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Héroux-Devtek Inc. (TSX: HRX) (“Héroux-Devtek” or the “Corporation”), a leading international manufacturer of aerospace products and the world’s third-largest landing gear manufacturer, today reported its financial results for the third quarter ended December 31, 2021. Unless otherwise indicated, all amounts are in Canadian dollars.
“In the final weeks of the quarter, we faced supply chain and production system disruptions brought on by the generally challenging environment, mostly due to the Omicron variant of COVID-19, resulting in lower throughput than anticipated, particularly for aftermarket products. While we expect these factors to continue to affect the fourth quarter as well, we are confident in our ability to recover the lower throughput in the quarters ahead,” said Martin Brassard, President and CEO of Héroux-Devtek.
“We are moving forward with prudent optimism in our approach and strategy as our fundamentals remain strong. Our OEM deliveries are on schedule, our order book is strong and unimpacted, and our sales portfolio spans a multitude of clients, segments and geographies,” added Mr. Brassard.
THIRD QUARTER RESULTS
Consolidated sales decreased 12.7% to $131.1 million, from $150.3 million last year, mainly relating to delayed deliveries resulting from supply chain and production system disruptions related to the current environment. Excluding the negative impact of foreign exchange fluctuations year-over-year, consolidated sales decreased 9.9%, or $14.9 million.
Excluding foreign exchange fluctuations, defence sales were down 3.9% to $94.6 million from $101.8 million, due to the more severe supply chain and production system disruptions experienced at the Corporation’s U.S. production sites in the quarter. Civil sales decreased 22.4% to $36.5 million from $48.5 million, as OEM demand in the large civil sector was lower than in the corresponding quarter last year when the full impact of the COVID- 19 pandemic had not fully materialized. The decrease also resulted from the repatriation by customers of certain Tier-2 contracts for large civil programs, partly offset by higher deliveries for business jet programs.
Gross profit as a percentage of sales decreased from 18.7% last year to 16.3%, mainly due to lower throughput resulting from the disruptions mentioned above, as well as higher quality costs.
Operating income decreased to $10.5 million, or 8.0% of sales, from $13.4 million, or 8.9% of sales last year. Adjusted EBITDA, which excludes non-recurring items, decreased at $19.7 million, or 15.0% of sales, from 15.8% a year ago.
Earnings per share decreased from $0.24 last year to $0.18 this year, due to the factors stated above. Adjusted EPS reached $0.18, down from $0.26 last year.
NINE-MONTH RESULTS
Consolidated sales decreased 6.5% to $388.6 million over the first nine months of Fiscal 2022, from $415.7 million for the corresponding period last year.
Net of foreign exchange fluctuations, defence sales were up 7.8% as a result of ramp-up of deliveries under the Sikorsky CH-53K, Boeing F-18 and MQ-25 programs, partially offset by lower aftermarket sales, while civil sales decreased 19.6% due to the same factors as for the third quarter.
Gross profit as a percentage of sales remained stable at 16.8% as the negative effects of the quarter were offset by the positive effect of restructuring initiatives on the Corporation’s cost structure, including lower depreciation.
Operating income grew to $33.3 million, or 8.6% of sales, from $21.9 million, or 5.3% of sales last year. Adjusted EBITDA, which excludes non-recurring items, stood at $60.9 million, or 15.7% of sales, compared with $63.3 million, or 15.2% of sales last year.
EPS incresased from $0.31 last year to $0.58, while adjusted EPS increased to $0.58 from the $0.52 recorded in the same period last year.
FINANCIAL POSITION
Cash flows related to operating activities reached $17.5 million in the third quarter and $53.2 million in the first nine months of the year, down from $26.7 million and $57.6 million in the corresponding periods last year. The decrease in cash flows related to operating activities is mainly the result of lower throughput combined with last year’s inventory reductions, while the decrease over the nine-month period mainly results from lower throughput.
As at December 31, 2021, net debt stood at $158.6 million, compared to $157.5 million as at March 31, 2021, mainly as a result of cash flow generation, net of share repurchases under the NCIB. The net debt to adjusted EBITDA remained stable compared to nine months earlier at 1.8x.
NORMAL COURSE ISSUER BID
In May 2021, the Corporation announced the approval by the Toronto Stock Exchange of its Normal Course Issuer Bid (NCIB), under which Héroux-Devtek has the right to purchase for cancellation, from May 25, 2021, to May 24, 2022, a maximum of 2,412,279 common shares, representing, as of May 12, 2021, 10% of the public float of 24,122,794 common shares.
During the quarter ended December 31, 2021, Héroux-Devtek had purchased and cancelled 1,396,190 common shares at an average price of $18.00 per share for a total cash consideration of $25.1 million under its Normal Course Issuer Bid. As of February 8, 2022, 2,295,634 common shares were purchased and cancelled at an average price of $17.86 for a total cash consideration of $41.0 million.
CONFERENCE CALL
Héroux-Devtek Inc. will hold a conference call to discuss these results on Wednesday, February 9, 2022 at 8:30 AM Eastern Time. Interested parties can join the call by dialing 1-888-390-0549 (North America) or 1-416-764-8682 (overseas). The conference call can also be accessed via live webcast at http://bit.ly/HRX_Q3-2022. An accompanying presentation is also available on Héroux-Devtek’s website at https://www.herouxdevtek.com/en/news-events/events.
If you are unable to call in at this time, you may access a tape-recording of the meeting by calling toll-free 1-888- 390-0541 and entering the passcode 130900 on your phone. Local dial-in number is 1-416-764-8677. This recording will be available from Wednesday, February 9, 2022, as of 11:30 AM, until 23:59 PM on Wednesday, February 16, 2022.
This press release was prepared and distributed by Héroux-Devtek Inc.
