Standex International ((SXI)) has held its Q2 earnings call. Read on for the main highlights of the call.
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In its recent earnings call, Standex International highlighted a mix of positive developments and challenges. The company expressed optimism with strong adjusted operating margins and the successful integration of the Amran/Narayan Group. However, it also acknowledged some hurdles, such as organic revenue decline and reduced cash flow. The call underscored growth in fast-growth markets and new product sales as bright spots, while weaknesses in the Engraving segment and softness in the automotive market were noted as areas of concern.
Record Adjusted Operating Margin
Standex International achieved a record adjusted operating margin of 18.7% in the fiscal second quarter. This represented an increase of 170 basis points sequentially and 150 basis points year-on-year, showcasing the company’s efficiency and profitability improvements.
Successful Amran/Narayan Acquisition
The acquisition of the Amran/Narayan Group proved to be a significant success for Standex, with sales exceeding expectations. This integration has contributed notably to the company’s fast-growth markets, with the process progressing smoothly.
Growth in Fast-Growth Markets
The company reported that sales into fast-growth markets accounted for over 20% of total company sales. Strong performances were particularly noted in the electrical grid, space, and defense applications, highlighting the company’s strategic focus on these areas.
New Product Sales Increase
Standex saw a substantial increase in new product sales, totaling $14.5 million in the fiscal second quarter. This figure represents a sequential increase of approximately $3.5 million and more than double the sales year-on-year, reflecting successful product innovation.
Updated Long-term Financial Targets
Standex has updated its long-term financial targets for fiscal 2028, aiming for sales greater than $1.15 billion and an adjusted operating margin higher than 23%. These ambitious goals underscore the company’s growth strategy and market confidence.
Organic Revenue Decline
Despite the positives, Standex faced an 8.2% decline in organic revenue. This was attributed to challenges in the electronics segment, especially due to softness in the automotive and general industrial end markets.
Cash Flow Reduction
The company reported a reduction in net cash provided by operating activities, amounting to $9.1 million in the second quarter compared to $23.8 million a year ago. This decrease was primarily due to $11 million in one-time acquisition-related expenses.
Engraving Segment Weakness
The Engraving segment experienced a 23% revenue decrease, with an 850 basis point decline in adjusted operating margin. This was largely due to continued softness in the automotive end markets.
Forward-Looking Guidance
Standex International’s management provided a positive outlook for the coming periods. The company anticipates moderately to significantly higher revenue in the fiscal third quarter, driven by recent acquisitions and rising demand in electronics. For fiscal 2025, Standex plans over a dozen new product launches, with projections indicating new product sales will add approximately 200 basis points of incremental growth. Long-term targets for fiscal 2028 have also been revised, with the company aiming for over $1.15 billion in sales and an adjusted operating margin exceeding 23%.
In summary, Standex International’s earnings call painted a picture of a company navigating a landscape of both achievements and challenges. While strong operating margins and successful acquisitions were highlights, the company faces hurdles in organic revenue and cash flow. Nonetheless, Standex remains optimistic about its future, with plans for growth and innovation driving its long-term strategy.
