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Kaman Reports Second Quarter 2022 Results

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Second Quarter 2022 Highlights:

  • Continued confidence in full year outlook for earnings, EBITDA and free cash flow while reducing 2022 outlook for sales

  • Consolidated backlog growth year to date of 11% to $775 million driven by Engineered Products

  • Executing on our growth strategy with agreement to acquire Parker-Hannifin Aircraft Wheel & Brake

  • Net sales: $161 million

  • Gross Margin: 32.4%

  • Net earnings: $4.1 million

  • Adjusted EBITDA*: $16.4 million; Adjusted EBITDA margin*: 10.2%

  • Diluted earnings per share: $0.14 per share, $0.31 per share adjusted*

BLOOMFIELD, Conn., August 04, 2022--(BUSINESS WIRE)--Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended July 1, 2022.

Table 1. Summary of Financial Results (unaudited)

Thousands of U.S. dollars

(except share data)

Three Months Ended

Six Months Ended

July 1,

2022

April 1,

2022

July 2,

2021

July 1,

2022

July 2,

2021

Net sales

$

160,766

$

158,048

$

182,394

$

318,814

$

354,010

Net earnings

4,064

4,028

11,856

8,092

19,840

Adjusted EBITDA*

16,429

12,186

26,944

28,615

44,057

Adjusted EBITDA margin*

10.2

%

7.7

%

14.8

%

9.0

%

12.4

%

Diluted earnings per share

$

0.14

$

0.14

$

0.42

$

0.29

$

0.71

Adjusted diluted earnings per share*

0.31

0.15

0.56

0.46

0.85

*See the end of this release for an explanation of the Company's use of Adjusted EBITDA, Adjusted EBITDA margin, Free cash flow and Adjusted diluted earnings per share. See tables 6-13 for reconciliations to the most comparable GAAP measure.

"Overall performance was in line with our expectations with sales and margin improvement anticipated in the second half of the year. Order rates continue to be strong for our most profitable products and we continue to benefit from the recovery of the commercial aerospace market with Kaman sales increasing to Boeing and Airbus, for the fourth quarter in a row. In May, we executed on our growth strategy with a definitive agreement to acquire Parker-Hannifin’s Aircraft Wheel & Brake business. This acquisition, which is expected to close in the second half of the year, will expand the breadth of our product offerings, increase our exposure to attractive markets and drive meaningful margin and cash flow accretion," said Ian K. Walsh, Chairman, President and Chief Executive Officer.

"In the second quarter, our largest and most profitable segment, Engineered Products, benefited from growing demand for bearings in the commercial, business and general aviation markets and for seals, springs and contacts in medical applications. We continued to demonstrate growth with an increase of more than 10 percent in sales, 25 percent in Adjusted EBITDA and approximately 300 basis points in EBITDA margin compared to both last quarter and the second quarter of 2021. Persistent demand is supporting robust order rates with backlog growing broadly across these businesses, increasing 33 percent since the beginning of the year to $225 million."

"In Precision Products, sales and margin declined during the quarter mostly in our fuze programs; however, we are on target to meet our fuze delivery plan for the year. We continue to focus on the transformation of this segment, increasing investment in our air vehicles program. In June, we announced a $10 million equity investment in Near Earth Autonomy which will accelerate the development of autonomous technology in our unmanned aerial systems. We have been working with Near Earth for several years and are excited about this opportunity in a growing autonomy market. Additionally, we are still on target for a full scale model demonstration of our new KARGO UAV unmanned aerial system later this year."

"In our Structures segment, quarterly results were impacted by a disruption of incoming materials due to a fire at one of our suppliers. We expect a partial recovery and improved performance over the course of the year. The facilities consolidation to optimize our cost structure is progressing and we are focusing on winning new business opportunities in complex structural programs," said Walsh.

Outlook

"Persistently high demand is driving steady growth in our revenue, margins and backlog for bearings, seals, springs and contacts products in Engineered Products. A significant portion of our sales expectations for the remainder of the year is already in backlog, which gives us confidence in the expected performance for this segment in the third and fourth quarter. Based upon lower than expected order rates in our Structures segment and current pressure from foreign exchange rates, we are revising our sales outlook downward slightly for the full year. The strength in order activity, diversity of our end markets and focus on operations excellence give us confidence in meeting our earnings, EBITDA and free cash flow for the full year 2022, excluding the benefit of the Aircraft Wheel & Brake acquisition."

"Over the long term, Kaman is in a great position to provide meaningful shareholder returns through M&A and organic growth. In addition to the Aircraft Wheel & Brake acquisition, we continue to invest in our products and will consider smaller M&A opportunities that are tightly aligned with our long term strategy. We will remain disciplined in our approach to capital allocation and thoughtful in our strategy to achieve top quartile EBITDA margin, free cash flow and return on invested capital," Walsh said.

See Table 5 of this release for an updated outlook summary for 2022.

KAMAN BUSINESS RESULTS DISCUSSION

Kaman manages its portfolio through three segments: (1) Engineered Products; (2) Precision Products; and (3) Structures.

Engineered Products - Our Engineered Products segment serves the aerospace and defense, industrial and medical markets providing sophisticated, proprietary aircraft bearings and components; super precision, miniature ball bearings; and proprietary spring energized seals, springs and contacts.

Table 2. Engineered Products Results

Thousands of U.S. dollars

Three Months Ended

Six Months Ended

July 1,

2022

April 1,

2022

July 2,

2021

July 1,

2022

July 2,

2021

Net sales

$

89,765

$

81,452

$

78,956

$

171,217

$

150,735

Operating income

15,467

11,042

9,758

26,509

14,664

Adjusted EBITDA

21,614

17,269

16,337

38,883

27,833

Adjusted EBITDA margin

24.1

%

21.2

%

20.7

%

22.7

%

18.5

%

Three months ended July 1, 2022 versus three months ended April 1, 2022 - Operating income increased $4.4 million, Adjusted EBITDA increased $4.3 million and margin increased 290 basis points versus the first quarter of 2022. Compared to the prior period, results improved primarily due to increased sales of bearings and both increased sales and margins of products used in medical end markets and engine aftermarket products.

Three months ended July 1, 2022 versus three months ended July 2, 2021 - Operating income increased $5.7 million, Adjusted EBITDA increased $5.3 million and margin increased 340 basis points versus the second quarter of 2021. Results improved compared to the same period last year driven by increased sales of commercial aerospace bearings. Both sales and margins increased for seals, springs and contacts used in products for medical and industrial applications as well as for engine aftermarket products.

Precision Products - Our Precision Products segment serves the aerospace and defense markets providing precision safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our heavy lift K-MAX® manned helicopter, the K-MAX TITAN unmanned aerial system and the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle.

Table 3. Precision Products Results

Thousands of U.S. dollars

Three Months Ended

Six Months Ended

July 1,

2022

April 1,

2022

July 2,

2021

July 1,

2022

July 2,

2021

Net sales

$

41,267

$

47,549

$

71,539

$

88,816

$

132,072

Operating income

2,550

3,409

19,429

5,959

32,482

Adjusted EBITDA

3,593

4,440

20,483

8,033

34,567

Adjusted EBITDA margin

8.7

%

9.3

%

28.6

%

9.0

%

26.2

%

Three months ended July 1, 2022 versus three months ended April 1, 2022 - Operating income decreased $0.9 million, Adjusted EBITDA decreased $0.8 million and margin decreased 60 basis points versus the first quarter of 2022. Compared to the prior period, results declined primarily due to lower sales and associated gross profit for our fuze programs partially offset by increased sales and margins for K-MAX® spares and support as well as for our SH-2 program.

Three months ended July 1, 2022 versus three months ended July 2, 2021 - Operating income decreased $16.9 million, Adjusted EBITDA decreased $16.9 million and margin decreased significantly versus the second quarter of 2021. Results declined compared to the same period last year, primarily due to lower sales and associated gross profit for our JPF program as the second quarter 2021 had a much larger volume.

Structures - Our Structures segment serves the aerospace and defense and medical end markets providing sophisticated complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft, and medical imaging solutions.

Table 4. Structures Results

Thousands of U.S. dollars

Three Months Ended

Six Months Ended

July 1,

2022

April 1,

2022

July 2,

2021

July 1,

2022

July 2,

2021

Net sales

$

29,734

$

29,047

$

31,899

$

58,781

$

71,203

Operating income (loss)

(830

)

(617

)

(1,521

)

(1,447

)

(1,201

)

Adjusted EBITDA

57

289

(666

)

346

515

Adjusted EBITDA margin

0.2

%

1.0

%

(2.1

) %

0.6

%

0.7

%

Three months ended July 1, 2022 versus three months ended April 1, 2022 - Operating loss, Adjusted EBITDA and margin were relatively unchanged compared to the first quarter of 2022. Results were partially impacted by a disruption of incoming material due to a fire at one of our suppliers in the second quarter 2022 and the wind down of the AH-1Z program. This was mostly offset by higher medical imaging sales and margins.

Three months ended July 1, 2022 versus three months ended July 2, 2021 - Operating loss decreased $0.7 million, Adjusted EBITDA increased $0.7 million and margin increased 230 basis points versus the second quarter of 2021. Compared to the prior period, sales and margins were higher on our Rolls Royce and imaging programs, partially offset by a disruption of incoming material in the second quarter of 2022 due to a fire at one of our suppliers.

Please see the MD&A section of the Company's Form 10-Q filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.

OUTLOOK

Table 5. Outlook

Millions of U.S. dollars (except share data)

2022 Outlook

Low End

High End

Net Sales

$

700

$

715

Earnings from continuing operations

$

49

$

53

Adjusted EBITDA

$

94

$

99

Adjusted EBITDA margin

13.4

%

13.8

%

Adjusted diluted earnings per share

$

1.75

$

1.90

Cash flow from operating activities

$

65

$

75

Adjusted free cash flow

$

40

$

50

Please see the supplemental presentation relating to the second quarter 2022 on our Company's website for a full outlook summary.

CONFERENCE CALL

A webcast and conference call has been scheduled for tomorrow, August 5, 2022, at 8:30 AM ET. Participants must register for the teleconference. Once registration is complete, participants will be provided with a dial-in number containing a personalized PIN to access the call. While not required, it is recommended that participants join 10 minutes prior to the event start. A live webcast will be available during the call and a replay will be available two hours after the call. Registration and webcast can be accessed at www.kaman.com/investors/quarterly-earnings-calls. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in this release. In addition, a supplemental presentation relating to the second quarter 2022 results will be posted to the Company’s website prior to the earnings call at www.kaman.com/investors/quarterly-earnings-calls.

ABOUT KAMAN CORPORATION

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut, conducts business in the aerospace & defense, industrial and medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our heavy lift K-MAX® manned helicopter, the K-MAX TITAN unmanned helicopter and the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle. More information is available at www.kaman.com.

NON-GAAP MEASURES DISCLOSURE

Management believes that the Non-GAAP financial measures (i.e. financial measures that are not computed in accordance with Generally Accepted Accounting Principles) used in this release or in other disclosures provide important perspectives into the Company's ongoing business performance. The Company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the Non-GAAP measures used in this release and other disclosures as follows:

Adjusted EBITDA and Adjusted EBITDA margin - Adjusted EBITDA for the consolidated company results is defined as net earnings before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company for the periods presented. Adjusted EBITDA for the segments is defined as operating income before depreciation and amortization. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percent of Net sales. Management believes Adjusted EBITDA and Adjusted EBITDA margin provide an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods because they provide a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other expense (income), net and certain items that are not indicative of the operating performance of the Company for the period presented. Adjusted EBITDA and Adjusted EBITDA margin are not presented as an alternative measure of operating performance, as determined in accordance with GAAP. The following tables illustrate the calculation of Adjusted EBITDA:

Table 6. Adjusted EBITDA and Adjusted EBITDA Margin (unaudited)

Three Months Ended

Thousands of U.S. dollars

July 1, 2022

Consolidated

Engineered Products

Precision Products

Structures

Corp/Elims**

Net sales

$

160,766

$

89,765

$

41,267

$

29,734

$

Net earnings

4,064

Interest expense, net

1,993

Income tax expense (benefit)

557

Non-service pension and post retirement benefit income

(5,024

)

Other expense (income), net

690

Operating income (loss)

$

2,280

$

15,467

$

2,550

$

(830

)

$

(14,907

)

Depreciation and amortization

8,822

6,147

1,043

887

745

Restructuring and severance costs

2,927

2,927

Cost associated with corporate development activities

2,400

2,400

Other Adjustments

$

14,149

$

6,147

$

1,043

$

887

$

6,072

Adjusted EBITDA

$

16,429

$

21,614

$

3,593

$

57

$

(8,835

)

Adjusted EBITDA margin

10.2

%

24.1

%

8.7

%

0.2

%

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $2.9 million of unallocated expenses that are shown on the Consolidated Statement of Earnings as their own line items.

Table 7. Adjusted EBITDA and Adjusted EBITDA margin (unaudited)

Three Months Ended

Thousands of U.S. dollars

April 1, 2022

Consolidated

Engineered Products

Precision Products

Structures

Corp/Elims**

Net sales

$

158,048

$

81,452

$

47,549

$

29,047

$

Net earnings

4,028

Interest expense, net

2,481

Income tax expense (benefit)

1,307

Non-service pension and post retirement benefit income

(5,263

)

Other expense (income), net

504

Operating income (loss)

$

3,057

$

11,042

$

3,409

$

(617

)

$

(10,777

)

Depreciation and amortization

8,832

6,227

1,031

906

668

Restructuring and severance costs

...