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Ducommun Reports Results for the Second Quarter Ended June 29, 2013

Revenue, EBITDA, and Cash Flow Rise as Earnings Reach $0.51 per Diluted Share

LOS ANGELES--(BUSINESS WIRE)--Aug. 5, 2013-- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its second quarter and the six months ended June 29, 2013.

Second Quarter 2013 Highlights

  • Sales were $191.5 million, up 3.7% versus the second quarter of 2012
  • The Company reported net income of $5.5 million, or $0.51 per diluted share
  • Adjusted EBITDA for the quarter was $22.2 million – 11.6% of revenue
  • Cash flow from operations was $13.1 million; Ducommun also made another voluntary principal prepayment of $7.5 million on its term loan during the quarter
  • The Company’s firm backlog as of June 29, 2013 was $632 million

“Ducommun posted strong results this quarter reflecting both top line growth and solid margins,” said Anthony J. Reardon, chairman, president and chief executive officer. “Revenue benefited from robust commercial aerospace demand and increased shipments within our defense technologies operations, underscoring the breadth of our integrated solutions and unique applications. We also paid down an additional $7.5 million of debt, as the Company made further strides de-leveraging by improving working capital and driving cash flow.

“In our non-A&D end markets, however, sales fell once again, and we experienced soft bookings. In this regard, we have developed a comprehensive strategy utilizing the full engineering and manufacturing capabilities of the Company to expand our non-A&D product portfolio, with an eye to restoring growth heading into 2014. Despite these challenges, we made great strides this quarter as we continued to improve asset utilization, operating cash flow, and build a stronger Ducommun.”

Second Quarter Results

Net sales for the second quarter of 2013 increased 3.7% to $191.5 million, versus $184.7 million for the second quarter of 2012. The higher revenue reflected increases in the Company’s aerospace and defense end markets, partially offset by lower sales within the Company’s non-aerospace and defense (“non-A&D”) markets.

Net income for the second quarter of 2013 was $5.5 million, or $0.51 per diluted share, compared to $5.5 million, or $0.52 per diluted share, in the second quarter of 2012; the 2012 results included a state tax benefit of $0.15 per diluted share. Pre-tax income increased in the second quarter of 2013 as a result of higher operating income and lower interest expense.

Operating income for the second quarter of 2013 was $15.0 million, or 7.9% of revenue, compared to $14.0 million, or 7.6% of revenue, in the comparable period last year. Adjusted EBITDA for the second quarter of 2013 was $22.2 million, or 11.6% of revenue, compared to $21.3 million, or 11.6% of revenue, for the comparable period last year. Interest expense declined to $7.4 million in the second quarter of 2013, compared to $8.2 million in the previous year’s second quarter, as the Company continued to de-lever its balance sheet.

Cash flow generated from operations during the second quarter of 2013 was $13.1 million, compared to $10.5 million in the prior year’s second quarter. The higher cash provided by operating activities in the second quarter of 2013 reflects improved working capital management and project timing.

Ducommun AeroStructures (DAS)

The Company’s DAS segment reported net sales for the second quarter of $84.0 million, compared to $76.9 million in the prior-year period. Revenue increased 9.2% primarily due to higher sales of large commercial aircraft products, reflecting build rates, partially offset by lower sales of regional aircraft products and commercial helicopter products.

DAS segment operating income was $9.5 million, or 11.3% of revenue, compared to $7.6 million, or 9.9% of revenue, in the second quarter of 2012. The higher operating margin primarily reflects improved mix and operating leverage. EBITDA was $11.9 million for the quarter, or 14.2% of revenue, compared to $9.8 million, or 12.8% of revenue, for the comparable quarter in the prior year.

Ducommun LaBarge Technologies (DLT)

The Company’s DLT segment reported net sales for the second quarter of $107.5 million, compared to $107.8 million in the second quarter of 2012. The defense electronics and commercial aerospace revenue increased 16.5%, offset by a 25.8% decline in the segment’s non-A&D revenue.

DLT’s operating income for the second quarter of 2013 was $11.2 million, or 10.5% of revenue, compared to operating income of $10.5 million, or 9.7% of revenue, in the 2012 second quarter. The increase was primarily due to a richer product mix and the realization of cost synergies achieved following the integration of LaBarge. EBITDA was $15.9 million in the quarter, or 14.8% of revenue, compared to $15.2 million, or 14.1% of revenue, in the comparable quarter of the prior year.

Corporate General and Administrative Expenses (CG&A)

CG&A expenses for the second quarter of 2013 were $5.7 million, or 3.0% of revenue, up from $4.0 million, or 2.2% of revenue, in the prior-year period, due to a workers’ compensation insurance payroll audit charge of $0.6 million and $0.4 million in higher professional fees.

Year to Date Results

Net sales for the first six months of 2013 were $367.4 million versus $369.0 million for the same period of 2012. Revenue reflected growth in the defense technology and commercial aerospace end markets, offset by softness in the Company’s non-A&D markets.

Net income for the first six months of 2013 was $9.2 million, or $0.86 per diluted share, compared to $7.9 million, or $0.75 per diluted share, for the comparable period of 2012. Pre-tax income for the first six months of 2013 increased as the impact of somewhat lower net sales and operating margin were more than offset by lower interest expense. Diluted earnings per share for the six-month period of 2013 included a federal research and development tax benefit of $0.28 per diluted share while the 2012 period included no such benefit. The six-month period of 2012 included a state tax benefit of $0.15 per diluted share.

The effective tax rate for the six months ended June 29, 2013 included $2.0 million of 2012 federal research and development tax credit benefits recognized in the first quarter of 2013. The Company recognized total federal research and development tax credit benefits of $2.5 million and $0.5 million in the first quarter and second quarter of 2013, respectively. The Company expects to continue to recognize approximately $0.5 million per quarter for these benefits throughout 2013. The effective tax rate for the six months ended June 30, 2012 included no federal research and development tax credit benefits. The effective tax rate for the six months ended June 30, 2012 included a state tax benefit of $1.6 million as a result of the 2011 acquisition of LaBarge.

Operating income for the first six months of 2013 was $25.3 million, or 6.9% of revenue, compared to $25.9 million, or 7.0% of revenue, for the comparable period last year. Operating margin decreased due to higher SG&A costs for a one-time charge of $0.5 million related to the debt repricing and professional fees.

Adjusted EBITDA for the first six months of 2013 was $39.5 million, or 10.8% of revenue, compared to $40.4 million, or 10.9% of revenue, for the comparable period last year. Interest expense declined to $15.3 million in the year-to-date period of 2013, compared to $16.5 million in the prior-year period as the Company continued to de-lever its balance sheet.

During the first six months of 2013, the Company generated $6.9 million of cash from operations compared to $5.7 million in the prior-year period. The higher cash provided by operating activities in the first six months of 2013 reflected improved working capital management and higher net income and certain timing differences.

Ducommun AeroStructures (DAS)

The Company’s DAS segment reported net sales for the first six months 2013 of $156.7 million, compared to $151.2 million in the prior-year period. The 3.7% increase in revenue was due to higher sales of large commercial aircraft products, partially offset by lower sales of military helicopter products.

DAS segment operating income was $16.1 million, or 10.3% of revenue, compared to $14.2 million, or 9.4% of revenue, in the same period of 2012. The higher operating margin primarily reflects improved product mix and operating efficiencies. EBITDA was $20.9 million for first six months, or 13.3% of revenue, compared to $18.5 million, or 12.2% of revenue, for the prior-year period.

Ducommun LaBarge Technologies (DLT)

The Company’s DLT segment reported net sales for the first six months of 2013 of $210.7 million, down 3.3% from $217.9 million in the prior-year period. Defense electronics and commercial aerospace revenue increased 14.1%, offset by a 28.8% decline in the segment’s non-A&D revenue.

DLT’s operating income for the first six months of 2013 was $19.2 million, or 9.1% of revenue, compared to $18.8 million, or 8.6% of revenue, in the comparable period of 2012. The increase in operating margin was primarily due to a richer product mix and the realization of cost synergies achieved following the LaBarge acquisition. EBITDA was $28.5 million, or 13.5% of revenue, compared to $28.2 million, or 13.0% of revenue, in the prior-year period.

Corporate General and Administrative Expenses (CG&A)

CG&A expenses for the first half of 2013 were $10.0 million, or 2.7% of revenue, up from $7.1 million, or 1.9% of revenue, in the prior-year period. CG&A expenses increased in 2013 primarily due to higher benefit costs, a workers’ compensation insurance payroll audit charge, expenses related to the Company’s debt repricing transaction and certain professional fees.

Conference Call

A teleconference hosted by Anthony J. Reardon, the Company's chairman, president and chief executive officer, and Joseph P. Bellino, the Company's vice president, treasurer and chief financial officer, will be held today, August 5, 2013 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 877-415-3179 (international 857-244-7322) approximately ten minutes prior to the conference time stated above. The participant passcode is 66505373. Mr. Reardon and Mr. Bellino will be speaking on behalf of the Company and anticipate the meeting and Q&A period to last approximately 45 minutes.

This call is being webcast by Thomson Reuters and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 888-286-8010, passcode 65005492.

About Ducommun Incorporated

Founded in 1849, Ducommun Incorporated provides engineering and manufacturing services to the aerospace, defense, and other industries through a wide spectrum of electronic and structural applications. The company is an established supplier of critical components and assemblies for commercial aircraft and military and space vehicles as well as for the energy market, medical field, and industrial automation. It operates through two primary business units – Ducommun AeroStructures (DAS) and Ducommun LaBarge Technologies (DLT). Additional information can be found at www.ducommun.com.

Statements contained in this press release regarding other than recitation of historical facts are forward-looking statements. These statements are identified by words such as “may,” “will,” “ begin,” “ look forward,” “expect,” “believe,” “intend,” “anticipate,” “should”, “potential,” “estimate,” “continue,” “momentum” and other words referring to events to occur in the future. These statements reflect the Company’s current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, including, but not limited to, the state of the world financial, credit, commodities and stock markets, and uncertainties regarding the Company, its businesses and the industries in which it operates, which are described in the Company’s filings with the Securities and Exchange Commission. The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

                 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Net Sales $ 191,472 $ 184,705 $ 367,387 $ 369,048
Cost of Sales 154,156 148,754 297,218 298,626
Gross Profit 37,316 35,951 70,169 70,422
Selling, General and Administrative Expenses 22,273 21,939 44,824 44,551
Operating Income 15,043 14,012 25,345 25,871
Interest Expense 7,442 8,234 15,265 16,473
Income Before Taxes 7,601 5,778 10,080 9,398
Income Tax Expense 2,097 271 869 1,501
Net Income $ 5,504 $ 5,507 $ 9,211 $ 7,897
 
Earnings Per Share
Basic earnings per share $ 0.52 $ 0.52 $ 0.87 $ 0.75
Diluted earnings per share $ 0.51 $ 0.52 $ 0.86 $ 0.75
 
Weighted-Average Number of Common Shares Outstanding
Basic 10,648 10,582 10,624 10,565
Diluted 10,790 10,582 10,731 10,565
 
Gross Profit % 19.5% 19.5% 19.1% 19.1%
SG&A % 11.6% 11.9% 12.2% 12.1%
Operating Income % 7.9% 7.6% 6.9% 7.0%
Net Income % 2.9% 3.0% 2.5% 2.1%
Effective Tax Rate 27.6% 4.7% 8.6% 16.0%
 
 

DUCOMMUN INCORPORATED AND SUBSIDARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
       
June 29, December 31,
Assets 2013 2012
Current Assets
Cash and cash equivalents $ 33,510 $ 46,537
Accounts receivable, net 105,577 97,300
Unbilled receivables 4,093 3,556
Inventories 148,906 148,318
Production cost of contracts 19,049 17,960
Deferred income taxes 7,016 10,459
Other current assets   13,912     10,441  
Total Current Assets 332,063 334,571
Property and Equipment, Net 95,602 98,383
Goodwill 161,940 161,940
Intangibles, Net 170,911 176,356
Other Assets   12,310     13,824  
Total Assets $ 772,826   $ 785,074  
 
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 3,033 $ 3,042
Accounts payable 50,864 52,578
Accrued liabilities   48,392     52,716  
Total Current Liabilities 102,289 108,336
Long-Term Debt, Less Current Portion 347,690 362,702
Deferred Income Taxes 65,980 67,808
Other Long-Term Liabilities   22,900     23,553  
Total Liabilities   538,859     562,399  
 
Commitments and Contingencies
Shareholders' Equity
Common stock 108 107
Treasury stock (1,924 ) (1,924 )
Additional paid-in capital 68,211 66,475
Retained earnings 174,696 165,485
Accumulated other comprehensive loss   (7,124 )   (7,468 )
Total Shareholders' Equity   233,967     222,675  
Total Liabilities and Shareholders' Equity $ 772,826   $ 785,074  
 
 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
                         
Three Months Ended Six Months Ended
% % % %
% June 29, June 30, of Net Sales of Net Sales % June 29, June 30, of Net Sales of Net Sales
Change 2013 2012 2013 2012 Change 2013 2012 2013 2012
Net Sales
DAS 9.2% $ 83,992 $ 76,890 43.9 % 41.6 % 3.7% $ 156,697 $ 151,177 42.7 % 41.0 %
DLT (0.3)%   107,480     107,815   56.1 % 58.4 % (3.3)%   210,690     217,871   57.3 % 59.0 %
Total Net Sales 3.7% $ 191,472   $ 184,705   100.0 % 100.0 % (0.5)% $ 367,387   $ 369,048   100.0 % 100.0 %
 
Segment Operating Income
DAS $ 9,502 $ 7,574 11.3 % 9.9 % $ 16,133 $ 14,165 10.3 % 9.4 %
DLT (2)   11,242     10,486   10.5 % 9.7 %   19,176     18,788   9.1 % 8.6 %
20,744 18,060 35,309 32,953
Corporate General and
Administrative Expenses (1) (2) (3)   (5,701 )   (4,048 ) (3.0 )% (2.2 )%   (9,964 )   (7,082 ) (2.7 )% (1.9 )%
Total Operating Income $ 15,043   $ 14,012   7.9 % 7.6 % $ 25,345   $ 25,871   6.9 % 7.0 %
 
EBITDA (1)
DAS
Operating Income $ 9,502 $ 7,574 $ 16,133 $ 14,165
Depreciation and Amortization   2,438     2,241     4,765     4,297  
11,940 9,815 14.2 % 12.8 % 20,898 18,462 13.3 % 12.2 %
DLT
Operating Income 11,242 10,486 19,176 18,788
Depreciation and Amortization   4,660     4,732     9,323     9,429  
15,902 15,218 14.8 % 14.1 % 28,499 28,217 13.5 % 13.0 %
Corporate General and
Administrative Expenses
Operating Loss (5,701 ) (4,048 ) (9,964 ) (7,082 )
Depreciation and Amortization   42     30     85     81  
  (5,659 )   (4,018 )   (9,879 )   (7,001 )
EBITDA $ 22,183   $ 21,015   $ 39,518   $ 39,678  
 
Adjusted EBITDA
Merger-related expenses (2) $ -   $ 328   $ -   $ 695  
Adjusted EBITDA $ 22,183   $ 21,343   11.6 % 11.6 % $ 39,518   $ 40,373   10.8 % 10.9 %
 
Capital Expenditures
DAS $ 1,495 $ 1,829 $ 3,049 $ 4,286
DLT 1,128 2,012 2,180 4,449
Corporate Administration   18     5     24     28  
Total Capital Expenditures $ 2,641   $ 3,846   $ 5,253   $ 8,763  
   

(1)

  Includes costs not allocated to either the DLT or DAS operating segments.

(2)

The three- and six-month periods of 2012 include merger-related transaction costs of $0.1 million and $0.3 million, respectively, in Corporate General and Administrative Expenses and $0.2 million and $0.4 million, respectively, in DLT resulting from a change in control provision for certain key executives and employees arising in connection with the acquisition of LaBarge Inc. in June 2011.

(3)

The three- and six-month periods of 2013 include $0.9 million and $1.1 million, respectively, of workers' compensation insurance expenses included in gross profit and not allocated to the operating segments. The three- and six-month periods of 2012 include $0.4 million and $0.6 million, respectively, of workers' compensation insurance expenses included in gross profit and not allocated to the operating segments.

Source: Ducommun Incorporated

Ducommun Incorporated
Joseph P. Bellino
Vice President, Treasurer and Chief Financial Officer
(310) 513-7211
or
Chris Witty
Investor Relations
(646) 438-9385
cwitty@darrowir.com

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