Standex International Corp (SXI) (Q3 2024) Earnings Call Transcript Highlights: Navigating ...
Total Revenue: Decreased by 3.8% year-on-year to $177.3 million.
Adjusted Operating Margin: Increased by 20 basis points year-on-year to 15.4%.
Adjusted Earnings Per Share (EPS): Grew 6.1% year-on-year to $1.75.
Net Cash from Operating Activities: Was $24.4 million in the fiscal third quarter.
Free Cash Flow: Record $19.3 million for the fiscal third quarter.
Capital Expenditures: Were $5.2 million, down from $5.6 million a year ago.
Organic Revenue Decline: Reported at 5.7%.
Adjusted Gross Margin: Nearly 40%, consistent with previous high performance.
Annualized Return on Invested Capital (ROIC): Over 12%.
Long-term Financial Targets by Fiscal Year 2028: Include over $1 billion in sales, adjusted operating margin greater than 19%, ROIC over 15%, and free cash flow conversion approximately 100% of GAAP net income.
Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Standex International Corp (NYSE:SXI) reported strong margin performance, achieving an adjusted gross margin of nearly 40%.
Record fiscal third quarter free cash flow of $19.3 million was achieved, maintaining strong year-to-date performance.
Sales into fast growth end markets grew by 9% year-on-year, contributing to a long-term target of $200 million annual sales by fiscal year 2028.
Recent acquisitions, such as Sanyu Switch Company, expanded product offerings and contributed positively to financial results.
Standex International Corp (NYSE:SXI) demonstrated resilience and adaptability in operating improvements despite challenging macro conditions.
Negative Points
Organic revenue declined by 5.7% due to market softness, particularly in appliances and general industrial end markets in China and Europe.
The electronics segment faced continued challenges with a 9.3% organic decline and softness in key markets like Europe and Asia.
A one-time stock compensation charge related to the CEO's 10th anniversary impacted adjusted operating margin by approximately 70 basis points.
Foreign exchange negatively impacted revenue, with a 0.9% effect on the consolidated basis.
The Specialty Solutions segment experienced a significant revenue decrease of 27.1% year-on-year, primarily due to the Procon divestiture and normalization in the display merchandising business.
Q & A Highlights
Q: Can you remind us what percentage of total electronics sales are in Europe and Asia? A: David Dunbar, President and CEO of Standex International, stated that electronics sales are roughly divided equally among the three regions: North America, Europe, and Asia, with each accounting for about one-third.
Q: What are the challenges in the semiconductor sector within North America? A: David Dunbar explained that the challenges are primarily faced by customers of Standex's magnetics business in North America, who sell products to semiconductor equipment manufacturers. These manufacturers then export globally. There is an expectation of a ramp-up in orders by the end of the year, especially for installations in North America following investments in chip production.
Q: How long has it been since reed switches showed a positive inflection in sales? A: David Dunbar noted that reed switch sales began to decline in Q2 2022 and only in the last two quarters have they started to show signs of firming up.
Q: Which segments are expected to drive the biggest increase in margins over the next few years? A: Ademir Sarcevic, VP, CFO, and Treasurer, emphasized that all segments have opportunities to expand margins. Specifically, he highlighted the electronics business, where they see potential to increase the operating margin to 25%, up from just over 20%.
Q: What is the lead time for reed switch orders versus delivery? A: David Dunbar mentioned that the lead time is about a month, with orders typically going through distribution. Larger distributors may have block orders or commitments for the year, calling off orders as needed.
Q: Can you discuss the cycle for new product development and its impact on revenue? A: David Dunbar described the cycle as taking three to five years from the beginning of new product development to significant sales. This includes a year to develop the product and another one to two years working with OEMs to incorporate it into their designs. Once OEMs launch their products, sales typically ramp up for two to three years before reaching maximum volume.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
