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Sequester fate still far off: Ducommun

Keywords: Tags  Ducommun, sequestration, earnings report, industrial, defense, Boeing, aerospace, Frank Haflich

LOS ANGELES — Ducommun Inc. said stretchouts, rather than outright defunding, are a more likely result of the U.S. federal budget sequestration, although the company is taking a wait-and-see approach.

The Los Angeles-based manufacturer of aerospace, defense and industrial products believes the fallout from the current taxation and spending impasse between Congress and the Obama administration "will play out over the next several months," and it’s "too early for us to discern any potential impact on our defense business going forward," chairman, president and chief executive officer Anthony J. Reardon said during a March 4 conference call with securities analysts to discuss the company’s fourth-quarter and full-year earnings.

While Reardon doesn’t expect work in Ducommun’s end-of-year backlog of $657 million to be "cut or defunded," what’s more likely is that "some of those programs are moved to the right," or stretched out—for example, Sikorsky Aircraft Corp.’s Black Hawk helicopter.

Military and aerospace business accounted for 51 percent of Ducommun’s revenues last year, he said. That business included such programs as the Black Hawk, Boeing Co.’s AH-64 Apache helicopter and F-15 fighter, and missile defense programs.

Reardon said Ducommun was "very disappointed in the lack of effort in Washington" to resolve the country’s budget issues.

Ducommun posted fourth-quarter net income of nearly $3.44 million in contrast to a net loss of $48.49 million in the same period a year earlier, when it incurred pre-tax merger-related expenses of $3.2 million and a pre-tax non-cash goodwill impairment charge of $54.3 million. Fourth-quarter sales increased 3 percent to $193.89 million, driven primarily by military helicopter, military fixed-wing and large commercial aircraft products.

Full-year net income of nearly $16.44 million was in sharp contrast to a $47.58-million net loss in 2011 as sales jumped 28.6 percent to $747.04 million.

The company’s AeroStructures segment, whose specialties include titanium parts and components, posted fourth-quarter net earnings of $7.22 million, more than double earnings of $3.39 million a year earlier on sales that climbed 19.3 percent to $82.15 million from $68.87 million.

The segment’s full-year operating earnings increased 11.6 percent to $28.79 million from $25.8 million in 2011 on sales that rose 5.9 percent to $309.98 million from $292.76 million.

Reardon, who is also acting president of Ducommun AeroStructures, told analysts that the company expects corporate sales to be flat in 2013, or "at least through the first half," due to the timing of some programs booked later in the year and an expected decline in build rates in other programs as the war in Afghanistan winds down.

Ducommun’s military and space backlog totaled $370 million at the end of 2012, up 4 percent from a year earlier, Reardon said.

While commercial aerospace’s share of the backlog was smaller at $230 million, it nevertheless represented a 19-percent year-over-year gain and is expected to grow further in 2013, he told analysts, although he acknowledged that the regional jet and general aviation markets, which declined substantially last year, remain weak.

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