Kaman Reports 2010 First Quarter Results

BLOOMFIELD, Conn., May 6 /PRNewswire-FirstCall/ -- Kaman Corp. (Nasdaq: KAMN) today reported financial results for the first quarter ended April 2, 2010.

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, "During the first quarter Kaman experienced issues in our Aerospace segment that impacted our financial performance.  However, we were encouraged by the progress on several key initiatives and by the improving industrial market conditions that should positively impact our business and help overcome some of the challenges that have adversely impacted our Aerospace segment.  Revenue trends in our Industrial Distribution segment strengthened significantly during the quarter and were above our expectations, allowing us to achieve growth for the first time since 2008 despite facing the most difficult year-over-year comparison we will have this year. We also announced earlier this week the acquisition of Minarik Corporation, our largest Industrial Distribution acquisition to date, which combined with our recent acquisitions of Allied Bearings Supply and Fawick de Mexico, will expand our geographic footprint and increase our served market in this segment.

"As we previously communicated, a supplied component performance issue under our Joint Programmable Fuze (JPF) program affected our first quarter Aerospace segment results, negatively impacting sales by approximately $25 million. While we were disappointed in the short-term impact on our performance, we are pleased to announce that we restarted production on the JPF program in late April. We were also awarded Option 7 production, worth $45.5 million, under our contract during the first quarter, which provides us with a backlog on the program into 2012. Finally, as we anticipated, our aerospace bearing sales were lower in the first quarter primarily due to lower shipments to the business and regional jet and commercial helicopter markets.  However, there are indications that commercial aerospace end markets are starting to exhibit encouraging signs, which should leave us well positioned for improved results in the second half of the year."

Segment reports follow:

Industrial Distribution segment sales were $179.3 million in the 2010 first quarter compared to $176.9 million a year ago, an increase of 1.3%, substantially all of which was attributable to organic growth.  Segment operating income for the first quarter of 2010 was $4.8 million, a 73.2% increase from operating income of $2.8 million in the first quarter of 2009.  The operating profit margin for the first quarter of 2010 was 2.7% compared to 2.3% in the fourth quarter of 2009 and 1.6% in the first quarter of 2009.  This year-over-year and sequential improvement in operating margin was a result of the leverage from higher sales volume as well as on-going cost reductions.  

Industrial Distribution segment sales for the first quarter reflect improved performance in the company's end-markets, particularly to our OEM customers.  This quarter marked the first positive year-over-year sales growth since the fourth quarter of 2008.  On a sales per day* basis first quarter sales were 10.5% higher than the fourth quarter of 2009 and 2.9% above the first quarter of 2009.  

Aerospace segment sales were $97.5 million, a decrease of 16.7% from sales of $117.1 million in the first quarter of 2009. Operating income for the 2010 first quarter was $9.6 million, compared to operating income of $15.3 million in the 2009 first quarter.  The operating margin in this year's first quarter was 9.9% as compared to 13.1% in the comparable period in the prior year.  The margin reduction was primarily attributable to lower sales of our high margin bearing product lines.

The decrease in segment sales from last year's first quarter is a result of several factors including:  the delay of deliveries under the JPF program; decreased sales from aerospace bearing programs; and lower sales under the Egypt SH-2G(E) maintenance and upgrade program. These decreases were partially offset by increased legacy missile fuze program sales; higher sales of SH-2 spares to New Zealand; increased revenues from erosion coating programs for U.S. military helicopter platforms; sales under the Bell Helicopter blade program; and approximately $0.9 million related to foreign currency translation.

Outlook

The company's expectations for 2010 include:

• Aerospace segment sales approximately flat compared to 2009 with operating margins of 15.5% to 16.5%
• Industrial Distribution segment organic sales growth of 6% to 8% yielding sales in a range of $765 million to $785 million when combined with previously announced acquisitions
• Industrial Distribution segment operating margins of approximately 2.8% to 3.2%
• Interest expense approximately $5 million higher compared to 2009

Aerospace expectations do not include potential opportunities related to either the sale of SH-2G(I) inventory or deployment of the unmanned K-MAX aircraft.  Industrial Distribution expectations include completed acquisitions.

CFO William C. Denninger commented, "We believe the first half of the year will be more challenging than the second in our Aerospace segment. We are raising our expectations for the Industrial Distribution segment for the full year given the acquisitions that we have announced to date as well as that segment's improved first quarter performance. Kaman will continue to pursue both organic and acquisition growth opportunities, while tightly managing our cost structure to maximize earnings and cash flow."

Please see the MD&A section of the company's SEC Form 10-Q filed concurrent with the issuance of this release for greater detail on the quarter's results and various company programs.

A conference call has been scheduled for tomorrow, May 7, 2010 at 8:30 AM EDT.  Listeners may access the call live over the Internet through a link on the home page of the company's website at http://www.kaman.com.  In its discussion, management may include certain non-GAAP measures related to company performance.  If so, a reconciliation of that information to GAAP will be provided in the exhibits to the conference call and will be available through the Internet link provided above.

Non-GAAP Measure Disclosure

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measure indicated by an asterisk * used in this release provides investors with important perspectives into the company's ongoing business performance.  The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures.  Other companies may define the measures differently.  The following definitions are provided:

Sales per Sales Day - Sales per sales day is defined as GAAP "Net sales from the Industrial Distribution segment" divided by the number of sales days in a given period.  Sales days are essentially business days that the company's branch locations are open for business and exclude weekends and holidays.  Sales days are provided as part of this release.  Management believes sales per sales day provides investors with an important perspective on how net sales may be impacted by the number of days the segment is open for business.  

Management uses sales per sales day as a measurement to compare periods in which the number of sales days differ.  The following table illustrates the calculation of sales per sales day using "Net sales: Industrial Distribution" from the "Segment Information" footnote in the "Notes to Condensed Consolidated Financial Statements" from the company's Form 10-Q filed with the Securities and Exchange Commission on May 6, 2010 and the "Summary of Segment Information" table in the earnings release from the company's Form 8-K filed with the Securities and Exchange Commission on February 25, 2010 (in thousands, except days):

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut conducts business in the aerospace and industrial distribution markets.  The company produces and/or markets widely used proprietary aircraft bearings and components; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arm solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; and support for the company's SH-2G Super Seasprite maritime helicopters and K-MAX medium-to-heavy lift helicopters.  The company is also a leading distributor of industrial parts, and operates nearly 200 customer service centers and five distribution centers across North America.  Kaman offers more than two million items including bearings, power transmission, electrical, material handling, motion control, fluid power and MRO supplies to customers in a variety of industries.  Additionally, Kaman provides value-added services such as engineering and design support for electrical, linear, hydraulic and pneumatic systems as well as belt and rubber fabrication, reducer build, hose assemblies, custom modifications, repair services, fluid analysis and motor management.  

Forward-Looking Statements

This release contains forward-looking information relating to the company's business and prospects, including the Aerospace and Industrial Distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; 2) political conditions in countries where the company does or intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) domestic and foreign economic and competitive conditions in markets served by the company, particularly the defense, commercial aviation and industrial production markets; 5) risks associated with successful implementation and ramp up of significant new programs; 6) management's success in increasing the volume of profitable work at the Aerospace Wichita facility; 7) successful negotiation of the Sikorsky Canadian MH-92  program price; 8) successful resale of the SH-2G(I) aircraft, equipment and spare parts; 9) receipt and successful execution of production orders for the JPF U.S. government contract, including the exercise of all contract options and receipt of orders from allied militaries, as all have been assumed in connection with goodwill impairment evaluations; 10) satisfactory resolution of the company's litigation relating to the FMU-143 program; 11) continued support of the existing K-MAX helicopter fleet, including sale of existing K-MAX spare parts inventory; 12) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 13) profitable integration of acquired businesses into the company's operations; 14) changes in supplier sales or vendor incentive policies; 15) the effects of price increases or decreases; 16) the effects of pension regulations, pension plan assumptions and future contributions; 17) future levels of indebtedness and capital expenditures; 18) continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; 19) the effects of currency exchange rates and foreign competition on future operations; 20) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; 21) future repurchases and/or issuances of common stock; and 22) other risks and uncertainties set forth in the company's annual, quarterly and current reports, and proxy statements. Any forward-looking information provided in this release should be considered with these factors in mind. The company assumes no obligation to update any forward-looking statements contained in this release.

A summary of segment information follows:

SOURCE Kaman Corp.

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