August 13, 2012
Analyst Mike Crawford in “Airplane Parts Maker Soars on Back of Acquisition”, LA Business Journal
Ducommun finally sees payoff of radar company pickup.
By JOEL RUSSELL, Los Angeles Business Journal
When Ducommun Inc.’s stock soared last week, the reason was obvious: a strong earnings report showed that it made $5.5 million after a string of disappointing quarters.
Investors were so giddy that they lifted the share price more than $3 to $12.91 for the Carson manufacturer of airplane electronic components and assemblies. The 32 percent gain made it the biggest gainer on the LABJ Stock Index (see page 34).
Here’s what is not so obvious: Just last year, investors were unhappy over the acquisition that led to the sterling earnings report.
In April 2011, Ducommun announced the $340 million purchase of LaBarge, a St. Louis maker of radar systems for planes, satellite equipment and oil field electronics. The debt load to finance the acquisition was a negative for investors, and the following month, when the company suspended a quarterly dividend to help finance the acquisition, the stock fell hard.
Bhakti Pavani, aerospace analyst at C.K. Cooper & Co. in Irvine, said the acquisition confused investors but the latest quarterly results show it was a smart decision.
“They have integrated the acquisition, they are performing well and they plan to pay off the debt,” she said.
Ducommun has announced two significant LaBarge contracts since the acquisition, including one for $14 million to provide electronics manufacturing services for the V-22 Osprey military aircraft being made by Textron Inc.’s Bell Helicopter.
LaBarge is contributing to Ducommun’s earnings just as aviation manufacturing is booming.
Boeing Co., a major Ducommun customer, delivered 287 jets during the first half of 2012, a 29 percent increase from the first half of 2011. According to an Aug. 6 conference call with Ducommun management, activity is brisk at other customers, including Bombardier Inc., Sikorsky Aircraft Corp.’s Black Hawk helicopters unit and major military jet manufacturers.
“Commercial aerospace demand is fueling growth,” said Ducommun Chief Executive Anthony Reardon during the conference call. “We are pleased with the increasing build rates of our customers across the board.”
Ducommun declined to comment for this story, citing the travel schedules of top executives.
Still, Pavani sees two clouds on the horizon. First, the U.S. defense budget, which is downsizing, could shrink more, slowing military jet orders. In addition, the company has yet to pay down its long-term debt of $389 million.
But Mike Crawford, an analyst with B. Riley & Co. in Westwood, said the company’s announced plan to start paying down its debt in the third quarter will please investors.
“The company leveraged up when it acquired LaBarge, and the company now is using free cash flow to pay down that debt,” he said.