Kaman Reports 2021 Second Quarter Results

admin August 6, 2021

6 16 minutes read

Second Quarter Highlights:

Kaman revises full year outlook for 2021
Net sales from continuing operations of $182.4 million, up 2.5% over the prior year period; Organic sales up 5.4% over the prior year period
Gross profit from continuing operations of $61.9 million; Gross margin of 34.0%
Earnings from continuing operations of $11.9 million, up $12.0 million over the prior year period
Diluted earnings per share from continuing operations of $0.42; Adjusted diluted earnings per share from continuing operations* of $0.56, up 56% from prior year period
Adjusted EBITDA from continuing operations* of $26.9 million, or 14.8%, up 480 basis points from the first quarter of 2021 and 140 basis points from the second quarter of 2020
Year-to-date net cash used in operating activities of $14.7 million; Adjusted Free Cash Flow* of $2.3 million, a $91.3 million improvement over the prior year period
James G. Coogan appointed Senior Vice President and Chief Financial Officer

BLOOMFIELD, Conn.–(BUSINESS WIRE)–Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended July 2, 2021.


Table 1. Summary of Financial Results (unaudited)
In thousands except per share amounts	For the Three Months Ended
	July 2, 2021			July 3, 2020			Change
Net sales from continuing operations	$	182,394		$	177,890		$	4,504

Operating income from continuing operations:
Operating income (loss) from continuing operations	$	14,832		$	(2,770)		$	17,602
% of sales	8.1		%	(1.6)		%	9.7		%
Adjustments	$	2,930		$	16,382		$	(13,452)
Adjusted operating income from continuing operations*	$	17,762		$	13,612		$	4,150
% of sales	9.7		%	7.7		%	2.0		%

*Adjusted EBITDA from continuing operations:**
Earnings (loss) from continuing operations	$	11,856		$	(100)		$	11,956
Adjustments	15,088			24,017			(8,929)
Adjusted EBITDA from continuing operations*	$	26,944		$	23,917		$	3,027
% of sales	14.8		%	13.4		%	1.4		%

Earnings per share from continuing operations:
Diluted earnings per share from continuing operations	$	0.42		$	0.00		$	0.42
Adjustments	0.14			0.36			(0.22)
Adjusted diluted earnings per share from continuing operations*	$	0.56		$	0.36		$	0.20

Ian K. Walsh, Chairman, President and Chief Executive Officer, commented, “Our strong second quarter results speak to the broad diversity of our product offerings as we continue to see sequential improvements for our Medical and Industrial products and higher sales on our Defense products. Looking at the remainder of the year, we continue to see strong order rates for our Medical and Industrial products and we anticipate a meaningful recovery for our Commercial, Business and General Aviation products, providing us confidence in raising our full year outlook for Adjusted EBITDA* and Adjusted Diluted earnings per share*.”

“We recorded GAAP diluted earnings per share of $0.42 in the quarter. When adjusted*, we earned diluted earnings per share of $0.56, a 55.6% increase over the adjusted diluted earnings per share* of $0.36 earned in the second quarter of 2020. Strong gross margin performance in the quarter, up 210 basis points to 34.0%, coupled with the 40 basis point improvement in S,G&A as a percentage of sales of 21.2% led to improved profitability for the period. This improvement demonstrates the power of our newly deployed Operations Excellence.”

“Investments in product development continue to be a primary focus for us as we look to drive future organic growth. In the quarter, we made significant progress on our new purpose built medium-lift autonomous aerial vehicle with several successful test flights and early testing of its external cargo capability. These test flights demonstrate our proof of concept and the ability of our aircraft to perform in real world conditions. As we look to the remainder of the year, we anticipate we will make further progress on this aircraft, as well as our other R&D initiatives, while continuing to build on our portfolio of highly engineered products through strategic acquisitions.”

Management’s Commentary on Second Quarter Results:

Net sales for the quarter increased 2.5% when compared to the second quarter of 2020 and 6.3% sequentially. Organic sales*, which excludes sales from our former U.K. composite operations, increased 5.4% from the second quarter of 2020 and increased 7.3% from the first quarter of 2021. These improvements were the result of increased sales on our Medical and Industrial products, partially offset by lower sales volume of our Commercial, Business and General Aviation products.

Higher sales volume of our miniature bearings contributed to recoveries in our Medical and Industrial end markets. Coupled with the increase in sales of our medical and analytical devices, our Medical products delivered a 54.8% increase in sales over the second quarter of 2020 and 11.1% over the first quarter of 2021. Sales for our Industrial products increased 28.2% when compared to the second quarter of 2020 and 15.3% sequentially. We continue to see high order intake for these product offerings and expect strong performance through the remainder of the year.

Sales of our Defense products and Commercial, Business and General Aviation products decreased 1.4% and 14.1%, respectively, on a GAAP basis from the prior year period. Prior year sales of our Defense and Commercial, Business and General Aviation products included $3.6 million and $1.2 million, respectively, of sales from our former U.K. composites operations.

Organic sales* for our Defense products increased 2.3% when compared to the second quarter of 2020 and 16.2% when compared to the first quarter of 2021. The sequential increase was due in large part to the mix of sales on our Joint Programmable Fuze program offset by a modest decrease in our other defense offerings. During the quarter we delivered 8,200 fuzes, bringing our total year-to-date deliveries to 16,290 units, and we continue to expect to deliver 30,000 to 35,000 Joint Programmable Fuzes for the full year.

Organic sales* for our Commercial, Business and General Aviation products decreased 11.8% from the second quarter of 2020 and 13.0% from the first quarter of 2021. This sequential decrease was due to a 13.1% decrease in sales for our commercial aviation products and the absence of a K-MAX® aircraft sale in the quarter, partially offset by a 10.9% increase in sales for other general and business aviation products. Based on lead times with our customers, we anticipated the second quarter being the low point in demand for 2021 and, thus, we expect a meaningful ramp in sales for these products in the second half of the year.

Chief Financial Officer, James G. Coogan, commented, “In the quarter, we used $12.3 million of cash from operating activities which contributed to our Free Cash Flow* usage of $15.7 million. For the year-to-date period we have used $14.7 million in cash from operating activities; however, this included a $25.1 million payment for the acquired retention plans at Bal Seal. When adjusted for this payment, our Free Cash Flow* was $2.3 million in the first half of the year compared to a usage of $89.0 million in the first half of 2020, a significant improvement, as we benefited from improved collections on our JPF program and overall cash management across the company.”

“Adjusted EBITDA margin from continuing operations* increased 480 basis points sequentially to 14.8% in the quarter demonstrating our commitment to our new Operations Excellence model while remaining agile in this dynamic environment.”

“We are revising our full year outlook based on our strong performance in the first half of 2021 and the anticipated recovery in our Commercial, Business and General Aviation products in the second half of the year, while remaining mindful of the timing of the recovery in the commercial aerospace market. We are lowering our sales range to $715 million to $735 million, while increasing our expectations for Adjusted EBITDA* to $87.5 million to $97.5 million and Adjusted Diluted Earnings per share* to $1.70 to $1.95. These new ranges reflect lower expected sales on our lower margin structures programs and our continued focus on improved profitability. We continue to expect Adjusted Free Cash Flow of $30.1 million to $40.1 million for the full year.”

2021 Outlook

*(in millions)*	2020			2021 Outlook
	Actual			Low End			High End
Sales
Sales from continuing operations	$	784.5		$	715.0		$	735.0
Sales of Disposed Business⁽¹⁾	21.5			—			—
Organic Sales*	$	763.0		$	715.0		$	735.0

Adjusted EBITDA*
Earnings from continuing operations	$	(70.4)		$	41.8		$	48.8
Adjustments	173.3			45.7			48.7
Adjusted EBITDA* from continuing operations	$	102.9		$	87.5		$	97.5
Adjusted EBITDA margin from continuing operations*	13.1		%	12.2		%	13.3		%

Adjusted Diluted Earnings Per Share*
Diluted Earnings Per Share	$	(2.54)		$	1.50		$	1.75
Adjustments	4.65			0.20			0.20
Adjusted Diluted Earnings Per Share*	$	2.11		$	1.70		$	1.95

Cash Flow
Operating cash flow from continuing operations	$	16.5		$	25.0		$	35.0
Bal Seal Acquisition Retention Payment	—			25.1			25.1
Cash used for the purchase of property, plant and equipment	(17.8)			(20.0)			(20.0)
Adjusted Free Cash Flow*	$	(1.3)		$	30.1		$	40.1

Discretionary Pension Contribution	$	10.0		$	10.0		$	10.0

⁽¹⁾ In the first quarter of 2021 the Company sold its U.K Composites Business which did not qualify for reporting as a discontinued operation under GAAP. In 2021 we will record sales of $1.7 million for this business which was not contemplated as part of our outlook for the year.

⁽²⁾Operating cash flow from continuing operations include the $25.1 million payment to Bal Seal employees which represents purchase price paid to the former Bal Seal owners that was accounted for as compensation expense under ASC 805 in 2020.

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.

A conference call has been scheduled for tomorrow, August 6, 2021, at 8:30 AM ET. The call will be accessible by telephone within the U.S. at (844) 473-0975 and from outside the U.S. at (562) 350-0826 (using the Conference I.D.: 1672665) or via the Internet at www.kaman.com. Please go to the website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference I.D.: 1672665.

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 K-MAX® manned and unmanned medium-to-heavy lift helicopters.

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) identified by an asterisk (*) 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:

Organic Sales – Organic Sales is defined as “Net Sales” less sales derived from acquisitions completed or businesses disposed of that did not qualify for accounting as a discontinued operation during the preceding twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term “Organic Sales” may be interpreted differently by other companies and under different circumstances. No other adjustments were made during the three-month and six-month fiscal periods ended July 2, 2021 and July 3, 2020, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, “Net Sales”.

Table 2. Organic Sales from continuing operations (in thousands) (unaudited)
	For the Three Months Ended					For the Six Months Ended
	July 2, 2021			July 3, 2020		July 2, 2021			July 3, 2020
Net sales	$	182,394		$	177,890	$	354,010		$	385,212
Acquisition Sales	—			—		—			—
Sales of Disposed Business	—			4,812		1,704			13,298
Organic Sales	$	182,394		$	173,078	$	352,306		$	371,914
$ Change	9,316					(19,608)
% Change	5.4		%			(5.3)		%

Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations – Adjusted Net Sales from continuing operations is defined as net sales from continuing operations, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income from continuing operations is defined as operating income from continuing operations, less items that are not indicative of the operating performance of the Company for the period presented. These items are included in the reconciliation below. Management uses Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations to evaluate performance period over period, to analyze underlying trends and to assess our performance relative to our competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance. The following table illustrates the calculation of Adjusted Operating Income from continuing operations to the Consolidated Financial Statements included in the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 5, 2021.

Table 3. Adjusted Net Sales and Adjusted Operating Income from Continuing Operations
(In thousands) (unaudited)
	For the Three Months Ended						For the Six Months Ended
	July 2, 2021			July 3, 2020			July 2, 2021			July 3, 2020
CONSOLIDATED OPERATING INCOME:
Net Sales from continuing operations	$	182,394		$	177,890		$	354,010		$	385,212
GAAP – Operating income (loss) from continuing operations	$	14,832		$	(2,770)		$	20,445		$	(7,192)
% of GAAP net sales	8.1		%	(1.6)		%	5.8		%	(1.9)		%

Adjustments
Restructuring and severance costs	1,516			4,484			2,868			6,279
Costs associated with corporate development activities	415			679			415			2,466
Bal Seal acquisition costs	—			(36)			—			8,447
Cost of acquired Bal Seal retention plans	—			5,704			—			11,407
Inventory step-up associated with Bal Seal acquisition	—			1,178			—			2,355
Costs from transition services agreement	999			4,373			1,704			8,513
Reversal of employee tax-related matters in foreign operations	—			—			—			(1,211)
Reversal of environmental accrual at GRW	—			—			—			(264)
Loss (gain) on sale business	—			—			234			(493)
Total adjustments	$	2,930		$	16,382		$	5,221		$	37,499

Adjusted Operating Income	$	17,762		$	13,612		$	25,666		$	30,307
% of GAAP net sales	9.7		%	7.7		%	7.3		%	7.9		%

Adjusted EBITDA from continuing operations – Adjusted EBITDA from continuing operations is defined as earnings from continuing operations 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 from continuing operations differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items that are not indicative of the operating performance of the Company for the periods presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Adjusted EBITDA from continuing operations. Adjusted EBITDA from continuing operations also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted EBITDA from continuing operations provides 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 it provides 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 from continuing operations is not presented as an alternative measure of operating performance, as determined in accordance with GAAP. No other adjustments were made during the three-month and six-month fiscal periods ended July 2, 2021 and July 3, 2020. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures:

Table 4. Adjusted EBITDA from continuing operations (in thousands) (unaudited)
	For the Three Months Ended						For the Six Months Ended
	July 2, 2021			July 3, 2020			July 2, 2021			July 3, 2020
Adjusted EBITDA from continuing operations
Consolidated Results
Sales from continuing operations	$	182,394		$	177,890		$	354,010		$	385,212

Earnings (loss) from continuing operations, net of tax	11,856			(100)			19,840			(507)

Interest expense, net	4,335			5,808			8,586			9,055
Income tax expense (benefit)	5,502			(1,258)			5,709			(1,701)
Non-service pension and post retirement benefit income	(6,577)			(4,062)			(13,220)			(8,125)
Other expense, net	158			(108)			447			110
Depreciation and amortization	9,182			10,305			18,391			19,814
Other Adjustments:
Restructuring and severance costs	1,516			4,484			2,868			6,279
Cost associated with corporate development activities	415			679			415			2,466
Bal Seal acquisition costs	—			(36)			—			8,447
Cost of acquired Bal Seal retention plans	—			5,704			—			11,407
Inventory step-up associated with Bal Seal acquisition	—			1,178			—			2,355
Costs from transition services agreement	999			4,373			1,704			8,513
Income from transition services agreement	(442)			(3,050)			(917)			(6,024)
Reversal of employee tax-related matters in foreign operations	—			—			—			(1,211)
Reversal of environmental accrual at GRW	—			—			—			(264)
Loss (gain) on sale of business	—			—			234			(493)
Adjustments	$	15,088		$	24,017		$	24,217		$	50,628

Adjusted EBITDA from continuing operations	$	26,944		$	23,917		$	44,057		$	50,121
Adjusted EBITDA margin	14.8		%	13.4		%	12.4		%	13.0		%

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations – Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations”, less items that are not indicative of the operating performance of the business for the periods presented. These items are included in the reconciliation below. Management uses Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations to evaluate performance period over period, to analyze the underlying trends in our business and to assess its performance relative to its competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance.

The following table illustrates the calculation of Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations using “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations” from the “Consolidated Statements of Operations” included in the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 5, 2021.

Table 5. Adjusted Earnings from continuing operations and Adjusted Diluted Earnings per Share from continuing operations
(In thousands except per share amounts) (unaudited)
	For the Three Months Ended				For the Six Months Ended
	July 2, 2021		July 3, 2020		July 2, 2021		July 3, 2020
Adjustments to Earnings from Continuing Operations
Restructuring and severance costs	$	1,516	$	4,484	$	2,868	$	6,279
Costs associated with corporate development activities	415		679		415		2,466
Bal Seal acquisition costs	—		(36)		—		8,447
Cost of acquired Bal Seal retention plans	—		5,704		—		11,407
Inventory step-up associated with Bal Seal acquisition	—		1,178		—		2,355
Costs from transition services agreement	999		4,373		1,704		8,513
Income from transition services agreement	(442)		(3,050)		(917)		(6,024)
Reversal of employee tax-related matters in foreign operations	—		—		—		(1,211)
Reversal of environmental accrual at GRW	—		—		—		(264)
Tax expense on sale of UK operations	1,799		—		287		—
Loss (gain) on sale of business	—		—		234		(493)
Adjustments, pre tax	$	4,287	$	13,332	$	4,591	$	31,475

Tax Effect of Adjustments to Earnings from Continuing Operations
Restructuring and severance costs	$	322	$	1,143	$	596	$	1,601
Costs associated with corporate development activities	88		173		86		629
Bal Seal acquisition costs	—		(9)		—		2,154
Cost of acquired Bal Seal retention plans	—		1,455		—		2,909
Inventory step-up associated with Bal Seal acquisition	—		300		—		601
Costs from transition services agreement	212		1,115		354		2,171
Income from transition services agreement	(94)		(778)		(191)		(1,536)
Employee tax-related matters in foreign operations	—		—		—		(309)
Reversal of environmental accrual at GRW	—		—		—		(67)
Tax expense on sale of UK operations	—		—		—		—
Loss (gain) on sale of business	—		—		—		(126)
Tax effect of Adjustments	$	528	$	3,399	$	845	$	8,027

Adjustments to Earnings from Continuing Operations, net of tax
GAAP Earnings (loss) from continuing operations, as reported	$	11,856	$	(100)	$	19,840	$	(507)
Restructuring and severance costs	1,194		3,341		2,272		4,678
Costs associated with corporate development activities	327		506		329		1,837
Bal Seal acquisition costs	—		(27)		—		6,293
Cost of acquired Bal Seal retention plans	—		4,249		—		8,498
Inventory step-up associated with Bal Seal acquisition	—		878		—		1,754
Costs from transition services agreement	787		3,258		1,350		6,342
Income from transition services agreement	(348)		(2,272)		(726)		(4,488)
Employee tax-related matters in foreign operations	—		—		—		(902)
Reversal of environmental accrual at GRW	—		—		—		(197)
Tax expense on sale of UK Operations	1,799		—		287		—
Loss (gain) on sale of business	—		—		234		(367)
Adjusted Earnings from continuing operations	$	15,615	$	9,833	$	23,586	$	22,941

Calculation of Adjusted Diluted Earnings per Share from Continuing Operations
GAAP diluted earnings (loss) per share from continuing operations	$	0.42	$	0.00	$	0.71	$	(0.02)
Restructuring and severance costs	0.04		0.12		0.08		0.17
Costs associated with corporate development activities	0.01		0.02		0.01		0.07
Bal Seal acquisition costs	—		—		—		0.23
Cost of accrued Bal Seal retention plans	—		0.15		—		0.30
Inventory step-up associated with Bal Seal acquisition	—		0.03		—		0.06
Costs from transition services agreement	0.03		0.12		0.05		0.23
Income from transition services agreement	(0.01)		(0.08)		(0.02)		(0.16)
Employee tax-related matters in foreign operations	—		—		—		(0.03)
Reversal of environmental accrual at GRW	—		—		—		(0.01)
Tax effect on sale of UK operations	0.07		—		0.01		—
Loss (gain) on sale of business	—		—		0.01		(0.01)
Adjustments to diluted earnings per share from continuing operations	$	0.14	$	0.36	$	0.14	$	0.85
Adjusted Diluted Earnings per Share from continuing operations	$	0.56	$	0.36	$	0.85	$	0.83
Diluted weighted average shares outstanding	27,913		27,659		27,890		27,734