Ducommun Incorporated (DCO)

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Ducommun (DCO)

Q1 2013 Earnings Call

May 06, 2013 5:00 pm ET


Chris Witty

Anthony J. Reardon - Chairman, Chief Executive Officer, President, Acting President of Ducommun Aerostructures - Group and President of Ducommun Technologies

Joseph P. Bellino - Chief Financial Officer, Vice President and Treasurer


Mark C. Jordan - Noble Financial Group, Inc., Research Division

Kenneth Herbert - Imperial Capital, LLC, Research Division

Michael Crawford - B. Riley Caris, Research Division

J. B. Groh - D.A. Davidson & Co., Research Division

Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division



Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Ducommun Earnings Conference Call. My name is Regina, and I'll be your conference operator for today. [Operator Instructions] As a reminder, today's event is being recorded for replay purposes.

I will now turn the conference over to your host for today, Mr. Chris Witty, with Ducommun's Investor Relations. Please go ahead, Chris.

Chris Witty

Thank you, and welcome to Ducommun's first quarter conference call. With me today is Tony Reardon, Chairman, President and CEO; and Joe Bellino, Vice President and CFO.

I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements, other than statements of historical facts included in this conference call, are forward-looking statements.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call and in the company's Annual Report and Form 10-K for the fiscal year ended December 31, 2012.

All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call.

I'd like to turn it over now to Tony Reardon for a review of the operating results. Tony?

Anthony J. Reardon

Thank you, Chris, and thank you, everyone, for joining us today. I'll begin by providing a brief overview of the quarter, including some market color, after which I'll turn the call over to Joe Bellino to go through our financial results in detail.

When we last spoke 2 months ago, I reviewed many accomplishments we achieved in 2012 and laid out our path we would take going forward. First quarter played out with strong shipments in our core aerospace and defense business, offset by weaker sales within our non-A&D markets, in particular the industrial and natural resources segments. These are areas we have put the great deal of effort aligning our total capabilities with the needs of our customers and are working hard to gain some of the market dynamics on our favor as I'll review further in a moment.

I'm pleased that our overall backlog remains solid and that our aerospace and defense sales increased 4% year-over-year and our segment EBITDA margins also rose.

In addition, as Joe will go over in detail, we took further steps to bolster our balance sheet this quarter, repricing our credit agreements to reduce interest expense and paying down another $7.5 million of outstanding debt.

Deleveraging the company remains a core objective for the quarters to come.

Now let me provide some more in-depth color on our markets, platforms and programs. Starting with our non-A&D business, sales fell 32% year-over-year due to weakness in our industrial and natural resources segments. As we've mentioned in the past, the trend of soft orders from key customers continued and, unfortunately, anticipate this case to be going forward for another quarter or 2.

Our book backlog of the business here also fell slightly from the year end 2012. That said, quarterly revenue in our non-A&D segment has likely bottomed out, so we expect some stability going forward. We have several initiatives to identify and pursue new business opportunities across a number of industrial and energy markets. We're working with our customers to identify a number of product upgrades utilizing our in-house engineering capabilities in support of our customer's design teams.

So we're not only looking for additional follow on and new business opportunities, but we're supporting the customer and aftermarket services as well.

While we have many satisfied long-term clients, we're looking to further develop these relationships and substantially expand our customer base. We expect the economy will continue to improve in the months to come and we're targeting specific submarkets for increased customer penetration.

With our broad capabilities and technological expertise, we're confident in our ability to win energy -- new energy and industrial customers alike, particularly given the help with some portions of these sectors today. We will continue to update you on the progress in addressing these markets and obtaining new business.

Moving to our military and space programs, we again saw strong revenue this quarter. Despite lower military helicopter sales reflecting some schedule slides, we saw increased underlying demand and customer acceptance of our defense electronic products, including higher shipments radar racks both domestically and abroad.

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