Astronics Corp (NASDAQ: ATRO) reported Q4 EPS of $0.37, $0.01 better than the analyst estimate of $0.36. Revenue for the quarter came in at $202.92 million versus the consensus estimate of $195.09 million.

Peter J. Gundermann, President and Chief Executive Officer, commented, “We had a strong finish to 2018. Consolidated sales in the fourth quarter were up 18.4%, leading to 2018 full year sales of $803 million, a 28.6% increase over 2017. The increased volume helped to strengthen margins and deliver net income of $46.8 million in 2018, up from $19.7 million in 2017. We continue to make solid progress improving margins, especially in our Aerospace business.”

He continued, “We also had strong demand through the year, with solid fourth quarter bookings of $220 million, exceeding sales by 9%. Total bookings for the year were $837 million, beating sales by 4%. We entered 2019 with a record backlog of $403 million, excluding the semiconductor backlog that was sold in 2019, which sets us up well for another solid year.”

Outlook

Consolidated sales in 2019 are expected to be in the range of $760 million to $805 million. Excluding sales of the disposed semiconductor business from 2018 sales, the mid-point of the range represents consolidated organic growth of 8%. Approximately $710 million to $745 million is expected from the Aerospace segment, an increase at the mid-point of about 8% over 2018. Test Systems segment sales for 2019 are expected to be in the range of $50 million to $60 million, the mid-point representing an increase of 14% over Test Systems sales in 2018 after backing out the disposed semiconductor business.

On February 13, 2019, Astronics completed the sale of its semiconductor test business. The Company expects to record a pre-tax gain on the sale of approximately $80 million in the first quarter of 2019. The income tax expense relating to the gain is estimated to be $22 million.

Consolidated backlog at December 31, 2018 was $415.5 million. Excluding $12.2 million of backlog that was disposed of in the 2019 sale of the semiconductor business, backlog was $403.3 million, of which approximately $352.4 million is expected to ship in 2019.

The effective tax rate for 2019, excluding the impact of the gain on the sale of the semiconductor business, is expected to be approximately 18% to 22%.

Capital equipment spending in 2019 is expected to be in the range of $22.0 million to $28.0 million.

Mr. Gundermann commented, “We will be without our semiconductor test business in 2019, which we sold to Advantest on February 13, 2019. We have enjoyed our participation in the semi-test industry, but came to the conclusion that it would be difficult for us to expand its customer base meaningfully without extraordinary levels of investment. We feel the business is better off with Advantest, and we are pleased with the return we earned. We originally acquired the semiconductor business as part of a 2014 acquisition for $69 million. That acquisition paid back its purchase price in under two years, so we feel the return we have recognized is very good.

We believe we can deliver a very solid 2019. Our Test segment, without the semi-test business, is set up for a solid year of growth with its remaining A&D products, helped in part by our recently announced award on the New York City subway program. At the same time, we will need to adjust to the lower overall volume of our Test segment, so margins are expected to be modest to breakeven. Our Aerospace business, on the other hand, anticipates another year of solid sales growth and strengthening margins. As Aerospace will represent 90% of our volume, these results will largely determine our year.”

GUIDANCE:

Astronics Corp sees FY2019 revenue of $760-805 million, versus the consensus of $827.5 million.

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