Frequency Electronics has a market cap of $94.5 million; its shares were traded at around $11.10 with a P/E ratio of 26.20 and P/S ratio of 1.40.
Highlight of Business Operations:For the three months ended July 31, 2013, revenues from commercial and U.S. Government satellite programs accounted for more than 55% of consolidated revenues and increased by 16% over the same period of fiscal year 2013. Revenues on these contracts are recognized primarily under the percentage of completion method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, also increased by 40% over the prior year and accounted for approximately one-fourth of consolidated fiscal year 2014 revenues. Network infrastructure revenues in the fiscal year 2014 period, declined by approximately 40% from the same period of fiscal year 2013 and accounted for approximately 15% of consolidated revenues. Such revenues are recorded in all three segments although the largest sales are recorded in the Gillam-FEI and FEI-Zyfer segments. Gillam-FEI total revenues increased over the prior year primarily due to intersegment sales which are eliminated in consolidation.
For the three months ended July 31, 2012, revenues from commercial and U.S. Government satellite programs accounted for approximately 50% of consolidated revenues compared to approximately 40% for the same period of fiscal year 2012. Revenues on these contracts are recognized primarily under the percentage of completion method. Revenues in the U.S. Government/DOD non-space business area which are recorded in the FEI-NY (including FEI-Elcom sales) and FEI-Zyfer segments were lower in fiscal year 2013 and accounted for approximately 15% of consolidated revenues compared to 20% of revenues in the fiscal year 2012 period. Network infrastructure revenues were lower in the FEI-NY and Gillam-FEI segments and accounted for approximately 25% of consolidated revenues in the three-month period ended July 31, 2012 compared to less than 30% in the fiscal year 2012 period.
For both of the three-month periods ended July 31, 2013 and 2012, selling and administrative expenses were approximately 21% of consolidated revenues. The increase in expenses in the fiscal year 2014 quarter compared to the same period of fiscal year 2013 is due to increased stock-based compensation and deferred compensation expenses as well as greater professional fees. For the remainder of fiscal year 2014, the Company expects selling and administrative expenses to be incurred at approximately the same rate and approximate the Company s target of 20% of revenues or less.
Research and development (“R&D”) expenditures represent investments intended to keep the Company s products at the leading edge of time and frequency technology and enhance competitiveness for future revenues. R&D spending for the three-month periods ended July 31, 2013 and 2012, was approximately 10% and 8% of revenues, respectively. In the fiscal year 2014 period, the Company accelerated its development of new satellite payload microwave receivers/converters from DC to Ka band. Such products are anticipated to be ready for customer evaluation and new contract awards by the third quarter of fiscal year 2014. In the fiscal year 2013 period, the quarter-to-quarter increase in spending is due primarily to product development expenditures at FEI-Elcom of approximately $300,000. R&D spending in fiscal year 2014, in addition to the development of new satellite payload products, will also include development and improvement of miniaturized rubidium atomic clocks, development of new GPS-based synchronization products and further enhancement of the capabilities of the Company s line of low g-sensitivity and ruggedized rubidium oscillators. Included in these efforts are product redesign and process improvements to enhance product manufacturability and reduce production costs.
Higher revenues and increased gross margin in fiscal year 2014 compared to the same period of fiscal year 2013 was offset primarily by increased spending on internal research and development activities. This led to the 11% reduction in operating profit for the period ended July 31, 2013. As a percentage of revenue, fiscal year 2014 operating profit was 5.7% of revenues compared to 6.5% of revenues last year.
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