Strong 2Q Earnings at Key Technology

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Key Technology, Inc. (KTEC) reported second-quarter 2013 earnings of 38 cents per share, reversing its year ago loss of 13 cents per share, and way ahead of the Zacks Consensus Estimate of 9 cents per share.

Total revenue increased 30% to $35 million, beating the Zacks Consensus Estimate of $31 million.
 
Cost and Margins
 
Cost of sales increased 17% to $22.7 million in the quarter. Gross profit went up 62% to $12.8 million. Gross margin expanded 300 basis points year over year to 36.1%, helped by improved product mix and more efficient plant utilization. 
 
Total operating expenses increased 15% to $10 million, driven by acquisition-related expenses, incentive compensation expenses, Visys operating expenses for the last month of the quarter, and higher sales expenses related to increased net sales. Key Technology reported an operating profit of $2.8 million, a stark improvement from the year-ago quarter’s operating loss of $0.8 million.
 
Key Technology ended the second quarter with a record backlog of $50.1 million compared to $34.7 million one year ago. New orders received during the quarter were $32.7 million, up from $24.9 million in the corresponding period last year. The orders include several important orders, mainly in the potato and processed fruit and vegetable markets.
 
Financial Updates
 
Cash and cash equivalents were $19.2 million as of Mar 31, 2013 compared with $23.7 million as of Dec 31, 2012. Long-term debt amounted to $5.9 million as of Mar 31, 2013 compared with $4.8 million as of Dec 31, 2012. 
 
Key completed the acquisition of Belgium-based Visys NV, a supplier of innovative digital sorters, on Feb 28, 2013. Visys' operating results were included with Key's operating results for the last month of the second quarter. The total value of the deal was approximately $21 million.
 
The transaction is expected to be accretive within the first twelve months. The acquisition will increase Key’s share in its core markets, expand into new high-potential markets, and accelerate its development of next-generation sorting technologies."
 
Key apprehends that a less favorable product mix and the effects of acquisition-related fair value adjustments to the acquired Visys inventory will weigh on gross margins for the balance of 2013.  Operating expenses are also expected to increase from the second quarter of fiscal 2013 due to the addition of Visys for a full quarter, and increased amortization of acquisition-related intangibles, affecting operating margins.
 
Walla Walla, WA-based Key Technology, Inc. designs, manufactures, sells and services process automation systems in the United States and internationally. Key Technology currently retains a Zacks Rank #3 (Hold). Other stocks to watch out for in the industrial products sector are Graco Inc. (GGG) with a Zacks Rank #1 (Strong Buy) and W.W. Grainger, Inc. (GWW) with a Zacks Rank #2 (Buy).
 
Peer Performance
 
Hyster-Yale Materials (HY) reported of $1.47 per share, up 17% from $1.26 in the year-ago quarter beating the Zacks Consensus Estimate of 88 cents. Columbus McKinnon Corp. (CMCO) will release its quarterly results on May 20, 2013.
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