Standex(SXI) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue decreased approximately 5% year-on-year to $178.4 million, reflecting an organic revenue decline of 7.4% [29] - Adjusted operating margin increased 90 basis points year-on-year to a record 16.1%, marking the 11th consecutive quarter of record adjusted operating margin [30] - Adjusted earnings per share were$ 1.78, a 2.3% growth year-on-year compared to $1.74 [31] - Free cash flow was$ 19.5 million in Q2 2024, down from $24 million a year ago, but year-to-date free cash flow of$ 31.6 million represents a record first half cash generation [32] Business Line Data and Key Metrics Changes - Electronics segment revenue increased 9.5% year-on-year to $79.4 million, driven by a 14.7% benefit from the Minntronix acquisition [33] - Engraving revenue increased 8.4% to$ 40.8 million, with an operating margin of 21.8%, up 490 basis points year-on-year [36] - Engineering technologies revenue decreased 17.8% year-on-year to $19.9 million due to project timing, with an operating margin of 17.1%, up 160 basis points [39][42] - Specialty solutions segment revenue decreased 35.5% year-on-year to$ 22 million, primarily due to divestiture and organic decline in the hydraulics business [43] Market Data and Key Metrics Changes - Sales into fast growth end markets grew 14% year-on-year to $21 million, with a long-term target of$ 200 million in sales by fiscal year 2028 [9] - The company expects market conditions to improve in fiscal Q4 2024, particularly in the electronics and specialty segments [16] Company Strategy and Development Direction - The company aims for high single-digit organic growth to exceed $1 billion in sales by fiscal year 2028, with adjusted operating margin greater than 19% and return on invested capital greater than 15% [17][41] - The focus remains on operational improvements, new product development, and penetrating fast-growing markets [27][49] Management's Comments on Operating Environment and Future Outlook - Management anticipates a recovery in market conditions in fiscal Q4 2024, with expectations for higher sales and improved operating margins [16] - The company is confident in its ability to increase market share in fast growth end markets such as industrial automation and renewable energy [34] Other Important Information - Standex ended Q2 2024 with$ 347 million of available liquidity and net debt of $6.2 million, down from$ 21.7 million at the end of the previous quarter [45] - The company repurchased approximately 33,500 shares for $4.5 million and declared a quarterly cash dividend of$ 0.30 per share, a 7.1% increase year-on-year [46] Q&A Session Summary Question: What indicators are being monitored for demand recovery in electronics? - Management noted that orders on bare switches through distribution channels are a leading indicator, with recent trends showing an uptick in orders, particularly in the appliance market [54][55] Question: What is the expected contribution from the Sanyu acquisition? - The acquisition is expected to close shortly, with guidance slightly assuming no Sanyu revenue, and moderately assuming a month of revenue contribution [73] Question: How does the company plan to achieve the 19% operating margin goal by 2028? - Management indicated that fast growth markets will contribute significantly to sales, and a modest growth on the base business will help achieve the margin target [66][68] Question: What is the outlook for the EV sector? - The company has a strong presence in high-voltage EVs, with continued growth expected, particularly in the higher-end vehicles [69] Question: What is the impact of the Chinese New Year on engraving sales? - The slowdown in engraving sales is attributed to the seasonal impact of the Chinese New Year, which affects project timing [98]