By all rights, these should be boom times for the CEO of Aerojet Rocketdyne (NYSE:AJRD).
Since taking the reins at the company (which was known as GenCorp at the time) five years ago, President and Chief Executive Officer Scott Seymour has grown its revenues 85% and generated positive operating cash flow every year he's been in charge.
He's turned one of the leading rocket-engine makers in the country into the leading rocket-engine maker, absorbing Aerojet rival Rocketdyne in 2013. And he's led that company to the very edge of winning a multibillion-dollar U.S. Air Force contract to rebuild the stage 3 motors for America's Minuteman III ICBM force -- and given it a fighting chance at building the next generation of heavy lift rockets for United Launch Alliance as well.
So why is he leaving the company?
End of an era
Earlier this month, Aerojet Rocketdyne announced that Seymour would be leaving the company -- indeed, that he already had left the company -- resigning in favor of Eileen Drake, who was then the COO but had been with Aerojet only since March. Drake had come over from United Technologies to assume the responsibilities of former Aerojet President Warren Boley -- who himself resigned in February.
If you're counting, that makes two top Aerojet bosses who have left the company in the past four months -- with Drake taking both of their jobs. It's enough to make an investor wonder what's got so many Aerojet execs so desperate to leave the company so quickly -- and just what Drake has gotten herself into in agreeing to take their places.
So let's take a look.
Aerojet Rocketdyne by the numbers
Last year was a pretty good one for Aerojet Rocketdyne, at least in one respect. Despite broad declines in government spending on aerospace and defense companies, Aerojet booked a 15% sales increase. The company did not, however, earn a profit, instead reporting $53 million in net losses for the year, according to S&P Capital IQ data -- its second net-losing year in the past three.
On the plus side, Aerojet continues to churn out cash reliably. Free cash flow (operating cash flow minus capital expenditures) amounted to $107 million last year, and $102 million for the past 12 months. So while technically "unprofitable" as GAAP counts such things, the company's actually doing a good job of continuing to generate cash. Aerojet's valuation -- 12.7 times trailing free cash flow -- isn't particularly expensive-looking, either.
Looking forward, and keeping in mind those potential nuke and rocket-ship contracts I mentioned, analysts who follow Aerojet expect to see the company showing long-term earnings growth of about 20% annually.
The upshot for investors
So, 12.7 times free cash flow for a 20% grower? Ordinarily, those are the kinds of numbers to get any value investor excited about a stock prospect -- if it weren't for the pesky detail that all the folks who got the company to this valuation are suddenly jumping ship. And it's these resignations that are almost certainly to blame for the stock's anemic performance of late.
That said, I don't believe investors need to panic about the management shake-up, as long as the numbers hold up. When it comes to Aerojet Rocketdyne, I'll start to worry when the free cash flow starts to dry up -- not before.