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01/11 12:22
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights a mix of positive and negative factors. Strong adjusted income and net income, debt reduction, and cash flow are positives. However, the guidance for fiscal 2026 indicates revenue decline and modest growth in key segments. The Q&A reveals positive sentiment towards medical growth and strategic acquisitions, but concerns in the automotive sector and potential SG&A increase. Overall, the outlook is mixed with stable margins and strategic growth plans, leading to a neutral sentiment.
Net Sales $366 million, a 2% decline compared to Q1 fiscal '25. The decline was due to strong results in Medical being offset by declines in Automotive and Industrial.
Medical Sales $102 million, up 13% compared to the same period last year. Growth was driven by robust sales growth in Asia and Europe, while North America was up mid-single digits.
Automotive Sales $164 million, down 10% compared to the first quarter of last year. The decline was due to lower sales in North America (resulting from the electronic braking program transfer) and a decline in Asia, partially offset by strong sales growth in Europe.
Industrial Sales $100 million, a 1% decrease compared to Q1 last year. The decline was due to softening demand for HVAC driven by the slowing housing market in North America and a significant decline in Europe, partially offset by strong sales growth in Asia.
Gross Margin Rate 7.9%, a 160 basis point increase compared to 6.3% in the same period of fiscal 2025. The improvement was driven by favorable product mix, the closure of the Tampa facility, and global restructuring efforts.
Adjusted Selling and Administrative Expenses $11.3 million, nearly flat year-over-year. As a percentage of sales, the rate was 3.1% this year compared to 2.9% last year. A $2 million recovery was recorded due to a customer termination of a program.
Adjusted Income $17.5 million or 4.8% of net sales, compared to $12.6 million or 3.4% of net sales last year. The increase was due to efforts to rightsize expenses, reduce debt, and take advantage of tax opportunities.
Adjusted Net Income $12.3 million or $0.49 per diluted share, up 2x from last year's adjusted results of $5.5 million or $0.22 per diluted share. The increase was attributed to expense management, debt reduction, and tax opportunities.
Cash and Cash Equivalents $75.7 million as of September 30, 2025. Cash generated by operating activities in the quarter was $8.1 million, marking the seventh consecutive quarter of positive cash flow.
Inventory $272.7 million, roughly flat versus Q4 but down $62.6 million or 19% from a year ago.
Borrowings $138 million, a $9.5 million reduction from the fourth quarter and down $108 million or 44% from a year ago.
Capital Expenditures $10.6 million in the first quarter, primarily for leasehold improvements in the new facility in Indianapolis.
Medical vertical expansion: Sales in the medical vertical reached $102 million, up 13% year-over-year, driven by growth in Asia, Europe, and North America. The company is expanding production capabilities beyond electronics into higher-level assemblies and finished medical devices. A new medical facility in Indianapolis will add capacity for manufacturing medical products, including single-use surgical instruments and drug delivery devices.
Geographic diversification in medical: Medical sales were nearly evenly split between North America, Asia, and Europe, with robust growth in Asia and Europe and mid-single-digit growth in North America.
Operational efficiencies: Gross margin improved to 7.9%, up 160 basis points year-over-year, driven by favorable product mix, facility closures, and restructuring efforts. Cash from operations was positive for the seventh consecutive quarter, and debt levels were the lowest in over three years.
Inventory and cash flow management: Inventory decreased by 19% year-over-year, and cash conversion days improved by 25 days compared to the previous year.
Focus on medical market: The company is prioritizing growth in the medical market, leveraging its expertise in a regulated industry and targeting opportunities in aging populations and advanced medical devices. It is also pursuing inorganic growth through potential acquisitions to expand into new markets and geographies.
Tariff management: The company is addressing increased tariffs by passing costs to customers and monitoring geopolitical developments. Additional restructuring costs may be incurred to maintain profitability.
Automotive Sales Decline: Sales in the automotive sector decreased by 10% compared to the previous year, driven by lower sales in North America due to the electronic braking program transfer and a decline in Asia. This poses a risk to revenue stability in this vertical.
Industrial Sales Softening: The industrial sector experienced a 1% decline in sales, with softening demand for HVAC products in North America due to the slowing housing market. This could impact revenue from this segment.
Tariff Impacts: The evolving global tariff landscape, including new U.S. tariffs implemented in February 2025, may impact end consumer demand and operating results if costs cannot be fully passed on to customers.
Restructuring Costs: The company expects to incur additional restructuring costs over the fiscal year to address challenges related to tariffs and other operational pressures, which could impact profitability.
Medical Expansion Risks: While the medical sector is growing, the company is investing heavily in new facilities and capabilities, including inorganic growth strategies. These investments carry risks related to execution, cost overruns, and integration challenges.
Foreign Exchange Volatility: Foreign exchange had a 1% favorable impact on sales this quarter, but ongoing currency fluctuations could pose risks to financial performance.
Softening U.S. Housing Market: The slowing housing market in North America is negatively affecting demand for HVAC products, which could continue to pressure the industrial segment.
Revenue Expectations: Net sales for fiscal 2026 are expected to be in the range of $1.35 billion to $1.45 billion.
Margin Projections: Adjusted operating income is projected to be 4% to 4.25% of net sales for fiscal 2026.
Capital Expenditures: Estimated capital expenditures for fiscal 2026 are between $50 million and $60 million.
Medical Segment Growth: The company expects continued growth in the medical segment, driven by production capabilities beyond electronics and printed circuit boards, expanding into higher-level assemblies and finished medical devices. The new medical facility in Indianapolis will add capacity for manufacturing medical products, single-use surgical instruments, and drug delivery devices such as autoinjectors.
Automotive Segment Outlook: Long-term growth is expected in the automotive segment, particularly as new systems and technologies such as steer-by-wire and brake-by-wire continue to increase the electronic content in vehicles.
Industrial Segment Trends: Softening demand for HVAC driven by the slowing housing market is expected to continue impacting the industrial segment in North America.
Tariff Impact: The company anticipates recovering increased tariff costs by passing them on to customers but acknowledges potential adverse impacts on operating results and cash flows if full recovery is not achieved.
Strategic Growth Plans: The company plans to pursue growth through both organic and inorganic channels, including a tuck-in acquisition strategy to add new end markets, manufacturing capabilities, and customer relationships.
Share Repurchase Program: We invested $1.5 million in Q1 to repurchase 49,000 shares. Since October 2015, under our Board-authorized share repurchase program, a total of $105.2 million has been returned to our shareowners by purchasing 6.7 million shares of common stock. We have $14.8 million remaining on the repurchase program.
The earnings call highlights a mix of positive and negative factors. Strong adjusted income and net income, debt reduction, and cash flow are positives. However, the guidance for fiscal 2026 indicates revenue decline and modest growth in key segments. The Q&A reveals positive sentiment towards medical growth and strategic acquisitions, but concerns in the automotive sector and potential SG&A increase. Overall, the outlook is mixed with stable margins and strategic growth plans, leading to a neutral sentiment.
The earnings call highlights a robust strategy with new facility expansion, strong focus on the medical segment, and margin improvement efforts. The Q&A reveals positive sentiment towards automation and growth initiatives, despite some vague responses on industrial plans. The reiteration of fiscal guidance, coupled with strategic investments in sales and business development, supports a positive outlook. The absence of negative financial surprises and the focus on high-growth segments suggest a positive stock price movement in the short term.
The earnings call reveals several concerning financial metrics, including declining net sales, gross margins, and adjusted net income. While there are positive developments like the new Indianapolis facility and reduced borrowings, the overall sentiment is negative due to weak financial performance and conservative guidance. The Q&A session highlighted management's reluctance to provide detailed guidance and clarity on certain issues, which adds uncertainty. Despite some optimism in the Medical CMO space, the decline in other sectors and lack of strong positive catalysts lead to a negative outlook.
The earnings call highlights declining sales, operational challenges, and market uncertainties. Despite debt reduction and a share repurchase program, the significant drop in net sales and broad-based demand softness weigh heavily. The Q&A section reveals management's evasiveness on key issues, adding to investor concerns. The restructuring plan and focus on new markets may offer future growth, but current conditions suggest a negative outlook.
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