Astronics (US:ATRO)2019-08-05 19:21Financial Data and Key Metrics Changes - Revenue for Q2 2019 was approximately $187 million, up 5% from the same quarter last year, but down sequentially from Q1 2019's $205 million [9][15] - Adjusted net income for Q2 was 3.4% of sales, down from 7.9% in Q1 2019, while year-to-date adjusted net income was 5.7%, double that of the previous year [9][10] - Tariff costs in Q2 amounted to $2.3 million, with year-to-date costs reaching $4 million [10][18] Business Line Data and Key Metrics Changes - Aerospace segment sales increased by $8.1 million or 4.9% compared to Q2 2018, driven by higher OEM build rates and airline retrofit programs [15] - Electrical Power & Motion sales were strong, up $16.4 million or 24%, while Avionics sales decreased by $10.6 million or 29% [15][16] - Test segment sales, excluding the divested semiconductor test business, were up 14% to $12.6 million compared to Q2 2018 [16] Market Data and Key Metrics Changes - Bookings for the quarter were $170 million, a relatively low level compared to previous years, influenced by the grounding of the Boeing 737 MAX [13] - The cumulative drop in production estimates for the 737 MAX is projected to result in a $10 million revenue drop over the year [12] Company Strategy and Development Direction - The company is adjusting its sales forecast for Aerospace to $680 million to $700 million for the year, reflecting a midpoint growth of about $15 million [24] - The Test segment's forecast has been raised to $60 million to $75 million, indicating substantial growth driven by the acquisition of Freedom Communication Technologies [25] - The company is focusing on M&A opportunities in both Aerospace and Test segments while managing restructuring efforts to improve operational efficiency [22][23] Management's Comments on Operating Environment and Future Outlook - Management noted strong tariff costs and restructuring expenses impacting margins, with expectations of continued pressure from tariffs throughout the year [10][18] - The company expressed optimism about resolving issues with two of its three struggling businesses, while AeroSat faces significant challenges due to satellite failures [11][20] - Management highlighted the evolving situation with the 737 MAX and its impact on the airline industry, which has led to delays in aircraft upgrades [13][48] Other Important Information - The company signed a deal to sell its noncore airfield lighting business, expecting a noncash charge of about $1.5 million in Q3 [22] - The balance sheet remains strong, with $122 million in long-term debt, translating to a leverage ratio of about 1.2x EBITDA [22] Q&A Session Summary Question: Update on operating income loss from struggling businesses - Management indicated that AeroSat is primarily responsible for the operating loss, with expectations of moving the other two businesses towards breakeven [28][29] Question: Core Aerospace margin concerns - Management attributed margin declines to volume and unfavorable sales mix, with expectations of margins in the 15% to 16% range going forward [32][34] Question: Restructuring benefits timeline - Immediate benefits from restructuring are expected in Q3, with most adjustments made in Q2 [41][42] Question: AeroSat satellite capacity issues - Management expressed hope for resolution by the end of the year but acknowledged the uncertainty surrounding satellite capacity [64][66] Question: Impact of Delta's free Wi-Fi initiative - Management noted that if Delta's initiative succeeds, it could significantly increase demand for connectivity systems, prompting upgrades across the industry [70][72]