Astronics Reports Strong Backlog Growth
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L Tuesday, aerospace supplier Astronics (NASDAQ: ATRO) reported higher revenues and earnings for the second quarter. Sales grew 17% year-over-year to $65 million, a few million shy of consensus expectations. Earnings increased 11% to $0.39, which was also less than the Street predicted. Gross margins grew 30 basis points to 26.2%; however, operating margins fell 110 basis points as a result of higher SG&A (up 30%). The firm revised its annual sales forecast upward for the second time this year to the range of $260 million to $275 million from the range of $250 million to $265 million. The firm’s backlog also grew to $114.2 million from $102 million at the end of the first quarter of 2012, as it registered a record quarter for bookings ($77.2 million).
These results were echoed earlier during earnings season by Boeing (NYSE: BA). Boeing’s commercial aerospace backlog remains strong at about 4,000 planes (nearly 7 times annual production) valued at $302 billion. We think this huge tally of unfulfilled orders provides the firm and its supply chain partners with tremendous visibility heading into any slowdown in the US and China and a prolonged recession in Europe. Further, another supply-chain name, EDAC Technologies (NASDAQ: EDAC), reported an absolutely enormous backlog. EDAC Tech’s backlog came in at $304.3 million at the end of the second quarter, which was a slight downtick sequentially, but still up from $168 million at the end of last year’s quarter. Importantly, CEO Pagano mentioned on the call that Pratt & Whitney, a division of United Technologies (NYSE: UTX), is looking at EDAC to be a preferred domestic supply chain partner for its geared turbofan for an LTA (long-term agreement) between “$50 million to several hundred million” dollars.
Astronics’ aerospace segment increased 20% to $62.4 million, while operating margins increased 20 basis points to 17.5%. Not surprisingly, commercial transportation sales accelerated to a pace of 20% and came in at $41.2 million during the quarter. As airlines replenish aging fleets, we think this segment will continue to benefit for years to come. Military sales also experienced robust growth thanks to the addition of Ballard, expanding 28% to $10.2 million during the period. Business Jet revenue increased as well, but only by 12% to $8.3 million.
On a product basis, sales of cabin electronics were particularly strong, growing 16% to $31.3 million. Airlines are offering differentiated features to entertain and provide flyers with enhanced productivity to build brand loyalty and retain market share. Aircraft lighting also grew 16% to $20.3 million, which is a direct product of continued aircraft order/delivery expansion. The aerospace segment’s book-to-bill ratio grew to 1.21, suggesting the company is acquiring new business at a terrific pace.
We continue to believe shares of Astronics have tremendous upside from current levels as the firm remains leveraged to the coming boom in aerospace deliveries. Shares score a 7 on our Valuentum Buying Index, so we’re growing constructive on seeking an entry point. We currently hold the supplier in our portfolio and will continue to do so.
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