LaBarge Inc (LB) filed Quarterly Report for the period ended 2009-09-27.
LABARGE INC. engineers manufactures tests and sells sophisticated electronic control systems and devices and complex interconnect assemblies under contract with its customers. Markets for Co.'s products are: defenseelectronics telecommunications medical equipment aerospacegeophysical/energy and various other commercial/industrial markets. Labarge Inc has a market cap of $184.7 million; its shares were traded at around $11.57 with a P/E ratio of 13.2 and P/S ratio of 0.7. Labarge Inc had an annual average earning growth of 21.7% over the past 10 years.
Highlight of Business Operations:
Backlog at September 27, 2009 increased $3.7 million from June 28, 2009. The $4.3 million increase in natural resources backlog is primarily related to bookings in the wind power generation sector. Backlog growth in the industrial market of $2.4 million is related to stronger bookings from a customer acquired in the Pensar acquisition. The medical backlog decline reflects continued weakness in that market. As of September 27, 2009, approximately $19.5 million of the backlog is scheduled to ship beyond the following 12 months, pursuant to the shipment schedules of the contracts that comprise backlog. This compares with $22.9 million as of June 28, 2009.
The Pensar acquisition, described in note 2 to consolidated financial statements, contributed $10.1 million of net sales to the 2010 first quarter. The net sales for the Company, excluding the impact of the Pensar acquisition, decreased $15.2 million from the comparable period a year earlier. The overall decrease in net sales for the three months ended September 27, 2009, versus the three months ended September 28, 2008 was primarily due to the economic downturn. Industrial sales declined by $5.5 million due to the economic downturn but the decline was offset by $1.9 million of sales from the Pensar acquisition. Sales to customers in the natural resources market decreased $4.5 million due to lower commodity prices in the mining and oil and gas industries. This reduction was partially offset by $3.3 million of natural resources sales from the Pensar acquisition, primarily in the wind-power generation sector. The increase in medical sales was driven by $3.6 million of sales from the Pensar acquisition, which was offset by a $1.5 million reduction to other medical customers due to the economic downturn. Commercial aerospace sales decreased due to the bankruptcy of a commercial aerospace customer in November 2008. The decrease in other markets was primarily due to the completion of a large multi-year contract for baggage scanning equipment in December 2008. Sales to the Company’s 10 largest customers represented 60% of total revenue for the three months ended September 27, 2009, versus 70% for the same period in fiscal 2009. The Company’s top three customers and their relative contributions to fiscal 2010 first quarter sales were Owens-Illinois Group Inc., 10.9%; BAE Systems, 9.2%; and Raytheon Company, 8.6%. The Company’s top three customers for the three months ended September 28, 2008 were Owens-Illinois Group, Inc., 17.5%; Raytheon Company, 9.2%; and Schlumberger Ltd., 9.0%.
Gross profit margins vary significantly by contract. The most significant factors influencing profitability in a particular period are: the mix of contracts and orders with deliveries in that period; and, the volume of sales in relation to the Company’s fixed costs during the period. Delivery schedules are generally determined by the Company’s customers. The significant factors that influence the profitability of individual contracts include: (i) the competitive environment in which the contract was bid; (ii) the experience level of the Company in manufacturing the particular product(s); (iii) the stability of the design of the product(s); and (iv) the accuracy of the Company’s original cost estimates. Cost of sales for the three months ended September 27, 2009 decreased $3.0 million, compared with the three months ended September 28, 2008, driven primarily by the sales decline of $5.0 million from the prior year first quarter. Gross profit for the three months ended September 27, 2009 was down $2.0 million and the gross profit margin was down 150 basis points versus same period of fiscal 2009. The decline in gross profit margin from 20.9% in the first fiscal quarter of 2009 to 19.4% in the first fiscal quarter of 2010 was primarily driven by the acquisition of Pensar. In addition, gross profit margin was negatively impacted by a percentage drop in sales that exceeded the percentage drop in indirect manufacturing expenses. The acquisition of Pensar added cost of sales of $9.1 million and gross profit of $1.0 million for the three months ended September 27, 2009. For the three months ended September 27, 2009, the Pensar operation generated gross profit margin of 10.1%. Excluding the Pensar operation, the gross profit margin would have been 21.1% for the three months ended September 27, 2009, an increase of 20 basis points compared with the same period in fiscal 2009. For the three months ended September 27, 2009, gross profit was positively impacted by $227,000, or 40 basis points, for the payment of a claim on a contract completed in the third quarter of fiscal year 2009. The Company continues to pursue additional claims related to this contract. However, no amounts have been recorded in the consolidated financial statements related to these claims. The gross margin, excluding the impact of the Pensar acquisition, was negatively impacted by the fact that sales dropped 22.3% while indirect manufacturing expenses fell only 13.7% compared with the same period a year earlier. However, the Company had improvements in the direct manufacturing costs as these costs as a percent of sales improved in first fiscal quarter 2010. For the three months ended September 28, 2008, gross margins were negatively impacted by higher than anticipated labor and material costs on certain early-stage long-term contracts that were not fully recoverable from the Company’s customers, and start-up expenses on a significant new contract for the assembly of heavy mechanical products in the industrial market. Selling and Administrative Expense (dollars in thousands)
The Pensar acquisition added $912,000 to the Company’s selling and administrative expense for the quarter ended September 27, 2009. Excluding the expenses attributable to Pensar, selling and administrative expense decreased by $1.1 million from the same period a year earlier. This decrease resulted from reductions in the current year first quarter incentive compensation expense of $577,000, employee relocation expenses of $122,000, bad debt expense of $113,000, professional service fees of $73,000 and $63,000 of expense related to the temporary suspension of the Company’s contributions to employee retirement accounts.
Other long-term debt includes capital lease agreements with outstanding balances totaling $199,000 at September 27, 2009 and $238,000 at June 28, 2009. The aggregate maturities of long-term obligations are as follows: (in thousands)
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