Ducommun Incorporated (DCO)

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Ducommun (DCO)

Q2 2013 Earnings Call

August 05, 2013 5:00 pm ET

Executives

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

Analysts

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

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

Michael Crawford - B. Riley Caris, Research Division

Les Sulewski - Sidoti & Company, LLC

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

Michael Callahan - Topeka Capital Markets Inc., Research Division

Gregory M. Macosko - Lord, Abbett & Co. LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Ducommun Conference Call. My name is Jackie, and I will be your operator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to the coordinator, Mr. Chris Witty. You may proceed.

Chris Witty

Thank you, and welcome to Ducommun's second quarter conference call. With me today is Tony Reardon, Chairman, President and CEO; and Joe Bellino, Vice President, Treasurer 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 over our financial results in detail.

The second quarter clearly highlighted the strengths at Ducommun's diverse aerospace and defense operations as the company benefited from robust demand for large commercial jets and the solid basic key military programs. The top line growth combined with strong margins and lower interest rate -- expense helped drive earnings to $0.51 per share. And by keeping a focus on operating leverage and working capital management, we generated more cash and paid down additional debt this quarter, leaving the company with a stronger balance sheet.

So we had a number of things come together that drove the positive operating results, as we continue to execute on the strategy of growth and earnings improvement.

Heading into the second half of 2013, our backlog remains solid at $632 million, and we expect some major follow-on orders in both commercial and military markets, along with new business wins, which we expect will bolster our backlog further.

While there are still some uncertainties within the non-A&D segment, as well as the potential of impact of sequestration, we're prepared to manage the business through these challenges.

Now let me provide some more in-depth color on our markets, platforms and our programs.

Ducommun and the entire industry is benefiting from ongoing robust commercial aerospace demand. We're all aware of the increasing build rates from Boeing and Airbus, as well as some of the major orders announced during the Paris Air Show in June that further strengthened their backlogs. Given this backdrop, we're very positive about the large commercial aircraft market where our sales grew over 25% year-over-year. In fact, large commercial aircraft sales represented nearly 20% of our Ducommun revenue during this quarter and we see no let up in demand, particularly across some of our most popular programs: the 737, 777 and 787 aircraft.

Our backlog remains healthy across the overall commercial aerospace sector. However, softness continues within the business and regional jet markets and we've experienced a pullback in our commercial helicopter shipments after 2012's record performance.

We continue to focus on new business opportunities within the commercial aerospace arena. And during the quarter, we announced an agreement with Alenia Aermacchi, a unit of Italy's Finmeccanica, to produce various fuselage skins for the Airbus A321 aircraft.

As our first major contract for an Airbus single-aisle aircraft, this is a great opportunity for us to showcase our technology and production expertise as we look to expand sales across the A320 family. This long-term agreement also significantly strengthens our partnership with Alenia, and Ducommun now supports the A320, A350 and A380 programs.

Within the military and space markets, we posted solid results across the board this quarter, representing our diverse set of products and platforms. Our military aircraft revenues rose substantially year-over-year, primarily due to strong deliveries for the F-15 and the F-18.

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