Heroux-Devtek Inc.

Heroux-Devtek Inc.

February 07, 2017 07:00 ET

Heroux-Devtek Reports Fiscal 2017 Third Quarter Results

- Sales of $98.5 million, versus $96.6 million last year

- EBITDA(1) of $13.9 million and adjusted net income(1) of $6.0 million, or $0.17 per share

- Delivery of 9 complete landing gear shipsets for the Boeing 777 aircraft as at December 31, 2016

- Signature of three contracts during the quarter attesting to Heroux-Devtek's global reach

- Announcement of revised sales guidance and workforce adjustments

- Free cash flow generation of $9.7 million during the quarter applied to debt reduction

LONGUEUIL, QUÉBEC--(Marketwired - Feb. 7, 2017) - Héroux-Devtek Inc. (TSX:HRX), ("Héroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products, today reported its results for the third quarter of fiscal 2017 ended December 31, 2016. Unless otherwise indicated, all amounts are in Canadian dollars.

"Our ability to ramp-up production and deliveries of complete landing gear systems for the Boeing 777 aircraft was a key factor in Héroux-Devtek's third-quarter sales increase. We are also very pleased to have obtained customer approval for one of the three main surface treatment processes at our Strongsville, Ohio facility which will allow us to perform this key value-added activity internally. As anticipated, certain excess costs pending the completion of the approval phase and normal costs related to the production ramp-up had a negative impact on profitability," said Gilles Labbé, President and CEO of Héroux-Devtek.

"During the quarter, Héroux-Devtek was awarded three contracts that highlight its status as one of the world's leading landing gear designers and manufacturers. These contracts on important programs such as the Embraer KC-390 multi-mission transport aircraft, the BAE Systems Hawk advanced jet trainer and the Saab Gripen E fighter are a testament of our solid relationships with leading original equipment manufacturers (OEMs) as well as our global reach," added Mr. Labbé.

However, as some OEMs have announced reductions to their production rates for certain aircraft programs, including the Boeing 777, Héroux-Devtek will have to adjust its workforce by approximately 90 employees by the end of calendar 2017 throughout its offices and plants. The Corporation expects a related non-recurring charge of approximately $4.8 million to be accounted for, mainly in the last quarter of fiscal 2017.

"In response to evolving market conditions, Héroux-Devtek is acting diligently by adjusting its workforce, while remaining in close contact with its customers to monitor the situation. We regret the consequences of this decision on affected employees and their families and we will take equitable measures to provide them with all the support they deserve," said Mr. Labbé.

FINANCIAL HIGHLIGHTS Quarters ended Dec. 31, Nine months ended Dec. 31,
(in thousands of dollars, except per share data) 2016 2015 2016 2015
Sales 98,489 96,561 285,650 289,316
EBITDA1 13,851 15,666 45,573 41,877
Adjusted EBITDA1 13,851 15,666 42,267 43,357
Net income 8,175 7,010 22,873 17,550
Per share - diluted ($) 0.23 0.19 0.63 0.49
Adjusted net income1 6,015 7,010 17,276 18,559
Per share ($) 0.17 0.19 0.48 0.52
Weighted-average shares outstanding (diluted, in '000s) 36,327 36,168 36,294 36,099
1 This is a non-IFRS measure. Please refer to the "Non-IFRS Measures" section at the end of this press release.


Consolidated sales reached $98.5 million, compared with $96.6 million in the third quarter of fiscal 2016. This increase reflects higher sales to the defence aerospace markets, as detailed below, while year-over-year fluctuations in the value of the Canadian currency versus foreign currencies had a positive impact of $1.7 million on third-quarter sales.

Commercial sales were $50.7 million, versus $50.8 million last year. This stability reflects 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, as well as favourable currency fluctuations, offset by lower customer requirements for certain business jet and large commercial aircraft programs.

Defence sales rose from $45.8 million to $47.7 million. This increase is essentially attributable to higher new and spare part requirements from civil customers, notably for the F-35 program, as well as favourable currency fluctuations, partially offset by lower engineering sales following the completion of certain development phases.

Gross profit was $15.0 million, or 15.3% of sales, versus $18.1 million, or 18.7% of sales, last year. The decrease is mainly due to 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 processes. To a lesser extent, normal learning curve costs associated with the initial production ramp-up of the Boeing 777 contract and certain costs related to completing the integration of repair and overhaul facilities in the U.K. also impacted profitability. These factors were partially offset by favourable year-over-year currency fluctuations equivalent to 2.9% of sales.

EBITDA reached $13.9 million, or 14.1% of sales, compared with $15.7 million, or 16.2% of sales, a year ago as a result of lower gross profit, partially offset by a reduction in selling and administrative expenses reflecting the year-over-year variations in the currency translation of net monetary items.

Net income reached $8.2 million, or $0.23 per diluted share, in the third quarter of fiscal 2017. Excluding non-recurring items net of taxes, adjusted net income was $6.0 million, or $0.17 per share, in the third quarter of fiscal 2017, versus $7.0 million, or $0.19 per share, in the third quarter of fiscal 2016. This year's adjusted net income excluded an after-tax amount of $2.2 million related to a non-cash gain resulting from the update of the estimated repayment schedule for certain government authorities loans, taking into account revised assumptions mainly related to sales forecasts made following reduced production rates announced by OEMs.


For the first nine months of fiscal 2017, consolidated sales reached $285.7 million, versus $289.3 million in the first nine months of fiscal 2016. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies increased sales by $6.8 million. Commercial sales reached $150.0 million, versus $152.2 million a year ago, while defence sales totalled $135.6 million, compared with $137.1 million last year.

Gross profit for the first nine months of fiscal 2017 amounted to $47.2 million, equivalent to 16.5% of sales, compared with $52.1 million, or 18.0% of sales, in the first nine months of fiscal 2016. Adjusted EBITDA reached $42.3 million, or 14.8% of sales, versus $43.4 million, or 15.0% of sales, a year earlier. Net income was $22.9 million, or $0.63 per diluted share, in the first nine months of fiscal 2017, compared with $17.6 million, or $0.49 per diluted share, in the first nine months of fiscal 2016. Adjusted net income stood at $17.3 million, or $0.48 per share, versus $18.6 million, or $0.52 per share, last year.


As at December 31, 2016, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $18.9 million, while total long-term debt was $138.7 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $56.4 million drawn against the Corporation's authorized Credit Facility of $200.0 million. As a result of a solid free cash flow generation, the net debt position was $119.9 million as at December 31, 2016, down from $130.4 million three months earlier. The net-debt-to equity ratio stood at 0.35:1 as at December 31, 2016, versus 0.39:1 three months earlier.


During the third quarter of fiscal 2017, Héroux-Devtek continued the ongoing production ramp-up of complete landing gear systems for this program. It also received customer approval for one of the three main surface treatment processes required under this contract in order to produce the most critical components internally.

Customer qualification and approval is progressing for the remainder of the surface treatment processes. Management expects this phase to be completed by the end of the first quarter of fiscal 2018. In the meantime, the Corporation continues to utilize its supply chain in order to meet the customer's delivery schedule, which is negatively impacting the expected margin of the first units delivered.


Since the end of the previous quarter, aircraft OEMs have announced reduced production rates for certain programs, including the Boeing 777. As a result of these changes in assumptions related to forecasted sales, management:

  • Now expects relatively stable sales in fiscal 2017, when compared to fiscal 2016;

  • Forecasts a low single-digit decrease in sales for the fiscal year ending March 31, 2018, when compared to expected sales for fiscal 2017;

  • Following a transition year in fiscal 2018, Héroux-Devtek expects sales to grow progressively to reach between $480 million and $520 million in fiscal 2021.

Please see "Forward-Looking Statements" below and the Guidance section in the Corporation's MD&A for the quarter ended December 31, 2016, for further details regarding the material assumptions underlying the foregoing guidance.


In the large commercial aircraft sector, Boeing and Airbus are proceeding with production rate adjustments ahead of introducing certain more fuel efficient aircraft variants on several leading programs through calendar 2019. Their backlogs remain strong despite a reduction in new firm orders in calendar 2016 versus the previous year. In the defence aerospace market, the new U.S. administration may bring a shift in priorities, the impact of which on defence spending is uncertain at this time. The Corporation's U.K. operations provide 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 December 31, 2016, Héroux-Devtek's funded (firm orders) backlog stood at $424 million, versus $437 million three months earlier.

"For the short-term, our priority is to finalize the customer approval process for our surface treatment activities. Given the progress accomplished to this day, we expect to finalize this important phase early in the new fiscal year. We also remain focussed on ramping up production and meeting delivery schedules for the Boeing 777 contract. As for the longer term, our integrated world-class capabilities, ability to carry out large-scale mandates, operating flexibility and solid financial position will allow Héroux-Devtek to capture additional opportunities to further expand its reach in its niche market," concluded Mr. Labbé.


Héroux-Devtek Inc. will hold a conference call to discuss these results on Tuesday, February 7, 2017 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/8299.

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 51952253 on your phone. This tape recording will be available on Tuesday, February 7, 2017 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Tuesday, February 14, 2017.


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 contains information and statements of a forward-looking nature concerning the future performance of the Corporation. Forward looking statements include the guidance, forecasts and outlook provided under "Sale Guidance" and "Outlook" in this press release. 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. Please see the Guidance section in the Corporation's MD&A for the quarter ended December 31, 2016, for further details regarding the material assumptions underlying the forecasts and guidance under "Sales Guidance" in this press release. Such forecasts and guidance are provided for the purpose of assisting the reader in understanding the Corporation's financial performance and prospects and to present management's assessment of future plans and operations, and the reader is cautioned that such statements may not be appropriate for other purposes.


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.

Contact Information

  • From:
    Heroux-Devtek Inc.
    Gilles Labbe
    President and Chief Executive Officer
    (450) 679-3330

    Heroux-Devtek Inc.
    Stephane Arsenault
    Chief Financial Officer
    (450) 679-3330

    Martin Goulet, CFA
    (514) 731-0000