Ducommun Reports Results for the Third Quarter Ended September 27, 2014

Strong Commercial Aerospace Sales Growth and Improved Working Capital

LOS ANGELES--()--Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its third quarter and nine months ended September 27, 2014.

Third Quarter 2014 Highlights

  • Third quarter revenue was $188.2 million
  • Net income was $2.6 million, or $0.24 per diluted share
  • EBITDA for the quarter was $18.6 million
  • Ducommun made a voluntary principal prepayment of $7.5 million on its term loan during the quarter

“Ducommun’s top line growth this quarter was driven by a 21% increase in our overall commercial aerospace revenue,” said Anthony J. Reardon, chairman and chief executive officer. “We continue to benefit from current platform build rates as well as higher content, reflecting increased customer demand for our structural and electronic solutions. The strength of our commercial aerospace operations has helped offset the impact of changes within certain military and space programs.

“We believe there are numerous opportunities for further expansion across our product portfolio, particularly within the commercial aerospace and non-A&D markets. Given the inevitable changes in military spending priorities, we are also committed to adjusting our cost basis to reflect current and anticipated mix changes and position Ducommun to win new, attractive programs over the long term. We posted another quarter of solid cash flow and improved working capital, further de-leveraging the balance sheet to provide for increased financial flexibility as we focus on margin improvement, operational efficiency and sustained cash generation going forward.”

Third Quarter Results

Net revenue for the third quarter of 2014 was $188.2 million, a 3.8% increase, compared to $181.3 million for the third quarter of 2013. The revenue increase year-over-year primarily reflects 20.5% higher revenue in the Company’s commercial aerospace markets partially offset by 3.3% lower revenue in the Company’s military and space markets.

Net income for the third quarter of 2014 was $2.6 million, or $0.24 per diluted share compared to net income of $4.6 million, or $0.42 per diluted share, for the third quarter of 2013. Net income for the third quarter of 2014 decreased primarily due to higher income tax expense and higher accrued compensation and benefit costs, partially offset by insurance recoveries related to property and equipment and lower interest expense. The current quarter effective income tax rate was 47.2% compared to a tax benefit rate of 1.9% for the prior year’s quarter. The third quarter 2014 effective income tax rate included a total of approximately $0.9 million additional tax expense as a result of tax returns filed or to be filed. The third quarter of 2013 included a $0.7 million federal research and development tax credit (“Federal R&D Tax Credit”) benefit as a result of the American Taxpayer Relief Act (the “Act”) passed in January, 2013. For the third quarter of fiscal 2014, there was no comparable Federal R&D Tax Credit benefit recorded, as a similar Act has not been passed at this time.

Operating income for the third quarter of 2014 was $10.3 million, or 5.5% of revenue, compared to $12.0 million, or 6.6% of revenue, in the comparable period last year. The decrease in operating income in the third quarter of 2014 was primarily due to higher accrued compensation and benefit costs and additional costs incurred as a result of a major outside supplier’s delay in deliveries, partially offset by higher revenue.

Interest expense decreased to $7.0 million in the third quarter of 2014, compared to $7.4 million in the previous year’s third quarter, as the Company continued to de-lever its balance sheet. Other income for the third quarter of fiscal 2014 included $1.6 million of insurance recoveries related to property and equipment that was recorded as other income compared to none in the comparable period in 2013.

EBITDA for the third quarter of 2014 was $18.6 million, or 9.9% of revenue, compared to $19.2 million, or 10.6% of revenue, for the comparable period in 2013.

During the third quarter of 2014, the Company generated $5.4 million of cash from operations compared to $7.8 million during the third quarter of 2013.

The Company’s firm backlog as of September 27, 2014 was approximately $569 million.

Ducommun AeroStructures (“DAS”)

The Company’s DAS segment reported net revenue for the current third quarter of $81.4 million, compared to $77.7 million for the third quarter of 2013. The higher revenue was primarily due to a 15.3% increase in commercial aerospace revenue that was partially offset by an 8.1% decrease in military and space revenues.

DAS segment operating income was $7.2 million, or 8.8% of revenue, compared to operating income of $7.6 million, or 9.8% of revenue, in the third quarter of 2013. The lower operating income was due to additional costs incurred as a result of a major outside supplier’s delay in deliveries that was partially offset by higher revenue. EBITDA was $11.1 million for the current quarter, or 13.6% of revenue, compared to $10.3 million, or 13.2% of revenue, for the comparable quarter in the prior year. EBITDA for the third quarter of fiscal 2014 included $1.6 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 (“DLT”)

The Company’s DLT segment reported net revenue for the third quarter of $106.8 million, compared to $103.5 million for the third quarter of 2013. The higher revenue reflected a 43.7% increase in commercial aerospace electronics revenue.

DLT’s operating income for the third quarter of 2014 was $8.3 million, or 7.8% of revenue, compared to $7.6 million, or 7.3% of revenue, for the third quarter of 2013, primarily due to an increase in revenue, favorable product mix, and improved operations, partially offset by higher accrued compensation and benefit costs. EBITDA was $12.7 million for the current quarter, or 11.9% of revenue, compared to $12.1 million, or 11.7% of revenue, in the comparable quarter of the prior year.

Corporate General and Administrative Expenses (“CG&A”)

CG&A expenses for the third quarter of 2014 were $5.1 million, or 2.7% of total Company revenue, an increase from $3.3 million, or 1.8% of total Company revenue in the prior-year period. CG&A expenses increased primarily due to higher accrued compensation and benefit costs.

Year to Date Results

Net revenue for the nine months ended September 27, 2014 was $554.4 million compared to $548.7 million for the nine months ended September 28, 2013. The revenue increase year-over-year primarily reflects 10.0% higher commercial aerospace revenue and 3.6% increase in non-aerospace and defense (“non-A&D”) revenue, partially offset by 4.6% lower revenue in the Company’s military and space markets.

Net income for the nine months ended September 27, 2014 was $13.7 million, or $1.23 per diluted share, compared to net income of $13.8 million, or $1.28 per diluted share, for the nine months ended September 28, 2013. Net income for the first nine months of fiscal 2014 compared to the comparable period of fiscal 2013 included higher income tax expense, partially offset by insurance recoveries related to property and equipment, higher revenue, higher gross profit, and lower interest expense. The effective tax rate for the current nine month period of fiscal 2014 was 35.9% compared to 5.4% for the comparable period of fiscal 2013. The first nine months of fiscal 2013 included a $3.7 million Federal R&D Tax Credit benefit -- a combination of Federal R&D Tax Credit for fiscal 2012 (as a result of the Act passed in January, 2013) and Federal R&D Tax Credit for the first nine months of fiscal 2013. For the first nine months of fiscal 2014, there was no comparable Federal R&D Tax Credit benefit recorded as a similar Act has not been passed at this time.

Operating income for the nine months ended September 27, 2014 increased 9.7% to $40.9 million, or 7.4% of revenue, compared to $37.3 million, or 6.8% of revenue, for the nine months ended September 28, 2013. Operating income in 2014 rose as a result of favorable product mix, higher gross profit, and a $0.8 million workers’ compensation audit refund related to prior years, partially offset by higher accrued compensation and benefit costs.

Interest expense decreased to $21.1 million in the first nine months of 2014, compared to $22.7 million in the first nine months of fiscal 2013, as the Company continued to de-lever its balance sheet. Other income for the first nine months of fiscal 2014 included $1.6 million of insurance recoveries related to property and equipment that was recorded as other income compared to none in the comparable period in 2013.

EBITDA for the nine months ended September 27, 2014 was $64.3 million, or 11.6% of revenue, compared to $58.7 million, or 10.7% of revenue, for the nine months ended September 28, 2013.

During the first nine months of fiscal 2014 the Company generated $20.9 million of cash from operations compared to $14.7 million during the first nine months of fiscal 2013.

Ducommun AeroStructures

The Company’s DAS segment reported net revenue for the nine months ended September 27, 2014 of $241.6 million, compared to $234.4 million for the nine months ended September 28, 2013. The higher revenue was primarily due to a 7.3% increase in commercial aerospace revenue that was partially offset by a 2.7% decrease in military and space revenue.

DAS segment operating income during the first nine months of fiscal 2014 was $27.3 million, or 11.3% of revenue, compared to operating income of $23.8 million, or 10.1% of revenue, in the first nine months of fiscal 2013. The higher operating income was due to favorable product mix and a $0.8 million workers’ compensation audit refund related to prior years, partially offset by higher accrued compensation and benefit costs. EBITDA was $37.1 million for the first nine months of fiscal 2014, or 15.4% of revenue, compared to $31.2 million, or 13.3% of revenue, for the comparable period in the prior year. EBITDA for the first nine months of fiscal 2014 included $1.6 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 nine months ended September 27, 2014 of $312.8 million, compared to $314.2 million for the nine months ended September 28, 2013. The slight decline in year-over-year net revenue was primarily due to an 5.7% decline in defense technologies revenue, partially offset by 23.4% higher commercial aerospace revenue and 3.6% higher non-A&D revenue.

DLT’s operating income for the first nine months of fiscal 2014 was $26.1 million, or 8.3% of revenue, compared to $26.8 million, or 8.5% of revenue, for the first nine months of fiscal 2013 due to higher accrued compensation and benefit costs and lower revenue, partially offset by favorable product mix. EBITDA was $39.5 million for the nine month period of 2014, or 12.6% of revenue, compared to $40.6 million, or 12.9% of revenue, in the comparable nine month period of the prior year.

Corporate General and Administrative Expenses

CG&A expenses for the nine months ended September 27, 2014 were $12.5 million, or 2.2% of total Company revenue, down from $13.2 million, or 2.4% of total Company revenue, in the nine months ended September 28, 2013. CG&A expense decreased primarily due to the first nine months of 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 today, October 27, 2014 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 866-510-0707 (international 617-597-5376) approximately ten minutes prior to the conference time. The participant passcode is 30035541. 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 16971760.

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 SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

   
September 27,
2014
December 31,
2013
Assets
Current Assets

Cash and cash equivalents

$ 40,852 $ 48,814
Accounts receivable, net 104,396 91,909
Inventories 145,468 140,507
Production cost of contracts 10,375 11,599
Deferred income taxes 13,664 10,850
Other current assets 20,444   27,085  
Total Current Assets 335,199 330,764
Property and Equipment, Net 93,181 96,090
Goodwill 161,940 161,940
Intangibles, Net 157,694 165,465
Other Assets 7,657   9,940  
Total Assets $ 755,671   $ 764,199  
Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of long-term debt $ 26 $ 25
Accounts payable 55,083 58,111
Accrued liabilities 42,916   45,453  
Total Current Liabilities 98,025 103,589
Long-Term Debt, Less Current Portion 310,157 332,677
Deferred Income Taxes 73,078 68,489
Other Long-Term Liabilities 16,858   19,750  
Total Liabilities 498,118   524,505  
Commitments and Contingencies
Shareholders’ Equity
Common stock 109 110
Treasury stock (1,924 )
Additional paid-in capital 72,563 70,542
Retained earnings 188,551 174,828
Accumulated other comprehensive loss (3,670 ) (3,862 )
Total Shareholders’ Equity 257,553   239,694  
Total Liabilities and Shareholders’ Equity $ 755,671   $ 764,199  
 

DUCOMMUN INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Unaudited)

(In thousands, except per share amounts)

   
Three Months Ended Nine Months Ended
September 27,
2014
  September 28,
2013
September 27,
2014
  September 28,
2013
Net Revenues $ 188,164 $ 181,288 $ 554,433 $ 548,675
Cost of Sales 154,770   148,984   448,526   446,202  
Gross Profit 33,394 32,304 105,907 102,473
Selling, General and Administrative Expenses 23,050   20,351   65,005   65,175  
Operating Income 10,344 11,953 40,902 37,298
Interest Expense (6,975 ) (7,403 ) (21,094 ) (22,668 )
Other Income 1,600     1,600    
Income Before Taxes 4,969 4,550 21,408 14,630
Income Tax Expense (Benefit) 2,347   (86 ) 7,685   783  
Net Income $ 2,622   $ 4,636   $ 13,723   $ 13,847  
Earnings Per Share
Basic earnings per share $ 0.24 $ 0.43 $ 1.26 $ 1.30
Diluted earnings per share $ 0.24 $ 0.42 $ 1.23 $ 1.28
Weighted-Average Number of Common Shares Outstanding
Basic 10,921 10,722 10,902 10,657
Diluted 11,150 10,917 11,202 10,785
 
Gross Profit % 17.7 % 17.8 % 19.1 % 18.7 %
SG&A % 12.2 % 11.2 % 11.7 % 11.9 %
Operating Income % 5.5 % 6.6 % 7.4 % 6.8 %
Net Income % 1.4 % 2.6 % 2.5 % 2.5 %
Effective Tax Rate 47.2 % (1.9 )% 35.9 % 5.4 %
 

DUCOMMUN INCORPORATED AND SUBSIDIARIES

BUSINESS SEGMENT PERFORMANCE

(Unaudited)

(In thousands)

   
Three Months Ended Nine Months Ended
%

Change

  September 27, 2014   September 28, 2013   %

of Net Revenues

2014

    %

of Net Revenues

2013

  %
Change
  September 27, 2014   September 28, 2013   %
of Net Revenues
2014
  %
of Net Revenues
2013
Net Revenues
DAS 4.7 % $ 81,357 $ 77,740 43.2 % 42.9 % 3.1 % $ 241,627 $ 234,437 43.6 % 42.7 %
DLT 3.1 % 106,807   103,548   56.8 % 57.1 % (0.5 )% 312,806   314,238   56.4 % 57.3 %
Total Net Revenues 3.8 % $ 188,164   $ 181,288   100.0 % 100.0 % 1.0 % $ 554,433   $ 548,675   100.0 % 100.0 %
Segment Operating Income
DAS $ 7,190 $ 7,633 8.8 % 9.8 % $ 27,269 $ 23,766 11.3 % 10.1 %
DLT 8,288   7,596   7.8 % 7.3 % 26,089   26,772   8.3 % 8.5 %
15,478 15,229 53,358 50,538
Corporate General and Administrative Expenses (1) (5,134 ) (3,276 ) (2.7 )% (1.8 )% (12,456 ) (13,240 ) (2.2 )% (2.4 )%
Total Operating Income $ 10,344   $ 11,953   5.5 % 6.6 % $ 40,902   $ 37,298   7.4 % 6.8 %
EBITDA
DAS
Operating Income $ 7,190 $ 7,633 $ 27,269 $ 23,766
Other Income (2) 1,600 1,600
Depreciation and Amortization 2,272   2,621   8,242   7,386  
11,062 10,254 13.6 % 13.2 % 37,111 31,152 15.4 % 13.3 %
DLT
Operating Income 8,288 7,596 26,089 26,772
Depreciation and Amortization 4,391   4,540   13,442   13,863  
12,679 12,136 11.9 % 11.7 % 39,531 40,635 12.6 % 12.9 %
Corporate General and Administrative Expenses
Operating loss (5,134 ) (3,276 ) (12,456 ) (13,240 )
Depreciation and Amortization 41   41   145   126  
(5,093 ) (3,235 ) (12,311 ) (13,114 )
EBITDA $ 18,648   $ 19,155   9.9 % 10.6 % $ 64,331   $ 58,673   11.6 % 10.7 %
Capital Expenditures
DAS $ 1,266 $ 1,159 $ 3,986 $ 4,208
DLT 1,761 866 4,736 3,046
Corporate Administration 1   43   25   67  
Total Capital Expenditures $ 3,028   $ 2,068   $ 8,747   $ 7,321  

(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.

Contacts

Ducommun Incorporated
Joseph P. Bellino, Vice President, Treasurer and Chief Financial Officer
310.513.7211
or
Chris Witty, Investor Relations
646.438.9385
cwitty@darrowir.com

Contacts

Ducommun Incorporated
Joseph P. Bellino, Vice President, Treasurer and Chief Financial Officer
310.513.7211
or
Chris Witty, Investor Relations
646.438.9385
cwitty@darrowir.com