Park Aerospace Corp (PKE) 2016 Q1 法說會逐字稿

Good morning, my name is Kat and I will be your conference operator today. At this time I would like to welcome everyone to the Park Electrochemical Corp. first-quarter FY16 earnings release conference call.

(Operator Instructions)

Thank you. At this time I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore you may begin your conference.

Thank you operator. This is Brian Shore, good morning everybody, welcome to our first quarter conference call. I have with me as usual, Matt Farabaugh, our CFO. We will begin with some introductory remarks and we will go to questions, so Matt why don't we get started with the financial commentary.

Thanks, Brian. Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations.

We have set forth in our most recent annual report on Form 10-K for fiscal year ended March 1, 2015 various factors that could affect future results. Those factors are found in item 1A and after item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors.

I'd like to briefly review some of the items in our first quarter ended March 31, 2015 P&L which are not specifically addressed in the earnings release. During FY16 first quarter, North American sales were 48% of total sales, European sales were 6% of total sales and Asian sales were 46% of total sales. Compared to 44%, 6%, and 50%, respectively, for the first quarter of FY15 and 48%, 5%, and 47%, respectively, for the FY15 year fourth quarter.

Sales of Park's high performance non-FR-4 electronics materials, were 93% of total electronics material sales in the first quarter of the FY16. 93% in the first quarter of FY15, and 91% in FY15 fourth quarter. Park's electronic sales were $28.1 million or 74% of total sales in the first quarter of FY16, compared to $39.8 million or 82% of total sales in the first quarter of FY15. And $27.5 million or 76% of total sales in the FY15 fourth quarter.

Park's aerospace sales were $9.7 million or 26% of total sales in the first quarter of FY16, compared to $9.0 million or 18% of total sales in the first quarter of FY15. And $8.8 million or 24% of total sales in FY15 fourth quarter. Investment income, net of interest expense for the first quarter of FY16 was negative $104,000, compared to negative $206,000 in the first quarter of FY15, and negative $132,000 in the FY15 fourth quarter.

Depreciation and amortization expense for the first quarter of FY16 was $837,000 compared to $898,000 in the FY15 first quarter and $906,000 in the FY15 fourth quarter. Capital expenditures for the first quarter of FY16 were $176,000 compared to $53,000 in the FY15 first quarter. And $50,000 in the FY15 fourth quarter.

The effective tax rate before special items was 10.9% in the first quarter of FY16 compared to 17.4% in FY15 first quarter and 10.5% in the FY15 fourth quarter. Gross profit in the first year, first quarter of the FY16 was $11.4 million or 30.0% of sales, compared to $16.9 million or 34.7% of sales for the first quarter of the prior year. And $11.3 million or 31.1% of sales for the prior fiscal year fourth quarter.

Before special items, selling, general and administrative expenses for the first quarter FY16 were $5.8 million or 15.3% of sales. Compared to $6.3 million or 13.0% of sales for the first quarter of the prior year and $5.6 million or 15.4% of sales for the prior fiscal year fourth quarter. Before special items, earnings before income taxes for the first quarter FY16 were $5.5 million or 14.4% of sales, compared to $10.4 million or 21.3% of sales for the first quarter of the prior year. And $5.6 million or 15.3% of sales for the prior year, prior fiscal year fourth quarter.

Before special items, net earnings for the first quarter of FY16 were $4.9 million or 12.9% of sales compared to $8.6 million or 17.6% of sales for the first quarter of the prior year. And $5.0 million or 13.7% of sales for the prior fiscal year fourth quarter.

For the first quarter of FY16 top five customers were GE, Sanmina, TTM, Viasystems and Wus, in alphabetical order. The top five customers totaled approximately 34% of total sales during the 2016 first quarter, our top 10 customers totaled approximately 53% in total sales, and the top 20 customers totaled approximately 69% of total sales. We wanted to note that on May 31, 2015, TTM announced the completion of its acquisition of Viasystems, which combines two of our top five customers for the first quarter of 2016.

Thank you, Matt. This is Brian again. I want to remind you that a transcript of Matt's comments are posted on our Company website already. This should be a fairly, at least commentary from us, should be fairly brief. Our last call was only about seven weeks ago, I believe our fourth-quarter call. And there really isn't too much new to report in terms of news and events since that time.

I guess just a couple of things I will touch on. Not really very newsworthy even, just maybe some reminders. When we declared our last regular dividend I think we included a comment that we've paid $331 million of cash dividends since FY05, totaling about $16.10 a share. We also announced in our last quarter call that we had bought back about $12 million of Park stock, about 560 some odd thousand shares at $21.38 a share and that was, our last call was on April 29 and we have not purchased any stock since then. So those numbers still stand.

Why were the earnings not better in Q1 as compared to Q4 since the top line was up little bit? I think the top line was, shouldn't be a surprise to anybody, because in our fourth quarter I think we had maybe about eight or nine weeks in the books we gave you our run rate for the first quarter; in our fourth-quarter call I'm saying it was pretty much what I think we had predicted. But nevertheless a little higher than the top line, a little bit higher than the fourth quarter.

The reason that the bottom line isn't any better is that as we explained in our fourth-quarter call, the fourth quarter had a benefit which is somewhat meaningful of the shutdown credits. We had these planned shutdowns, holidays where we in the fourth quarter there's a lot of holidays for Christmas, New Year's and also the lunar new year in Asia. And the P&L is benefited by those credits which are accrued during the year. In the first quarter there really are, I think maybe one holiday which is Memorial Day, one day; not significant by comparison. So that would - - there's a lot of other stuff which will cancel each other out. Noise level stuff, but that's the big difference in the bottom line. Why we didn't see a little bit of improvement based upon the additional revenue.

Just in terms of some kind of news updates which not really big news, but I think the last quarter call we announced that the A320 neo with the LEAP engine was taxing around in Toulouse, well it's had it's first flight and it was a success. In the forecast I think we commented on it last time, it's really significant but you could check that out for yourself. Also, I don't know if you noticed this, but the Paris air show I guess Boeing announced that they actually did book an order for some 747-8 aircraft for cargo, so it's a meaningful order and that helps us a little bit. The 747's a legacy airplanes, I don't think anybody's expecting a big run-up or a big spike in the sales of that aircraft. But when a significant order is placed, that of course helps us a little bit.

And over to electronics. I would say our new products continue to gain traction. I think Meteorwave is actually starting to take hold. We've talked about I guess 20 more recently, but I think Meteorwave is starting to take hold which we're happy about. We now have four different versions of our Meteorwave product line: 1000, 2000, 3000, 4000, that's pretty simple.

And I think that's really about it in terms of introductory remarks. Like I said, not too much news since our last quarter, our fourth-quarter conference call. So operator why don't we go right to the questions at this time.

(Operator Instructions)

Sean Hannan, Needham and Company.

Hello, [David Gould] on for Sean Hannan. I just want to check on the run rate of revenue so far this quarter, anything you're seeing so far?

Well, you know what, we only have two weeks in the books. So as you asked and so we'll respond, as I mentioned during our fourth-quarter call, I think we had either 8 or 9 weeks out of the 13 weeks on the book, so that was a lot more meaningful. Even for normal quarters we often have 3 to 4 weeks in the books, we've got 2 in the books, so I'll tell you that the run rate for the first 2 weeks in revenues is running a little bit above the average for the first quarter.

In the second quarter we're talking about of course. But I just have to really caution you it's two weeks and I'll be real careful about drawing too many conclusions about two weeks of revenues. We don't have our revenue for last week and we won't have those until tonight, so unfortunately we only have the first two weeks of the second quarter on the books.

Okay fair enough. I know you talked about the bottom line impact from the shutdown credits, was that specifically the base impact to gross margin as well?

Yes.

Okay. Switching gears to the electronics side. There's some comments out of the supply chain, noting some infrastructure slowdown in China. Wondering if you guys saw any of that or if the infrastructure growth driver is still largely intact for you?

We haven't seen anything different up or down in the last couple of months. In terms of Internet and telecom infrastructure. I don't know. I think a lot of you people are probably more plugged in than we are, but we hear that people say that maybe toward the end of the year there'll be some movement upward in the infrastructure markets, industry, but we haven't seen any falloff at this point if that's what you're asking.

Yes. And just to confirm, we shouldn't expect any near-term impact from the TTMI, Viasystems acquisition? (multiple speakers)

I don't know about near-term. Obviously it's a big thing in the industry and my comment is that we are close with both of those companies. I would say probably even closer with TTM. And you know I think we're relatively optimistic about what they're doing and we feel good about it and so I guess I'll leave the comments at that. It's still very, very early in the process of course.

Okay. Now the aerospace side, you talked about kind of three or four additional OEMs are working on qualifying, I know those are long processes but any update there?

As you said, they're real long processes and as we spoke I think about seven weeks ago, there really isn't any update. We've mentioned this so many times in the last few years but in aerospace I think the key thing is the big ones, especially our longer-term and require some patience. So I think the news is going to be news to be positive and nothing negative has occurred but we're in a process and that process will take a long time.

Okay. And then just back to the gross margin, should we be modeling up for the next quarter in your opinion, I know it's still early, but kind of given the lack of shutdown credits, revenue that should improve through the year, what's the trajectory there?

In terms of shutdown credits it's probably neutral from second quarter compared to first quarter. The big quarter is the fourth quarter, the shutdown credits, because you got Christmas, you've got New Year's, you've got lunar new year's is a big deal as well, so you've got a lot of holidays in the fourth quarter. First quarter, second-quarter not much of an impact in terms of shutdown credits, so the gross margin in the second quarter's going to be largely driven by the top line. So everything else being equal, it's really going to be a function of that. So if the top line is up, and I would expect the gross margins to be pushed up and if not, then I would expect they probably won't be driven up pretty much.

Okay. Great. That's all for me. Thanks.

Thank you.

Morris Ajzenman, Griffin Securities.

Question on aerospace, really the only question I guess nothing's really changed that much since we spoke last which was really a month or so ago. $9.7 million revenues, it was up year-over-year from $9 million I think sequentially, previous quarter was $8.8 million. Should we read anything into that improvement, is it just the timing of sales and how long will it take until a lot of, some of the awards you received the past year, would that number start stepping up more materially on a quarterly basis?

Okay. I wouldn't read too much into it. These things are going to move up or down a little bit just based upon timing of orders and things like that. There is a -- I would say pretty significant effort at Park to drive aerospace revenues, but really focused on smaller accounts, smaller opportunities. The bigger ones we just have to be patient and work with these bigger opportunities.

Now the one thing we can talk about though, is GE. That's different. Because that's not an opportunity, I mean we're on the programs and the advantage of the GE situation is that there are forecasts and those are forecasts that are being put out by Boeing and Airbus.

So that gives us a lot more insight into where we see the GE revenues because these are GE engines, GE programs and Park's on those programs as well. So that gives us the ability to say like we've said recently that in calendar 2017 we think that we're going to start to see those revenues really move up aggressively, but if you look at the forecasts for these airplanes, you'll be able to kind of see the patterns there as well. So that's more of a known quantity in terms of aerospace growth.

And the rest of it is based upon those two factors, those are the other large accounts that we're working on, what we really can't predict will happen yet. And the second part of it is our ability to get more business and more penetration with smaller accounts and smaller programs which the advantage of that is that it's more of a near-term opportunity. The disadvantage, I don't know if you want to look at it like that, but the disadvantage is that usually those are not, each individual item is not a very large item. Obviously you put them all together and it could be meaningful.

Thank you. Just one follow-up to that. You've spoken about in the past on looking at some acquisitions or alliances. Anything you can add to those at this point time?

On the M&A front? Yes, we've been in touch with a couple of companies and the discussions are preliminary, let's say it that way. We've mentioned we are interested and I did that to a couple of companies, one doesn't seem to be very interested and one is -- just in preliminary discussions with them. So that's really all I can say at this point about acquisitions.

Thank you.

(Operator Instructions)

Judith Cooper, Private Investor.

This is Leonard Cooper. I have a lot of questions. One, I was looking at the prior annual report and not the one that came in the recent weeks, but the year prior to that. Automotive radar was an item that got special attention. Is anything going on in that, that we're significantly involved in?

We haven't been very successful, we had a product that was geared toward automotive radar. We haven't given up, I don't want to give you that impression all, but I would've liked to have seen more penetration by now. We're still working on it, there's one OEM in particular that we're working with and we're still hopeful to get some significant traction there. But so far that has not been a success area for Park.

How about the private plane sales and inventories. I know originally when we went to Kansas I think it was the idea that private planes was going to multiply as an industry.

Yes. Business jets. We went to Kansas, we set up there because at that point Wichita was considered to be the -- what is the aerospace capital of the world or something like that. I don't know if people are still use that term, but Wichita is not what used to be. I mean it's gone through a lot of changes.

And our focus, we still work with general aviation let's call it, both business jets and even smaller airplanes; you know it's an important market for us. But it's probably not going to be the significant driver that we thought it was going to be. After the financial crisis in 2008, that industry was hit pretty hard. And it never really fully recovered as far as I can tell.

I think if you talk to people in the industry, which of course we do, they'll say things are getting a little bit better, I don't think that's -- the strategy for Park has changed and it really just needed to change because where we thought that would be the big driver for Park, I don't think it's going to be the big driver any more. Not to say we're not on some GA programs because we are in some GA programs, business jet programs, we're happy to be on them. But that in itself isn't enough and probably won't be the big driver for Park in aerospace.

Okay. With regard to GE, there was talk of redundant facilities and it would require big investments and so on and so forth. Is there anything going on along those lines?

Yes. So you know, GE is a larger company; we know that. And things tend to move a little more slowly. But yes. That is a very open topic and we still expect that that will happen and the ball's really not in our court at this point. We're waiting for a couple of things from GE.

But they've made it clear to us that they need to see a redundant facility and in order to support their business and their customers. So that really hasn't changed, it's just a matter of it's taking a little bit longer than we expected to kind of organize the whole thing and come up with a plan we both agree on and go forward. But the only thing that's changed I guess there is just taking a little longer than we expected, but that's still very much on the table and I think still very much necessary from Park's perspective

Okay. I'm just scribbling here. Last item. My wife worked for a large corporation so this matter came up. I'm not asking for details, but does Park have a succession plan and a hit by a bus plan?

It depends who you're talking about in terms of being hit by a bus. But it's something as you say all corporations deal with and we certainly deal with it as well. And there are good people at Park other than me that have a lot of responsibilities here. So I think I'll leave it at that. But it's -- Park is not unusual in that respect in a sense that yes we, it's something that is very much in our mind and something that the board is very aware of. And discussed openly.

Thank you very much.

You bet.

(Operator Instructions)

At this time I'm showing no further questions. I like to turn the call back over to Brian Shore for any closing remarks.

Thank you, operator. Thank you all for listening. Not surprising, this might be a record in terms of our shortest call. We just didn't really have a lot to cover since our last quarter call. But I'm actually traveling, you can reach me through Martina Mattson in the office today, so if you have any follow-up calls on today's earnings or our conference call, please give us a call. Okay thanks and I'll tell you what, have a great summer and we'll talk to you soon. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, you may all disconnect. Everyone have a great day.