Standex International (SXI) Tops Q3 EPS by 6c, Revenues Beat
Standex International (NYSE: SXI) reported Q3 EPS of $0.96, $0.06 better than the analyst estimate of $0.90. Revenue for the quarter came in at $155.5 million versus the consensus estimate of $153.23 million.
"I'm pleased with how we navigated the unprecedented environment and positioned the Company to enter an uncertain period in a position of strength. In response to COVID-19 related business challenges, we took immediate and effective actions in the quarter to support a healthy and safe operating environment for our employees. We launched a company-wide business continuity effort to address the impact of the COVID-19 pandemic. Our experience in China, where some of our plants were closed for a portion of the quarter and are now fully operational, provided us with an effective playbook. We have been deemed an essential business in most of our plants and have had limited shutdowns in our facilities. Our approach in executing globally has been highly collaborative and coordinated," commented David Dunbar, president and chief executive officer.
"Despite the very challenging environment, third quarter earnings improved year-over-year with increased operating margins in Hydraulics, Engineering Technologies and Food Service and we continued to generate solid free cash flow. Our Engraving segment performance was impacted by reduced capacity in some of our Asian plants due to the COVID-19 pandemic and reduced demand due to certain customer shut-downs in Europe. In addition to facing similar COVID-19 challenges, the Electronics segment was negatively impacted by material cost increases. However, on a sequential basis, revenue in the Electronics segment increased and operating margin declined only slightly.
"In the fiscal third quarter, we announced the divestiture of our Refrigerated Solutions business which was subsequently completed in April. Consolidated operating margin is approximately 200 basis points higher year-to-date in fiscal 2020 pro forma for the sale of RSG.
"Due to the economic impact of COVID-19 we have initiated expense reductions which will result in approximately $4 million in savings and $1.5 million in restructuring charges in fiscal fourth quarter 2020. In addition, we have reduced fiscal 2020 capital spending by approximately $10 million with the focus on maintenance, safety and our highest priority growth initiatives.
"Our strong balance sheet positions us well to invest selectively in our ongoing pipeline of organic and inorganic opportunities. We have approximately $220 million in available liquidity with net debt to adjusted EBITDA of under 1x. In addition, we generated free cash flow of $7.3 million in the third quarter with working capital turns improving ten basis points year-over-year to 4.7x. We also took actions to reduce our effective interest rate by 50 basis points or approximately $1 million annually.
"In closing, I want to thank our employees for their dedication and efforts as well as our customers and suppliers for their ongoing support. While this remains an extremely challenging environment, we are confident in our ability to successfully execute and progress on our strategic priorities further transforming Standex around larger and more profitable platforms with compelling customer value propositions," concluded Dunbar.
In the fiscal fourth quarter 2020, the Company expects that each of its segments will experience some sequential revenue decline as a result of the COVID-19 pandemic. Electronics, Engraving, and Engineering Technologies segments are expected to have slight to moderate sequential revenue declines in the fourth quarter. The Food Service segment is likely to have the most significant sequential decrease in revenue as restaurants around the United States remain closed or focused solely on take out sales. In addition, the Scientific business will be impacted by the current market shift toward consumable protective equipment due to COVID-19 with less near-term emphasis on capital equipment expenditures.
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