the
comparable period in 2013.
During the fourth quarter of 2014, the Company generated $32.5
million of cash from operations compared to $31.3 million during
the fourth quarter of 2013.
The Company’s firm backlog as of December 31, 2014 was
approximately $559.3 million.
Ducommun AeroStructures (“DAS”)
The Company’s DAS segment reported net revenue for the current
quarter of $78.3 million, compared to $80.8 million for the fourth
quarter of 2013. The lower revenue was primarily due to a 27%
decrease in military and space revenue that was partially offset by
a 18% increase in commercial aerospace revenues.
DAS segment operating income was $6.9 million, or 8.8% of
revenue, compared to an operating loss of $6.0 million, or 7.5% of
revenue, in the fourth quarter of 2013. The year over year
operating income variance reflects charges booked in the fourth
quarter of 2013 of approximately $14.1 million related to the
Embraer Legacy 450/500 and Boeing 777 wing tip contracts, and the
reversal of a forward loss reserve as a result of a customer
settlement, partially offset by higher accrued compensation and
benefit costs. EBITDA was $10.5 million for the current quarter, or
13.5% of revenue, compared to negative EBITDA of $1.0 million, or
1.2% of revenue, for the comparable quarter in the prior year.
EBITDA for the fourth quarter of fiscal 2014 included $1.0 million
of insurance recoveries related to property and equipment compared
to none in the comparable period in 2013.
Ducommun LaBarge Technologies
(“DLT”)
The Company’s DLT segment reported net revenue for the fourth
quarter of $109.3 million, compared to $107.2 million for the
fourth quarter of 2013. The higher revenue reflected a 61% increase
in commercial aerospace revenue, partially offset by lower military
and space revenue.
DLT’s operating income for the fourth quarter of 2014 was $8.5
million, or 7.8% of revenue, compared to $9.4 million, or 8.8% of
revenue, for the fourth quarter of 2013, primarily due to higher
accrued compensation and benefit costs, and higher manufacturing
costs, partially offset by favorable product mix and higher
revenue. EBITDA was $13.0 million for the current quarter, or 11.9%
of revenue, compared to $13.9 million, or 13.0% of revenue, in the
comparable quarter of 2013.
Corporate General and Administrative
Expenses (“CG&A”)
CG&A expenses for the fourth quarter of 2014 were $5.3
million, or 2.8% of total Company revenue, compared to $3.5
million, or 1.9% of total Company revenue in the comparable prior
year period. CG&A expenses increased primarily due to higher
accrued compensation and benefit costs.
Full Year Results
Net revenue for the year ended December 31, 2014 was $742.0
million compared to $736.7 million for the year ended
December 31, 2013. The revenue increase year-over-year
primarily reflects 14% higher commercial aerospace revenue and 7%
increase in non-aerospace and defense (“non-A&D”) revenue,
partially offset by 8% lower revenue in the Company’s military and
space markets.
Net income for the year ended December 31, 2014 was $19.9
million, or $1.79 per diluted share, compared to net income of
$11.4 million, or $1.05 per diluted share, for the year ended
December 31, 2013. Net income in 2014 was higher primarily due
to charges booked in the fourth quarter of 2013 of approximately
$14.1 million related to the Embraer Legacy 450/500 and Boeing 777
wing tip contracts, the reversal of a forward loss reserve as a
result of a customer settlement, insurance recoveries related to
property and equipment, partially offset by higher accrued
compensation and benefit costs.
Operating income for the year ended December 31, 2014
increased 33.4% to $51.8 million, or 7.0% of revenue, compared to
$39.3 million, or 5.3% of revenue, for the year ended
December 31, 2013. Operating income in 2014 was higher
primarily due to charges of approximately $14.1 million related to
the Embraer Legacy 450/500 and Boeing 777 wing tip contracts
recorded in the fourth quarter of 2013, and the reversal of a
forward loss reserve as a result of a customer settlement,
partially offset by higher accrued compensation and benefit
costs.
Interest expense decreased to $28.1 million for the year ended
December 31, 2014, compared to $29.9 million for the year
ended December 31, 2013, as the Company continued to de-lever
its balance sheet by making voluntary prepayments on its long-term
debt. Other income for 2014 included $2.6 million of insurance
recoveries related to property and equipment compared to none in
2013.
EBITDA for the twelve months ended December 31, 2014 was
$83.3 million, or 11.2% of revenue, compared to $70.2 million, or
9.5% of revenue, for the twelve months ended December 31,
2013.
During the year fiscal 2014 the Company generated $53.4 million
of cash from operations compared to $46.0 million during fiscal
2013.
Ducommun AeroStructures
The Company’s DAS segment reported net revenue for the year
ended December 31, 2014 of $320.0 million, compared to $315.2
million for the twelve months ended December 31, 2013. The
higher revenue was primarily due to a 10% increase in commercial
aerospace revenue partially offset by a 9% decrease in military and
space revenue.
DAS segment operating income for fiscal 2014 was $34.9 million,
or 10.9% of revenue, compared to operating income of $19.0 million,
or 6.0% of revenue, for fiscal 2013. The higher operating income
was primarily due to charges of approximately $14.1 million related
to the Embraer Legacy 450/500 and Boeing 777 wing tip contracts
booked in the fourth quarter of 2013, the reversal of a forward
loss reserve as a result of a customer settlement, a $0.8 million
worker’s compensation audit refund related to prior years,
partially offset by higher accrued compensation and benefit costs.
EBITDA was $48.5 million for the year ended in 2014, or 15.1% of
revenue, compared to $31.4 million, or 10.0% of revenue, for the
comparable period in 2013. EBITDA for the twelve month period of
fiscal 2014 included $2.6 million of insurance recoveries related
to property and equipment that was recorded as other income
compared to none in the comparable period in 2013.
Ducommun LaBarge Technologies
The Company’s DLT segment reported net revenue for the twelve
months ended December 31, 2014 of $422.1 million, compared to
$421.4 million for the twelve months ended December 31, 2013.
The slight increase in revenue year-over-year was primarily due to
32% higher commercial aerospace revenue and 7% higher non-A&D
revenue partially offset by a 7% decline in defense technologies
revenue.
DLT’s operating income for the twelve months of 2014 was $34.6
million, or 8.2% of revenue, compared to $37.0 million, or 8.8% of
revenue, for the same period in 2013 due to higher accrued
compensation and benefit costs and lower revenue, partially offset
by favorable product mix. EBITDA was $52.5 million for the twelve
month period of 2014, or 12.4% of revenue, compared to $55.4
million, or 13.1% of revenue for 2013.
Corporate General and Administrative
Expenses
CG&A expenses for the twelve months ended December 31,
2014 were $17.8 million, or 2.4% of total Company revenue, up from
$16.7 million, or 2.3% of total Company revenue, in the twelve
months ended December 31, 2013. CG&A expense increased
primarily due to higher accrued compensation and benefit costs
partially offset by the fact that the prior year included a $0.5
million charge related to the Company’s debt repricing
transaction.
Conference Call
A teleconference hosted by Anthony J. Reardon, the Company’s
chairman and chief executive officer, and Joseph P. Bellino, the
Company’s vice president, treasurer and chief financial officer,
will be held tomorrow, April 10, 2015 at 5:00 a.m. PT (8:00
a.m. ET) to review these financial results. To participate in the
teleconference, please call 877-474-9505 (international
857-244-7558) approximately ten minutes prior to the conference
time. The participant passcode is 53204424. Mr. Reardon and Mr.
Bellino will be speaking on behalf of the Company and anticipate
the meeting and Q&A period to last approximately 45
minutes.
This call is being webcast by Thomson Reuters 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
888-286-8010, passcode 28093138.
About Ducommun
Incorporated
Founded in 1849, Ducommun Incorporated provides engineering and
manufacturing services to the aerospace, defense, and other
industries through a wide spectrum of electronic and structural
applications. The company is an established supplier of critical
components and assemblies for commercial aircraft and military and
space vehicles as well as for the energy market, medical field, and
industrial automation. It operates through two primary business
units – Ducommun AeroStructures (“DAS”) and Ducommun LaBarge
Technologies (“DLT”). Additional information can be found at
www.ducommun.com.
Statements contained in this press release regarding other than
recitation of historical facts are forward-looking statements.
These statements are identified by words such as “may,” “will,” “
begin,” “ look forward,” “expect,” “believe,” “intend,”
“anticipate,” “should,” “potential,” “estimate,” “continue,”
“momentum” and other words referring to events to occur in the
future. These statements reflect the Company’s current view of
future events and are based on its assessment of, and are subject
to, a variety of risks and uncertainties beyond its control,
including, but not limited to, the state of the world financial,
credit, commodities and stock markets, and uncertainties regarding
the Company, its businesses and the industries in which it
operates, which are described in the Company’s filings with the
Securities and Exchange Commission. The Company is under no
obligation to (and expressly disclaims any such obligation to)
update or alter its forward-looking statements whether as a result
of new information, future events or otherwise.
DUCOMMUN INCORPORATED AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited)(In
thousands)
December 31,2014
December 31,2013
As Restated
Assets Current Assets Cash and cash
equivalents $ 45,627 $ 48,814 Accounts receivable, net 91,060
91,909 Inventories 142,842 140,507 Production cost of contracts
11,727 11,599 Deferred income taxes 13,783 12,669 Other current
assets 23,702 28,083 Total Current Assets 328,741
333,581 Property and Equipment, Net 99,068 96,090 Goodwill 157,569
157,569 Intangibles, Net 155,104 165,465 Other Assets 7,117
9,940
Total Assets $ 747,599 $ 762,645
Liabilities and Shareholders’ Equity Current Liabilities
Current portion of long-term debt $ 26 $ 25 Accounts payable 58,979
58,111 Accrued liabilities 52,066 50,122 Total
Current Liabilities 111,071 108,258 Long-Term Debt, Less Current
Portion 290,026 332,677 Deferred Income Taxes 69,448 67,989 Other
Long-Term Liabilities 20,484 19,450 Total Liabilities
491,029 528,374 Commitments and Contingencies
Shareholders’ Equity Common stock 110 110 Treasury stock — (1,924 )
Additional paid-in capital 72,206 68,909 Retained earnings 190,905
171,038 Accumulated other comprehensive loss (6,651 ) (3,862 )
Total Shareholders’ Equity 256,570 234,271
Total
Liabilities and Shareholders’ Equity $ 747,599 $ 762,645
DUCOMMUN INCORPORATED AND
SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS(Quarterly Information
Unaudited)(In thousands, except per share amounts)
Three Months Ended Years Ended
December 31,2014
December 31,2013
December 31,2014
December 31,2013
As Restated As Restated Net Revenues $ 187,612 $
187,975 $ 742,045 $ 736,650 Cost of Sales 153,985 168,410
601,713 612,498 Gross Profit 33,627 19,565
140,332 124,152 Selling, General and Administrative Expenses 23,560
19,674 88,565 84,849 Operating Income
(Loss) 10,067 (109 ) 51,767 39,303 Interest Expense (6,983 ) (7,250
) (28,077 ) (29,918 ) Other Income 950 — 2,550
— Income (Loss) Before Taxes 4,034 (7,359 ) 26,240 9,385
Income Tax (Benefit) Expense (1,122 ) (2,115 ) 6,373 (1,993
) Net Income (Loss) $ 5,156 $ (5,244 ) $ 19,867 $
11,378 Earnings (Loss) Per Share Basic earnings (loss) per
share $ 0.47 $ (0.49 ) $ 1.82 $ 1.06 Diluted earnings (loss) per
share $ 0.46 $ (0.49 ) $ 1.79 $ 1.05 Weighted-Average Number of
Common Shares Outstanding Basic 10,950 10,804 10,897 10,695 Diluted
11,188 10,804 11,126 10,852 Gross Profit % 17.9 % 10.4 %
18.9 % 16.9 % SG&A % 12.6 % 10.5 % 11.9 % 11.5 % Operating
Income (Loss) % 5.4 % (0.1 )% 7.0 % 5.3 % Net Income (Loss) % 2.7 %
(2.8 )% 2.7 % 1.5 % Effective Tax (Benefit) Rate (27.8 )% (28.7 )%
24.3 % (21.2 )%
DUCOMMUN INCORPORATED AND
SUBSIDIARIESBUSINESS SEGMENT PERFORMANCE(Unaudited)(In
thousands)
Three Months Ended Years Ended
%Change
December 31,2014
December 31,2013
%of NetRevenues2014
%of NetRevenues2013
%Change
December 31,2014
December 31,2013
%of NetRevenues2014
%of NetRevenues2013
As Restated As Restated As Restated As
Restated
Net Revenues DAS (3.1 )% $ 78,329 $ 80,795 41.8 %
43.0 % 1.5 % $ 319,956 $ 315,232 43.1 % 42.8 % DLT 2.0 % 109,283
107,180 58.2 % 57.0 % 0.2 % 422,089 421,418
56.9 % 57.2 % Total Net Revenues (0.2 )% $ 187,612 $
187,975 100.0 % 100.0 % 0.7 % $ 742,045 $ 736,650
100.0 % 100.0 %
Segment Operating Income DAS $ 6,882
$ (6,023 ) 8.8 % (7.5 )% $ 34,949 $ 19,008 10.9 % 6.0 % DLT 8,510
9,409 7.8 % 8.8 % 34,599 37,030
8.2 % 8.8 % 15,392 3,386 69,548 56,038
Corporate General and
Administrative Expenses (1) (5,325 ) (3,495 ) (2.8 )%
(1.9 )% (17,781 ) (16,735 ) (2.4 )% (2.3 )% Total Operating Income
(Loss) $ 10,067 $ (109 ) 5.4 % (0.1 )% $ 51,767 $
39,303 7.0 % 5.3 %
EBITDA DAS Operating Income $
6,882 $ (6,023 ) $ 34,949 $ 19,008 Other Income (2) 950 — 2,550 —
Depreciation and Amortization 2,717 5,019 10,959
12,406 10,549 (1,004 ) 13.5 % (1.2 )% 48,458 31,414
15.1 % 10.0 % DLT Operating Income 8,510 9,409 34,599 37,030
Depreciation and Amortization 4,486 4,484 17,928
18,346 12,996 13,893 11.9 % 13.0 % 52,527 55,376 12.4
% 13.1 % Corporate General and Administrative Expenses Operating
loss (5,325 ) (3,495 ) (17,781 ) (16,735 ) Depreciation and
Amortization (8 ) 47 137 174 (5,333 ) (3,448 )
(17,644 ) (16,561 ) EBITDA $ 18,212 $ 9,441 9.7 % 5.0
% $ 83,341 $ 70,229 11.2 % 9.5 %
Adjusted
EBITDA Asset Impairments (3) $ — $ 6,975 $ —
$ 6,975 Adjusted EBITDA $ 18,212 $ 16,416
9.7 % 8.7 % $ 83,341 $ 77,204 11.2 % 10.5 %
Capital Expenditures DAS $ 8,756 $ 4,079 $ 12,742 $
8,287 DLT 1,046 1,954 5,782 5,000 Corporate Administration 5
49 30 116 Total Capital Expenditures $ 9,807
$ 6,082 $ 18,554 $ 13,403
(1) Includes costs not allocated to either the DLT or DAS
operating segments. (2) Insurance recoveries related to property
and equipment included as other income. (3) The 2013 periods
include an approximate $14.1 million in charges related to the
Embraer Legacy 450/500 and Boeing 777 wing tip contracts and was
comprised of approximately $7.0 million of asset impairment charges
for production cost of contracts; approximately $5.2 million of
forward loss reserves and approximately $1.9 million of inventory
write-offs.
Ducommun IncorporatedJoseph P. Bellino, 310-513-7211Vice
President, Treasurer and Chief Financial OfficerorChris Witty,
646-438-9385Investor Relationscwitty@darrowir.com
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