Over the past several months, shareholders of Standex International have seen several positive developments.
As a diverse player in the industrial manufacturing sector, Standex produces a wide range of products, including sensing and switching technologies, custom textures and surface finishes, specialty temperature-controlled equipment, and components used in the construction of fuel tanks, rocket engines, spacecraft structures, and turbines for energy production.
The company’s diverse portfolio spans various industries, demonstrating its adaptability and broad market presence.
Recent Performance and Market Position
Standex International has experienced a notable increase in its share price, rising by 27.2% since November of last year. This performance outpaced the S&P 500, which saw an 18% increase in the same period. This growth reflects the company’s robust market position and strategic initiatives, even as it faces some financial challenges.
Third Quarter Financials
Despite the positive share price movement, Standex International’s financial performance has been mixed. In the third quarter of the 2024 fiscal year, the company reported revenues of $177.3 million, a 3.8% decrease from the $184.3 million generated in the same period the previous year.
This decline was primarily due to organic sales dropping by $10.5 million, a 5.7% decrease, attributed to headwinds in the Electronics and Scientific segments. However, acquisitions positively impacted revenue by $10.6 million, partially offset by a $5.5 million hit from divestitures and a $1.6 million impact from foreign currency fluctuations.
Profitability Trends
The decline in revenue was accompanied by a significant drop in net income, falling from $80.5 million to $15.8 million. This decrease includes a $62.1 million gain from the sale of business operations in the third quarter of 2023. Excluding this gain, pretax income still fell from $24.3 million to $15.9 million.
Other profitability metrics showed more stability, with operating cash flow increasing from $23.3 million to $24.4 million, although adjusted for working capital changes, it dropped from $30.8 million to $20.4 million. EBITDA remained flat year over year at $34.5 million.
Year-to-Date Performance
For the first nine months of 2024, Standex International reported revenues of $540.4 million, a 2.2% decrease from $552.7 million the previous year. This reduction occurred despite benefiting from $28.8 million in acquisitions.
Organic sales revenue dropped by $20.1 million, and divestitures impacted revenue by $21.3 million. Net income was more than halved, falling from $118.8 million to $53.5 million.
Future Projections and Valuation
Although management has not provided detailed guidance for the remainder of the 2024 fiscal year, annualizing the results so far suggests net income around $62.6 million, adjusted operating cash flow of about $95.3 million, and EBITDA totaling $141.9 million.
These figures indicate that the stock might be fairly valued, with multiples showing the company has become more expensive relative to its historical and peer valuations.
Growth Potential and Market Opportunities
Despite the recent challenges, Standex International has significant growth potential. Management anticipates benefiting from the continued adoption of electric vehicles (EVs). The global production of vehicles is expected to grow from 88 million in 2023 to 97 million by 2030, with the share of electric vehicles, particularly battery electric vehicles (BEVs), increasing from 12% to 32%.
Standex’s products have a larger content per vehicle in EVs compared to internal combustion engines, opening up substantial revenue opportunities.
Beyond the EV market, Standex’s diverse business segments offer considerable growth potential. The Electronics segment, for instance, operates in a market estimated to be worth over $5 billion annually, with Standex generating only $306 million from this segment in 2023. Similarly, the Engraving segment operates in a market worth over $500 million, with Standex’s sales at $152 million last year.
The Scientific segment, with a market potential of over $700 million, generated $75 million in revenue in 2023. The Engineered Technologies segment and the Specialty Solutions segment also operate in substantial markets, providing further growth avenues.
Strategic Investments and Shareholder Returns
Standex International has a history of strategic investments aimed at growth and shareholder returns. From 2019 through 2023, the company allocated approximately 36% of its cash flows towards acquisitions and 20% towards capital expenditures.
Additionally, 26% of cash flow was used for share buybacks, and 12% was allocated to dividends, demonstrating a balanced approach to growth and rewarding shareholders.
Standex: Well-Positioned for Future Success
While Standex International has experienced some recent financial challenges, its diverse product portfolio and strategic growth initiatives position it well for future success.
The company’s focus on the EV market, along with its broad market presence across various industrial sectors, offers significant growth potential. However, given the substantial appreciation in its stock price and the mixed financial performance, it may be prudent for investors to adopt a cautious approach for now.
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Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
