LONGUEUIL, QUEBEC--(Marketwired - Nov. 4, 2016) - Héroux-Devtek Inc. (TSX:HRX), ("Héroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products, today reported its results for the second quarter of fiscal 2017 ended September 30, 2016. Unless otherwise indicated, all amounts are in Canadian dollars.
"Our second quarter results reflected start-up and excess processing costs associated with the ongoing ramp up of complete landing gear systems for the Boeing 777 aircraft, as well as reduced customer requirements for landing gear components destined to certain commercial and defence programs. Our defence repair and overhaul ("R&O") activities showed a significant improvement, which attests to our leading position in this market niche. We also further expanded our global reach by signing a long-term contract to design and develop the landing gear of the new South Korean KF-X aircraft," said Gilles Labbé, President and CEO of Héroux-Devtek.
||Quarters ended Sept. 30,
||Six months ended Sept. 30,
|(in thousands of dollars, except per share data)
||Per share - diluted ($)
|Adjusted net income1
||Per share ($)
|Weighted-average shares outstanding (diluted, in '000s)
||This is a non-IFRS measure. Please refer to the "Non-IFRS Measures" section at the end of this press release.
SECOND QUARTER RESULTS
Consolidated sales reached $91.6 million, compared with $94.5 million in the second quarter of fiscal 2016. This decrease reflects lower sales to both the commercial and defence aerospace markets, as detailed below, while year-over-year fluctuations in the value of the Canadian currency versus foreign currencies had a marginally positive impact of $0.2 million on second-quarter sales.
Commercial sales were $48.7 million, versus $50.0 million last year. The decline mainly stems from lower Tier 1 customer requirements for landing gear components on certain business jet and large commercial aircraft programs. This factor was partially offset by higher engineering sales and by the ongoing production ramp-up related to the long-term agreement to supply The Boeing Company ("Boeing") with complete landing gear systems for the Boeing 777 and 777X aircraft.
Defence sales decreased from $44.6 million to $42.9 million. This decrease mainly reflects lower spare parts requirements with the U.S. government and lower engineering sales following the completion of certain development phases. These factors were partially offset by greater R&O sales to European customers and the U.S. government as a result of a higher throughput at the Corporation's facilities.
Gross profit reached $16.0 million, or 17.5% of sales, compared with $17.5 million, or 18.5% of sales, last year. The decrease is due to a less favourable sales mix and a higher under-absorption of costs, including excess processing and finishing costs related to the Boeing 777 program. These costs are expected to normalize upon completion of the customer qualification and approval of Héroux-Devtek's surface treatment process. These factors were partially offset by favourable year-over-year currency fluctuations equivalent to 1.5% of sales.
Adjusted EBITDA was $14.1 million, or 15.4% of sales, compared with $14.6 million, or 15.5% of sales, a year ago as a result of lower gross profit, partially offset by a reduction in selling and administrative expenses related to year-over-year variations in the currency translation of net monetary items.
Excluding non-recurring items net of taxes, adjusted net income was $5.7 million, or $0.16 per share, in the second quarter of fiscal 2017, versus $6.0 million, or $0.17 per share, in the second quarter of fiscal 2016. This year's adjusted net income excluded an after-tax amount of $3.8 million related to the favourable settlement of a litigation, net of legal and other professional fees. As a result, net income reached $9.5 million, or $0.26 per diluted share, in the second quarter of fiscal 2017.
For the first six months of fiscal 2017, consolidated sales reached $187.2 million, versus $192.8 million in the first six months of fiscal 2016. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies increased sales by $5.2 million. Commercial sales reached $99.3 million versus $101.4 million a year ago, while defence sales totalled $87.9 million compared with $91.3 million last year.
Gross profit for the first half of fiscal 2017 amounted to $32.1 million, equivalent to 17.2% of sales, compared with $34.1 million, or 17.7% of sales, in the first half of fiscal 2016. Adjusted EBITDA reached $28.4 million, or 15.2% of sales, up from $27.7 million, or 14.4% of sales, a year earlier. Adjusted net income stood at $11.3 million, or $0.31 per share, versus $11.5 million, or $0.32 per share, last year. Net income was $14.7 million, or $0.41 per diluted share, in the first six months of fiscal 2017, compared with $10.5 million, or $0.29 per diluted share, in the first six months of fiscal 2016.
As at September 30, 2016, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $15.8 million, while total long-term debt was $146.3 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $71.1 million drawn against the Corporation's authorized Credit Facility of $200.0 million. As a result, the Corporation's net debt position stood at $130.4 million as at September 30, 2016, while the net-debt-to equity ratio was 0.39:1, versus 0.40:1 three months earlier.
Conditions remain mostly favourable in the commercial aerospace market. In the large commercial aircraft sector, Boeing and Airbus are adjusting production rates ahead of introducing certain more fuel efficient aircraft variants on several leading programs through calendar 2019. Despite slightly lower firm order intakes, their backlogs remain strong, representing approximately eight and ten years of production at current rates, respectively. In the business jet market, the current and future production ramp-up of models for which Héroux-Devtek has designed the landing gear should be favourable for the Corporation going forward. In the defence aerospace market, additional funding has been provided through the U.S. government's 2017 fiscal year, but uncertainty remains beyond that period given the need to address the deficit. The Corporation's U.K. operations provide Héroux-Devtek with a more geographically diversified defence portfolio, which reduces its relative exposure to the U.S. market. The balance between new component manufacturing and aftermarket products and services in the Corporation's defence portfolio and its leading program content also promote more stability.
As at September 30, 2016, Héroux-Devtek's funded (firm orders) backlog remained relatively stable at $437 million, versus $438 million three months earlier.
"The second half of the fiscal year has historically been stronger and this year should be no exception. Given first half results, and considering the effect of local currency depreciation on our UK operations, we expect low single-digit sales growth for the fiscal year ending March 31, 2017, though we no longer anticipate sales to reach $420 million. Still, over the medium term, we remain on pace to achieve annual sales of approximately $500 million in fiscal 2019 based on existing contracts and planned production rates. For the remainder of fiscal 2017, Héroux-Devtek remains focussed on ramping up production and meeting delivery schedules for the Boeing 777 contract. More progress has been made on the customer qualification and approval process of our new surface treatment equipment in Strongsville, Ohio and we expect to complete this important phase during the fiscal year. The rigorous execution of the largest landing gear contract in our history demonstrates our ability to carry out large-scale mandates, which further strengthens our reputation in the global landing gear market and places Héroux-Devtek in an enviable position to capture additional business opportunities to the benefit of shareholders," concluded Mr. Labbé.
Héroux-Devtek Inc. will hold a conference call to discuss these results on Friday, November 4, 2016 at 10:00 AM Eastern Time. Interested parties can join the call by dialling 1-877-223-4471 (North America) or 1-647-788-4922 (overseas). The conference call can also be accessed via live webcast at Héroux-Devtek's website, www.herouxdevtek.com/investor-relations/events or www.gowebcasting.com/8084.
If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-800-585-8367 and entering the passcode 95951307 on your phone. This tape recording will be available on Friday, November 4, 2016 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Friday, November 11, 2016.
Héroux-Devtek Inc. (TSX:HRX) is an international company specializing in the design, development, manufacture and repair and overhaul of landing gear and actuation systems and components for the Aerospace market. The Corporation is the third largest landing gear company worldwide, supplying both the commercial and defence sectors of the Aerospace market with new landing gear systems and components, as well as aftermarket products and services. The Corporation also manufactures hydraulic systems, fluid filtration systems and electronic enclosures. Approximately 80% of the Corporation's sales are outside Canada, including about 55% in the United States. The Corporation's head office is located in Longueuil, Québec with facilities in the Greater Montreal area (Longueuil, Laval and St-Hubert); Kitchener, Cambridge and Toronto, Ontario; Springfield and Strongsville, Ohio; Wichita, Kansas; Everett, Washington; and Runcorn, Nottingham and Bolton, United Kingdom.
Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Corporation. These statements are based on assumptions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Corporation's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted net income and adjusted earnings per share are financial measures not prescribed by International Financial Reporting Standards ("IFRS") and are not likely to be comparable to similar measures presented by other issuers. Management considers these to be useful information to assist investors in evaluating the Corporation's profitability, liquidity and ability to generate funds to finance its operations. Refer to Non-IFRS financial measures under Operating Results in the Corporation's MD&A for definitions of these measures and reconciliations to the most comparable IFRS measures.
Note to readers: Complete unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis are available on Héroux-Devtek's website at www.herouxdevtek.com.