Advanced materials supplier Park Electrochemical (PKE -1.37%) reported earnings early Thursday morning. The report, covering the third quarter of fiscal year 2018, fell short of analyst estimates across the board. Still, Park's shares rose as much as 7% higher in Thursday's regular trading session.
That's a rare combination. Let's see how Park pulled it off.
Rising on a miss? Really? Image source: Getty Images.
Park Electrochemical's third-quarter results: The raw numbers
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$26.1 million |
$26.5 million |
(2%) |
|
Adjusted net income |
$1.1 million |
$1.9 million |
(42%) |
|
Non-GAAP earnings per share (diluted) |
$0.06 |
$0.10 |
(40%) |
Data source: Park Electrochemical.
What happened with Park Electrochemical this quarter?
- Park saw aerospace materials sales rise 36% year over year to $10.2 million while electronics revenue slipped 16% lower. Management sees the gloomy writing on the wall and is now prepared to sell the electronics business and become a pure aerospace company instead.
- The company has hired a financial advisor to find a buyer and hammer out a deal for the electronics business, leaving behind a higher-growth core business with rising profit margins.
- By fiscal year 2022, the reformed Park should still run at lower annual top-line revenue than the sector-spanning company you see today, but EBITDA is expected to double or more.
- The company also paid down all of its long-term debt during the third quarter and declared a special one-time dividend of $3.00 per share, payable on Feb. 13. This dividend will distribute 40% of Park's current cash balance straight to shareholders, leaving roughly $90 million of cash equivalents on the books.
What management had to say
The growth forecast for a version of Park without the electronics anchor around its neck may be on the conservative side, according to the company's management.
"Because of the status Park has earned in the Aerospace Industry, Park may be very well positioned to take advantage of fairly unique strategic opportunities, including acquisition opportunities, in the Aerospace Industry," management said in a prepared statement.
What's next?
As a pure play on the thriving aerospace materials business, Park may indeed unlock some serious growth opportunities for the long run. Sector rival Rogers (ROG -0.61%) has certainly found traction in the aerospace industry; Rogers often calls out that market as an important driver behind the company's 25% annual sales growth.
That's not a bad role model to follow, especially since Rogers' shareholders saw their investments more than double in value last year. In that light, Park's modest price jump today makes plenty of sense -- the company is ready to take some drastic steps in order to fire up its stalled growth engines.
