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Kaman (KAMN) Lags on Q4 Earnings, Up Y/Y on Sales Growth

Kaman Corporation KAMN, yesterday, reported lower-than-expected results for the fourth quarter of 2017. Adjusted earnings came in at 86 cents, lagging the Zacks Consensus Estimate of 96 cents by 10.4%.

However, on a year-over-year basis, the bottom line grew 53.6% from the year-ago tally of 56 cents on the back of net sales growth and improved margin profile.

For 2017, the company’s adjusted earnings were $2.23 per share, down 0.9% year over year and below the Zacks Consensus Estimate of $2.34.

Segmental Performance Drives Sales

In the quarter, Kaman’s net sales were $473.9 million, reflecting growth of 9.4% from the year-ago tally.

The company reports its net sales under two segments. Segment results are briefly discussed below:

The Distribution segment’s sales in the quarter came in at $263 million, increasing 2.2% year over year. It represented 55.5% of the quarter’s net sales.

Revenues from the Aerospace segment grew 19.9% year over year to $210.9 million. It represented 44.5% of the quarter’s net sales.

For 2017, the company’s net sales were $1,805.9 million, edging down 0.1% year over year.

Lower Proportion of Costs & Expenses Boosts Margins

In the quarter, Kaman’s cost of sales increased 9.2% year over year to $325.2 million. It represented 68.6% of net sales versus 68.7% in the year-ago quarter. Gross margin inched up 10 basis points (bps) year over year to 31.4%. Selling, general and administrative expenses, as a percentage of revenues, were 22.4% compared with 25% in the year-ago quarter.

Adjusted operating income grew 57.1% year over year to $43.4 million while adjusted operating margin came in at 9.2% versus 6.4% in the year-ago quarter. Also, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were roughly $54 million, up 40.3% year over year. EBITDA margin was up 250 bps to 11.4%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Kaman had cash and cash equivalents of $36.9 million, above $35.4 million at prior-quarter end. Long-term debt inched down 0.7% sequentially to $391.7 million.

In 2017, Kaman generated net cash of $79.9 million from its operating activities, decreasing 25.8% from the previous year. Capital spending on purchase of property, plant & equipment totaled $27.6 million, below $29.8 million spent in the previous year. Free cash flow came in at $52.3 million, down 32.9% year over year.

Dividends paid in the year totaled $21.5 million.

Outlook

For 2018, Kaman anticipates Distribution segment’s sales to be within $1,100-$1,150 million. The segment’s operating margin is predicted to be within 5.1-5.4%. For the Aerospace segment, sales are predicted to be $750-$780 million and operating margin (adjusted) is anticipated to be 16.2-16.7%.

The company’s interest expenses are estimated to be roughly $20 million while corporate expenses are predicted to be $59 million. Pension benefits are likely to amount to $11.5 million. The tax rate is projected to be within the 25.5-26.5% range.

Net cash from operating activities is expected to be $185-$210 million while capital expenditure is predicted to be $35 million. Free cash flow is projected in a range of $150-$175 million.

Kaman Corporation Price and Consensus
 

Kaman Corporation Price and Consensus | Kaman Corporation Quote

Zacks Rank & Key Picks

With a market capitalization of approximately $1.7 billion, Kaman carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Applied Industrial Technologies, Inc. AIT, Dover Corporation DOV and Roper Technologies, Inc. ROP, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies has pulled off an average positive earnings surprise of 10.97% over the last four quarters. Also, earnings estimates for fiscal 2018 (ending June 2018) and fiscal 2019 (ending June 2019) have been revised upward over the last 60 days.

Dover Corporation has delivered an average beat of 7.26% in the trailing four quarters. Also, bottom-line expectations for 2018 and 2019 have improved over the past 60 days.

Roper Technologies’ financial performance has been impressive with an average positive surprise of 3.12% in the last four quarters. Also, earnings estimates for 2018 and 2019 have moved north over the last 60 days.

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