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Kaman (KAMN) Lags Q2 Earnings & Sales, Revises '17 View

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Kaman Corporation (KAMN - Free Report) reported disappointing results for second-quarter 2017. Adjusted earnings came in at 48 cents per share, roughly 2.04% below the Zacks Consensus Estimate of 49 cents. Also, the bottom line lagged the year-ago quarter’s tally of 64 cents by 25%.

The lower-than-expected results were due to poor segmental performance and weak margin profile in the quarter.

Net sales declined 4.6% year over year to $449 million. Also, sales were below the Zacks Consensus Estimate of $474 million.

Segmental Revenues

Kaman reports net sales under two heads/segments. Segment results are briefly discussed below:

The Distribution segment generated sales of $278.7 million, decreasing 2.6% year over year. It represented 62.1% of the quarter’s net sales.

Revenues from the Aerospace segment fell 7.7% year over year to $170.3 million. It represented 37.9% of the quarter’s net sales.

Margins

Kaman’s cost of sales in the quarter decreased 3.9% year over year, representing 69.9% of net sales compared with 69.5% in the year-ago quarter. Gross margin declined 40 basis points (bps) year over year to 30.1%. Selling, general and administrative expenses, as a percentage of revenues, were 24% compared with 24.2% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $37.9 million, down 7.6% year over year. EBITDA margin was down 20 bps to 8.5%.
 
Balance Sheet & Cash Flow

Exiting the second quarter, Kaman had cash and cash equivalents of $27.8 million, up from $24.7 million at prior-quarter end. Long-term debt increased 33.8% sequentially to $414.8 million.

In the first half of 2017, Kaman used cash of $0.17 million for its operating activities versus $25.4 million generated in the year-ago period. Capital spending on purchase of property, plant & equipment totaled $15.2 million, marginally below $15.3 million in the year-ago period. Dividends paid totaled $10.3 million.

Outlook

For 2017, Kaman revised its sales projection for the Distribution segment from $1,100−$1,150 million to $1,100−$1,125 million. Operating margin is predicted to be within 5−5.3% range versus 4.9−5.3% expected earlier. For the Aerospace segment, the company reaffirmed its sales guidance at $730−$760 million and operating margin forecast at 16.5−17%.

Kaman’s interest expenses are estimated at approximately $19 million while corporate expenses are predicted to be $55 million. The tax rate is projected at 34.5%. Net cash from operating activities is expected to be $105−$135 million while capital expenditure will likely be $35 million. Free cash flow is projected in a range of $70−$100 million.

Zacks Rank & Key Picks

With a market capitalization of $1.2 billion, Kaman currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Altra Industrial Motion Corporation (AIMC - Free Report) , DXP Enterprises, Inc. (DXPE - Free Report) and Barnes Group Inc. (B - Free Report) . While Altra Industrial Motion sports a Zacks Rank #1(Strong Buy), both DXP Enterprises and Barnes Group carry a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 16.95% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

DXP Enterprises pulled off an average positive earnings surprise of 223.74% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Barnes Group delivered an average positive earnings surprise of 11.60% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.
 
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