Q4 2020 Standex International Corp Earnings Call
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Good morning, and welcome to the Standex Internationals fourth quarter 2020 results conference call. All participants will be in listen only mode shouldn't you need assistance wasting My conference specialist seamless star keep all that play zero.
After today's presentation, there will be an opportunity to ask questions.
So at this event is being recorded I would now like turn the conference over to Gary Farber affinity growth advisors. Please go ahead.
Thank you Melissa and good morning. Please note that the presentation accompanying managements remarks be found on the Investor relations portion of the company's website Www Standex Dot com.
Please refer to stand up the safe Harbor statement on slide two matters that Standex management will discuss on today's conference call include predictions estimates expectations and other forward looking statements.
These statements are subject to risks and uncertainties that could cause actual results could differ materially.
Refer to stay next his most recent SEC filings and public announcements for detailed list of risk factors.
In addition, I'd like to remind you today today's discussion will include references to the non-GAAP measures of EBITDA, which is earnings before interest taxes, depreciation and amortization adjusted EBITDA, which is EBITDA, excluding restructuring purchase accounting acquisition related expenses and onetime items EBITDA margin and adjusted EBITDA.
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We will also refer to other non-GAAP measures included adjusted net income adjusted income from operations adjusted net income from continuing operations adjusted earnings per share adjusted operating margin free operating free operating cash flow and pro forma net debt to EBITDA. These non-GAAP financial measures are intended to serve as a complement results provide.
Got it in accordance with accounting principles generally accepted in the United States.
Danica believes that such information provides an additional measurement and consistent historical comparison of the company's performance.
On the call today is Fedexs, Chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer, and Treasurer at Ameristar today with that I'll turn it over to David.
Thank you Gary Good morning, and welcome to our fourth so fourth quarter fiscal 2020 conference call before I discuss this quarter's results and our outlook I want to thank our employees around the world I'm very proud of their efforts in this challenging environments in the dedication creativity and resilience they've demonstrated.
On today's call I will first provide commentary on the fiscal fourth quarter 2020 results and the trends. We're currently seeing I'll then discuss several of the keep dams and accomplishments in the quarter from there I will discuss the segment performance and trends Adam It will follow with a discussion of our consolidated results and financial position in greater detail.
Finally, I will conclude with some comments on our outlook and key takeaways from our results and initiatives now its everyone can turn to slide three key messages.
Overall fiscal fourth quarter results were in line with our expectations. Despite the very challenging operating environment as our teams displayed a high degree of global collaboration and coordination, while maintaining a safe and healthy environment importantly, since the end of April or end market sequentially have exhibited a gradual increase in the level of customer activity.
That has continued into our first quarter, most notably our engraving electronics and scientific segments.
We also continued to make substantial progress further positioning standex around more profitable platforms with favorable growth prospects and compelling customer value propositions.
At the beginning of the corridor, we completed the divestiture of our refrigerated solutions group. This transaction is accretive to our consolidated operating margin profile by approximately 200 points. The transaction also continued to process to begin with our divestiture of the cooking business in early 2019.
In July we announced the acquisition of Renco electronics rental was a leading us based customers menu magnetics manufacturer. We believe this is a great strategic fit deepening our significant engineering and technical expertise as well as providing highly complementary customer base.
In addition, rental will be accretive to our earnings to fiscal 2021 and additive to consolidated free cash flow.
Today, we are also announcing the realignment of our reporting segments reflected in our fiscal fourth quarter results.
Besides engraving electronics and engineering technologies are reporting segments will now include scientific and specialty solutions.
Standalone scientific segment will allow us to communicate more effectively the highly attractive profile of this business and this long term outlook.
We acquired this business at the end of 2016 and since then it has experienced significant growth focusing on the manufacturer of laboratory refrigerators, and freezers as well as cryogenic equipment for the scientific biomedical and pharmaceutical markets.
In fiscal 2020, the scientific segment reported $57 million and revenue and an excess of a 20% operating margin.
The specialty solutions segment, we are introducing today as a reporting segment will include the hydraulics pumps and merchandising businesses.
We will now be reporting these businesses in line with the way. They are managed under one common group president.
Besides the portfolio repositioning we continue to successfully execute cost actions and have a healthy funnel of operational excellence initiatives.
Implement as we enter fiscal 2021, which will strengthen our market leadership of cost positions during the quarter, we realized $4.2 million from productivity and expense actions and expect $7 million an annual savings in fiscal 2021.
Further adding to these efforts we're building on our current foundation with support revenue VP of operations hired this past February.
Our recurring theme and priority and how we manage stand access to maintain strong balance sheet and significant liquidity position supported by consistent free cash flow generation and disciplined capital allocation.
We generated free cash flow of $19.5 million in the fourth quarter of 2020, and repaid $13 million in debt.
The company ended the quarter with approximately $200 million and available liquidity and a net debt to adjusted EBITDA ratio under one.
Also statics repatriated approximately $19 million in the quarter and $39 million in fiscal 2020 from foreign subsidiaries ahead of our prior forecasts of $35 million.
Our significant financial flexibility positions us well as we execute on an active pipeline of organic and inorganic opportunities as in the case of rental which we paid for out of cash on hand without incurring additional debt.
In sum as I reflect on fiscal 2020, despite the challenges associated with Covance 19, we continue to build the corporation around larger more profitable platforms in high value markets with strong competitive advantage in customer focus.
We also have a healthy pipeline of internal projects and inorganic growth opportunities that can generate attractive returns.
Underpinning these actions is a strong balance sheet and significant financial flexibility.
As a result, statics is well positioned to exit the current environment as a stronger company.
Please turn to slide four as I will begin to discuss our segment financial performance in greater detail beginning with electronics.
The electronic segment revenue decreased approximately $5 million or 10% year over year as we experienced weakness in both north American and European markets associated with the economic impact on the cover 19 pandemic. This weakness was partially mitigated by modest recovery in Asian end markets.
Operating income decreased approximately $2.8 million or 32.3% year over year in the quarter.
Besides lower volume operating income was impacted by higher raw material input costs as well as partial plan facility shutdowns in India, and Mexico, which have since reopened.
These items were partially offset by cost savings and productivity initiatives.
In addition to fall of new business opportunities continues to be active and is at a very healthy $40 million as we work with our customers on their new product designs.
As an example of a new product we collaborated on a custom magnetic sensor for smart grid monitoring.
Stantecs process controls and design capabilities were key to this application. This product enables remote wireless underground monitoring of electric power quality as is typical this product had a multiyear sales cycle and we'll have an approximately 10 year product lifecycle.
Our fiscal first quarter 2021 electronic segment outlook is for a meaningful sequential increase in revenue due to positive trends in our magnetic product line as well as revenue contribution from the recently closed renco acquisition.
We also expect a sequential improvement in operating margin, reflecting continued cost and productivity initiatives as well as limited sequential impact from Reed switch raw material input costs.
Our electronics business has dramatically transformed in recent years growing from a $40 million largely north American business into an integrated global player. We have recently organize the business into two separate PNM house, one for the magnetics business. The other for switches and sensors. This will allow greater focus to each of these product lines to grow organically we will.
Also continued to expand this business with attractive bolt on acquisitions expanding into new markets and adjacent technologies.
Please turn to slide five for a discussion of engraving segment at the engraving segment revenue decreased approximately $6.5 million or 17% year over year, primarily due to delays in the receipt of tools from customers as we indicated in our fiscal third quarter conference call.
We are seeing this work shift into the first fiscal quarter of 2021 importantly over the longer term auto Oems continue to hold onto their new program rollout schedules.
Engraving operating income declined $2.7 million or 51.5% year over year, reflecting volume declines associated with the economic impact of covert 19, mitigated partially by productivity and expense savings in the quarter.
Lane weight growth remains healthy with a 9% year to date increase to $43 million driven by soft from tools laser engraving and tool finishing.
We have been very active collaborating with designers on new electric vehicles in all regions of the world.
The example here shows how we leveraged our global presence and comprehensive service offering including architecture design services chemical and laser texturizing soft trim tools and tool, finishing services to bring out this new model.
Our fiscal first quarter 2021 outlook is for a meaningful sequential increase integrating revenue and operating margin in fiscal quarter first quarter 2021.
The expected revenue increase reflects both customer orders that have shifted from fiscal fourth quarter 2022 first quarter 21, as well as an overall increase in the level of customer activity. The expected margin increases associated with higher volumes sequentially combined with cost efficiency and productivity initiatives in North America in Europe.
In addition, we are beginning to leverage our global S&P platform and engraving for enhanced productivity. We've spent the last two and a half years moving all engraving sites for common ERP now we are rolling out standard reports and operating procedures to help our regional managers better plan and manage their capacity overtime and productivity.
Please turn to slide six the scientific segment.
Now I turn to our newest segment, we will begin to break out the scientific business as a standalone segment. When we acquired horizon scientific in October 2016, and combined it with our own scientific refrigeration business, we had a business with $34 million of sales sales grew to $57 million in fiscal year 20, even with the fourth quarter DC.
Celleration from the coven industry slowdown in that time, we've seen the management team continued to do what they do best identify emerging market opportunities and quickly develop and bring to market a solution. The end market for scientific refrigeration is dynamic shaped by frequent regulatory changes as well as constant evolution and distribution strategy for Medicaid.
Ones and vaccines.
We have been able to strengthen this business with our growth disciplined process tools and accelerated investment in R&D.
This is a business we expect to continue to grow organically and we are also actively exploring bolt on acquisitions to expand its reach.
Scientific revenue decreased approximately $2.6 million or 17% year over year with operating income declining approximately $900000 or 24.8% year over year.
The scientific segment was impacted by a market shift toward consumable protective equipment due to the covert 19 pandemic and less near term emphasis on capital equipment expenditures by its customer base.
However in fiscal first quarter 21, we expect to see meaningful sequential revenue and margin increases customer ordering patterns returned to a more historical mix. In addition for the coming flu season healthcare facilities plan to move even more flu vaccinations into other delivery points such as pharmacies. So they can focus on kogut treatments.
This is driving demand for our products from our national pharmacy chain customers, where we are well established.
Scientifics prospects include other promising opportunities as well our scientific unit manufacturers cabinets well suited for the storage needs of covered 19 vaccines and treatments now in the approval process. We are actively evaluating pursuing the opportunity. This presents.
Turn to the engineering technology segment on slide seven.
Engineering technologies revenue decreased $7.3 million or 21.7% year over year in the fiscal fourth quarter 2020, reflecting lower aviation related sales offset partially by increased sales in the space end market.
Operating income margin increased from 13.6% in fiscal fourth quarter, 19% to 15.8% in fourth quarter 2020, despite the sales headwinds due to favorable product mix cost actions and manufacturing efficiencies.
We also continue to innovate collaborating with customers on next generation missile knows cones, using our proprietary spin forming process.
In fiscal first quarter 2021, we expect to see significant sequential revenue has significant operating margin decrease.
The decline is primarily due to the economic impact of covered 19 on the commercial aviation market, especially our engine parts business.
Space end market sales will see a declined sequentially in the fiscal first quarter of 21 due to the timing of project.
The segments defense end markets are expected to increase year over year throughout fiscal 2021.
We will continue to work to further align engineering technologies cost structure with the current demand environment in aviation.
Now, let's move on to slide eight the specialty solutions segment, which includes the hydraulics merchandising and pumps businesses.
Specialty solutions revenue decreased approximately $8 million at 25% year over year than the fourth quarter fiscal 20.
The revenue decrease was primarily associated with the economic impact of covered 19 on several end markets, including the food service equipment and hospitality industry is at the pumps and merchandising businesses and the dumped market hydraulics.
Segment operating income decreased $2.3 million, 39% year over year, reflecting lower volume, partially mitigated by cost actions, including headcount reductions and temporary plant slowdowns.
We expect fiscal first quarter 21 revenue and operating income to be similar to fiscal fourth quarter 2020.
Using the statics growth disciplined process, we are introducing a new product for schools. The federal milk merchandiser, which provides several benefits flexibility to merchandise a wide assortment of products as well as accessible to young students. It reduces labor as there is no need to remove milk every night.
And it includes an innovative condenser cleaning alarm using standex electronics to alert users to efficiency losses.
I will now turn the call over to add a mere who will discuss our quarterly results in greater detail.
Thank you David and good morning, everyone.
I will provide a few key takeaways from our fiscal fourth quarter 2020 results.
Our results were in line to the oil expectations be entering the quarter as expected. The majority of you want to end markets that impacted by the over 19 pandemic and as a result, we deployed a year on year decrease in adjusted EPS.
Second.
Sure.
Continued to maintain at various comping national television as evidenced by our significant liquidity low leverage ratios and consistent cash flow generation.
This is complemented by our ongoing cash repatriation program, which came in ahead, while private estimates for the year. We plan to continue to execute on our vision efforts in Africa in fiscal 2001.
In addition, our interest expense declined year on year, reflecting this viable variable debt to lower rate fixed rate debt, which was completed in our fiscal third quarter.
We also delivered on our cost saving initiatives in the quarter.
Realized 4.2 million in savings in the fourth quarter and expect Cenomanian and annualize savings from these efforts in fiscal 2001.
Finally, our capital allocation remain balanced and discipline that out announced earlier in the quarter our acquisition of rent comments volumes, which was financed from our cash on hand.
Additionally, during the quarter that repurchase shares and declared out 224 consecutive dividend.
Now, let's turn to slide nine fiscal fourth quarter 2020 income statements salary.
Relative basis total revenue declined 17.4% year on year.
This reflects organic weakness associated with the economic impact of close to 19 and debt.
Acquisitions had a nominal contribution of zero.
1% overall growth in the quarter, while FX was a headwind the negative impact of 1.1%.
Gross margin decreased 200 basis points year on year to 33.7%, primarily reflecting the volume decline, partially offset by an activity and expense actions.
Our adjusted operating margin was 8.7 per cent compared to 12.6% a year ago.
Interest expense decreased primarily due to a lower interest rate as a result into valuable fixed rate swap implemented in our fiscal third quarter. In addition, the tax rate of 26.7% represented a 210 basis point increase year on year due to mix of us and non U.S. earnings.
Adjusted earnings of 65 to 65 cents in the fourth fiscal fourth quarter 2020, compared to $1.10 in the fiscal fourth quarter 2019.
Please turn to slide 10 fiscal fourth quarter 20.3 cash flow.
The reported free cash flow of 19.5 million compared to 27.8 million in the fourth quarter 2019.
This decrease reflects the lower level of net income year on year, partially offset by a reduction in capital expenditures from 15.6 million in fourth quarter 2019 to 5.7 million and look what up 2020, as we focused on expanding on maintenance safety and the company's highest priority growth initiatives.
Our next please turn to slide 11, a summary of standard.
As a structure and affinity updated which remain strong.
Standex had a net debt of 80.3 million at the end of the fourth quarter compared to 102.8 million at the end of the third quarter 2020.
This decrease primarily reflects their payment of approximately $13 million back into quarter, along with an increasing our cash balance due to operating cash flow generation in the quarter.
The company's net debt to adjusted EBITDA leverage ratio was 0.8 billion net debt capital ratio of 40.8% and interest coverage ratio of approximately nine times.
We also had approximately 200 million available liquidity at the end of the fourth quarter.
We repatriated $19 million on cash into the fourth quarter of 2020, and 39 million in fiscal 2020 compared to our prior $35 million expectation.
Plan through pantry, an additional 35 million during fiscal 2001.
During the fourth quarter, we also repurchased approximately 30000 shares or 1.4 million. We havent purchase now approximately 872000 shares since the end of fiscal 2019 and is approximately 43 million remaining under the board's currently unfortunately repurchase authorization.
In addition in July we declared our 224 consecutive dividend of 22 cents per share at 10% year on year increase.
Now sequentially, we ended the fourth quarter, we announced yet position of REIT qualifying for approximately 28 million, which refinanced with cash on hand.
Rankled will be a clean both on an EPS and free cash flow in the first unum ownership.
In fiscal 2021 complements manages to between 28 million to $30 million compared to 19 million in fiscal 2000 as capital spending returns to more normalized level, but on DND, Anthony safety maintenance and growth investments.
On slide 12, we have protected the reconciliation between what the reporting segment would have looked like what fourth quarter 2020 under our prior reporting structure and under the new structure scientific specialty solutions that standalone segments.
In the appendix on page 17, we have also presented all four quarters of physical 20 under the new reporting segments structure I will now turn the call over to David for closing comments. Thank you add Amir if everyone can please turn to slide 13.
Ill provide some thoughts on our fiscal first quarter 2021 outlook in key takeaways from today's call.
In fiscal first quarter 21, we expect revenues to be flat to slightly above fiscal fourth quarter, 20, and operating margins to improve sequentially.
This outlook assumes the following electronics and engraving segments are expected to have meaningful sequential revenue increases due to an increased level of customer activity and associated volume as well as the contribution from the recently closed renco acquisition at the electronic segment.
We also expect a meaningful sequential revenue increase the scientific segment as customers resume capital equipment orders. We also expect to benefit from a continued increase in the level of flu vaccinations delivered through pharmacies.
These increases will be balanced with a significant sequential decline at engineering technologies due to the economic impact of covert 19 on the commercial aviation market and the timing of orders in this space and market.
Specialty solutions revenue is expected to be sequentially similar to fiscal fourth quarter Twentytwenty.
From a strategic perspective, we remain active in our business portfolio in the quarter divesting refrigerated solutions, acquiring renco electronics and today, establishing scientific and specialty solutions, a standalone segments, all with the intention of building our higher margin growth businesses into more significant platforms.
Capturing cost structure efficiencies will remain a priority was $7 million and cost savings in fiscal 2021 expect from the actions. We have already announced these efforts are being supported by a significant funnel of operational excellence actions in fiscal 2021.
Our financial position remains solid supported by our strong balance sheet significant liquidity consistent free cash flow generation and continued repatriation of cash.
The significant financial flexibility will allow us to pursue a healthy pipeline of organic and inorganic growth opportunities operator, I will now open the line for questions.
Thank you we will now begin a question and answer session. You ask your question you May Press Star then one and you touched on.
If you are you thinking speakerphone, please pick up your handset before pressing the key.
Joe Your question. Please press Star then to you at this time, we will pause momentarily to assemble the roster.
Your first question today comes from Chris Moore of CJS Securities. Please go ahead.
Hey, good morning, guys.
Good morning, Yes, so maybe start with with the areas, where we the sequential revenue increases electronics, obviously, partly impacted by ranco engraving and scientific.
You just trying to get a little better feel for if it's how much of this is kind of cobiz catch up and and how much is kind of Uh huh.
Have you seen at given guidance for Q Q2, but kind of.
What's one time and what might be things are getting back on track.
Our view is April was that what was really the bottom for for the markets. We serve and we see those markets kind of gradually climbing out of that have that trough. So we think theres a secular and.
Long term trend to grow out of that.
Obviously growing a bit more slowly than a decline. So we think there's an under current of growth in all those other segments. There. There was some dramatic catch up in Asia in electronics in the fourth quarter, we think thats kind of caught up and now Thats just does back to kind of normal normal growth.
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Virtually the same thing in North America, which is more or less caught up your auto really took a dip in fourth quarter. The started to wake up again in June and now auto production is ramping up again in the centers that we supply to it.
Graving business.
Quite a bit of catch up because in the first two months of Q4 tools were held up in in tool shops were being shipped into our service centers, though started to be released in June employees of our Oems could come and complete the markets. So I mean, our shops are very busy right now with that catch up along with.
The.
The regularly plant.
Work to support the upcoming starts or production. So there is a bit of a surge from our firms and catch up but there is an underlying growth.
Got it is helpful.
Yeah, maybe talk about electronics, a little bit you mentioned that you splitting it into two separate PNNT Wilson and maybe you could just.
A little more detailed there and kind of what what's driving that in and.
And how that help you moving forward.
Yeah, well the electronics business has grown.
Quite a bit just 10 years ago to $40 million business, we acquired a European business. It became 80, we acquired okay.
We get in the mid hundred so when you acquired agile northlake and our renco, even with coveted said north of 200 $250 million in mid two hundreds and it's become a more complex business and we are we looked at it we realize the same people were supporting all these new product lines, all the new acquisitions and there was a fundamental difference between the higher.
Reliability magnetics business and this which is a sensor business they have different customers different products different underlying technologies different competitors different supply chains, so we thought creating too.
Structures.
Focus on those businesses will provide better focus so they can each each growth that can invest appropriately and.
Focus on their technologies on being the best in those those product categories.
Got it is obviously you did the rent core acquisitions is one of those areas you switched incenses versus high reliability more likely.
On the M&A side.
Are you looking in both are worth.
One piece of that.
There have been more opportunities in our funnel in Intermagnetic side. It is a more fragmented market, there's a higher number of smaller players out there.
But there there are opportunities.
In the sensor business and we have taken a run at a few they didn't work out they tend to be a little higher priced.
With higher multiples.
But we still see good opportunities to expand into adjacencies or some sensor acquisition. So don't be surprised if in the future. We were there we reconcile with a sensor.
Since our acquisition.
Got it and on the scientific M&A side, you talked about potential bolt on acquisitions is that.
Kind of.
New markets, new technology that debt that we can expand what you're doing or.
For the moment for the moment with scientific.
As we look at acquisitions.
We want to look at acquisitions, where we can take maximum advantage of the strengths that our scientific business has which is great relationships with the channel great understanding of the of the changing dynamic of the market based on a regulatory changes and distribution changes from medication to vaccines.
So.
That leads us to look at all the related equipment that is often purchased in conjunction with the cabinets that that we sell and if you look in the facilities, where our products are you'll also see things like incubators centrifuges biosafety containment hoods.
Yes, there is a core set of a lab equipment that you find and these products are sold for similar channels.
There are a number of focused companies some privately held that.
That participate in these categories. So that'd be the first the first place we look.
We see that is a pretty pretty clean.
Bolt on strategy, but I would also say that.
When you, we've ramped up R&D and organic growth initiatives in scientific we have a number of new products in development that we will be launching releasing in the course of this fiscal year.
Business base had a very small development group before we've ramped that up we brought in a leader for that business has experienced in.
In managing larger engineering organizations with a stage gate process and a formal new product development funnel, we're spending about 3% of sales on R&D now and scientifics, we're quite excited about the organic growth and then have enough confidence in the market and that management team.
To be looking at.
Related equipment acquisitions.
Got it very helpful. Thanks, David I'll jump back in line.
Thank you Chris.
Your next question today comes from Chris How Barrington Research. Please go ahead.
Good morning, David and then.
Good morning.
Morning, just following up.
On that last question.
About the M&A opportunities within scientific when we look at the historical mix moving into Q1, you mentioned some of the related equipment opportunities.
Incubators to hurt.
Has this funnel already started to build a scientific has been under the wing for some time now and how would you describe where you are building that funnel for M&A opportunities and more specifically.
You are healthy margins in this segment.
How do those margins compare Q potential accretive.
Private opportunities.
Let's start first with the funnel we.
We started in earnest to build the funnel or at least a year ago, maybe longer a year and a half ago. So there are a does that are more opportunities we've been working.
Some of these things take years to come together you know we approach approach the owners get to know that when they get to know us.
We've got several irons in the fire and this is a multiyear process as we see it.
And the profitability of the businesses. There is a spectrum you know some we look out we think there their margins or maybe lower than they could be or ought to be others.
Perhaps have similar margins to the to the business business that we have so.
We think based on the characteristics of the market that 20% low 20% operating margin is certainly a reasonable expectation for our business and the base what we've seen it's probably representative of the of the market.
[noise] excellent that's very helpful.
I would definitely him in favor of this the realignment of the segment.
Without putting too much focus on the scientific I wanted to actually talk about specialty solutions.
You mentioned.
Some of the weakness that you're experiencing in end markets.
Predicting on a normal environment is anyone's guess.
With equal being the Trump can you talk about how this could potentially be an upside surprise in the future. Once these end markets.
Tom Bakke snap back and people are.
Moving about a in a normal ways there are potential opportunity here that maybe neglected.
Hi.
There are certainly as an opportunity for snap back depending on how quickly people started going out again or restaurants become more active.
So in the specialty solutions business, the federal business, the display merchandising business and the proton pump business or the two that serve that that food service equipment end market proton pump business is highly levered to expose through carbonated beverage decks.
And express or machines for the two largest largest product lines.
We expect more strength and espresso machines earlier, then in carbonated beverage tax but.
What we're starting to see that that ramp slowly. So there is activity out there people are investing in that equipment.
The federal merchandising business. They serve more end markets. We show the picture. This milk merchandiser. This is a new product we develop using our growth disciplined processes into a segment, where the last I mean, the last new product goes introduces probably when you were a kid getting milk in the in elementary schools.
It's an end market that has been under served we brought some innovative features with this with this product in schools are reopening some schools are reopening they're ordering these milk merchandisers, we're seeing strengthen the convenience store segment. Our traditional restaurants are beginning to rethink the way they serve food to customers were getting more inquiries for restaurants that want to.
Established grab and go islands in their restaurants. So so customers can pick up food that's been already pre packaged and set so third so thats another potential on.
Your potential upside there as as as the business model the food delivery continues to evolve.
The third business in their hydraulics.
Exposed to.
[music].
Garbage in waste vehicles is very steady end market.
And there continues to be healthy the dump truck and trailer market.
Would be strongly influenced by an infrastructure Bill if we were too if were to see one in in America.
So that would be that would that would be an upside impetus there in that business. These three businesses are fundamentally good businesses. They deliver good margins. They have good differentiated positions in their end markets, they're carrying their waits out with good return on assets and good margins of course, they have been hit by that but as our recent downturn in their markets but.
There are these are not problem businesses by any means.
[noise] and one last question if I may.
Related to the aviation.
You mentioned the decline in sales here.
Despite the decline.
Operating margin still remains healthy and showed improvement in this improvements expected to continue into Q1.
Perhaps some additional color on.
The margin opportunity.
Maybe further down the line as we get through the slow recovery and what this could mean.
Incrementally.
Yeah, well first of all the on.
The the lead times in that industry are our long enough that Q4 virtually had no impact into sales and margins from the slowdown in aviation.
But we did call out we expect a significant decline in the quarter and the related de leverage.
Would flow through to.
To the profitability in the quarter.
We have all along conveyed that this this business.
As we reposition repositioned it in the last year last few years to focus on space and aviation was heading towards a.
Plus 15% EBIT range, which and it has delivered in several quarters in the last year. So it was getting there.
With this reduction in build rates in aviation about and I should say Airbus and Boeing.
That is pushed that has pushed that out. So this business is headed for a.
A tough few quarters and we just have to watch very closely the build rates when they begin to begin to ramp up again.
'cause that volume will be critical to deliver 15% ebits long term in that business.
Thank you for taking my questions. Okay. Thank you Chris.
Next question comes from Chris Mcginnis at Sidoti and company. Please go ahead.
Good morning.
Thank you.
Right Chris.
Just to dive into Uh huh.
How much of that is now when you look at the portfolio how much of that enrolled versus maybe other parts space.
Maybe dive into that and you talked about.
The need for buying back to get that multiple follow up how do you think about that business volume and the laws.
Well.
Yeah, we think about that playing the portfolio.
Okay.
Let me.
While you're asking the second part of your question with reaching for documents or you might I may have to ask you. You want you may have to repeat that honest assessment of the business.
You know last year.
The sales were roughly 40% aviation, but 30, 35% space.
Up 12%.
Oil and gas and about the same amount defense with a little bit of medical in there.
Space, we expect to be steady business. This year, the defense business will grow.
The energy business.
We expect it to be relatively flat in the year and aviation is where we're seeing the decline so you'll see those percentages move in the coming here.
Sure.
And I guess, yeah. The second part was just you know you rationalize your.
Portfolio product.
You're obviously not just your thoughts.
The long term kind of draw out with a bounce back and volume.
Aviation How's that playing with water on the.
Myself.
The.
You've seen that you've seen the plants. We have we have a differentiated processors are spin forming capability is highly differentiated and brings great advantages to the production of certain parts like the domes in it for the space industry that is a solid industry, we have a solid position there that play.
That is very busy now and will be we expect for the coming here.
The lipskin business for.
Largely for for Airbus is also very solid business almost it's down now but were higher we're differentiated our that business makes makes good margins great quality reputation great service levels for the customers.
The the.
The remaining bit of our aviation exposure is with engine parts and that's a more competitive and market.
That that plan to use a hydro forming process as opposed to spin forming process.
And that's the plant that where you're seeing the highest deleverage in that and the greatest challenge. So.
You know we will we're in negotiations with customers now about.
The possibility of moving moving more volume on our way or where there are two sources, we are actively bidding new parts.
All of our plants, including the engine parts a plan to have great reputation for the customers. We've been we've been qualifies the highest here supplier based on our quality and our delivery performance.
So long term long term, there's great opportunity for these for these plants, but.
For several quarters and probably through the year.
It's going to be slow going simply based on the end market demand.
We see that that's good color.
In thinking about the breakout signs.
Now does that mean, it's one of the new platforms and I think historically youve rather than trying to target 300 million on platform is that a possibility here or is it more on you know just highlighting obviously, we're in the middle program. So the number the revenue growth is there, but that's about back over time.
Does that longer term opportunity for that.
Thanks.
Yes, well, yes, there are rules that we have to follow about what business will report, how we break them out which businesses, our Carlo separately, which are combined into groups and what we divested the refrigeration group. It was it didn't really makes sense to refer to our group is food service anymore. So as we step back and looked at it we thought.
Scientific business has grown to be larger than the hydraulics business is more profitable and it has a stronger growth trajectory. So in terms of helping investors understand what's going on at stand accessing like a logical move to break that out.
And the specialty solutions businesses those three what a lot of people don't understand is those three have actually been managed by the same president for almost almost two years. So that's a reflection of how we're organized internally.
As for the expectations for the business in the 300 million dollar target, we do want our best businesses to grow and Weve, certainly got electronics, well on the way to 300 and 300 million plus.
It's engraving has come a long way in the last few years.
But all of our business has now our high quality businesses. They have good positions in their markets. They deliver good margins and we will invest to grow them, but they're they're carrying their weight even at their current size.
And.
Good examples on that the specialty solutions paid we show. The example that milk merchandiser.
We've invested some energy to explore the adjacent markets.
In that business brought a new market, a new product to market, which is good margins is helping to penetrate that milk merchandisers segment.
So.
That 300 dollar number 300 million dollar numbers, maybe less important than it was a few years ago. When we really had to focus on building a few large platforms, we could build a corporation around.
But all the businesses that were that we're managing our.
Our solid well performing businesses strong in there in their markets.
Just thinking about pulled the we're obviously I think we're hopeful.
You just maybe talk about maybe some opportunities that present itself.
Over the last few months.
Change in focus and anything spot where.
You know there maybe some more opportunity given the.
Disruption, that's taking place across multiple industries.
Maybe talk a little and get that thanks, Yes, there's actually there are several categories of opportunities. We see now that we maybe either did didn't have before or didnt have visit didnt have the same awareness of.
The first is.
All of our Oliver companies are relatively small niche players were big creation small ponds.
We compete with smaller players.
We we know now some of the competitors of our businesses have struggled a lot more than we have and so we believe that we're picking up more more inquiries for new applications and new business opportunities that will result in.
No the incremental move in our market position and our stronger relationships with customers I think that's that's come out covert a second thing is.
All the businesses. It was an all hands on Dec situation in March and April everybody looks at the cost structure looked at their organizations took decisive action to take some take some cost out but also maintain the investment in engineering and customer facing organizations.
And this is right after.
Jim move in our VP of Op started so that really paved the way for Jim to get engaged in a very deeply with the businesses to focus on driving operational excellence. So internally, we think there's an acceleration there.
Now maybe right in line with with what you're thinking if you think our scientific business to opportunities are really being driven by covert for scientific one is there is an acceleration of investment to provide more standard flu season vaccines through pharmacies were seeing those orders right now.
I mean that started in June and July.
End of the initial thought was covert vaccines would first be distributed through your medical facilities. Your clinics hospitals et cetera. So they wanted to get that flu vaccine that out in pharmacies and there was a view that patients were not going to want to go into hospitals.
In other clinics, just because the the concern about picking up Cove it.
So we're seeing that ramp there the second second opportunity obviously is.
The co vid vaccine once approved vaccines. Once they are approved will need to be distributed and stored and these vaccines are stored at.
Either just above freezing or below freezing.
In the kind of cabinets, we manufacture we believe we're well positioned for this opportunity in fact, we just had a meeting with our management team yesterday, and we authorized the ramp up the purchase of some inventory that we can be ready as that opportunity comes we're talking with our fourth pharmacy is we're talking with the distributors in the channels into those markets. So.
Quite excited about that but it is it has a very dynamic evolving situation, but clearly a new opportunity that's come out of Cove. It.
Thanks, and then just last one loan one last question just Werent, we're almost at the end of August.
The guidance around are we saw some commentary around.
I guess is thinking.
Have you seen throughout the last quarter Im wondering now on a monthly basis.
Maybe about the.
The key theme.
Moving to move on on most of the water.
Other than.
Yeah as I said before the the trough was that was April and the business has been coming back since in mid May was stronger than April June stronger than May July August is stronger.
We have weekly calls with with our with our businesses in the sales leaders.
And I'd say in general every week things have gotten a little bit a little bit stronger. So we continue to see that momentum.
Great. Thanks, very much more timeframe.
Thank you Chris.
As a reminder, if you have a question. Please press Star then one.
Oh no further questions. This does conclude our question and answer session I would like to turn the conference back over to David Denmark for any closing remarks.
All right now I'd like to thank everyone today for their interest in stand X and allowing us to the opportunity to discuss our fourth quarter results and progress and again I want to thank our employees and shareholders for their continued support.
We're confident in our ability to further executed progress on our strategic priorities as we enter the new fiscal year and we look forward to speak with you again on the first quarter fiscal 21 in the fall. Thank you.
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