Standex International Corporation (SXI) Earnings

Management highlights

Good morning, this quarter provides strong proof point that strategy shifting toward faster-growing end markets and increasing new product development is working. Delivered top-line sales growth of 8%, including organic growth of 6.5%. Sales into fast-growing end markets are now above 30% of total, and new products are expected to add 300 basis points of growth to 2026 sales results. Electronics and engineering technologies business generate about 70% of sales and nearly 80% of total segment profits. Renamed engineering technology segment as Standex Aerospace and Defense. Completed divestiture of federal industries on March 6th at enterprise value of approximately $70 million, used proceeds to pay down about $62 million of debt, reducing net leverage to 1.9 times. Will report under four operating segments: electronics, aerospace and defense, scientific, and engraving and hydraulics. Expect fiscal 2026 revenue to increase by about $100 million versus 2025, supported by momentum in new products and fast growth markets. Expect to launch more than 15 new products this fiscal year. Sales into fast-growing markets such as space, defense, and grid are expected to increase to approximately $270 million, constituting about 30% of total sales

Guidance

Sequentially, expect slightly higher revenue driven by higher contributions from fast growth end markets and new product sales, and slightly to moderately higher adjusted operating margin. On a year-on-year basis, expect slightly to moderately higher revenue in fiscal fourth quarter 2026 driven by mid to high single-digit organic growth, partially offset by revenue impact from federal divestiture. Expect slightly lower adjusted operating margin as organic growth and realization of productivity actions are more than offset by growth investments. For electronics, sequentially expect slightly to moderately high revenue, slightly higher adjusted operating margin. On a year-on-year basis, expect high single-digit organic growth. For aerospace and defense, sequentially expect slightly to moderately higher revenue due to growth in new product sales and more favorable project timing, slightly to moderately higher adjusted operating margin due to higher volume and realization of productivity initiatives. On a year-on-year basis, expect double-digit organic growth. Expect fiscal 2026 sales to increase approximately $100 million over fiscal 2025 with margin expansion

Segment performance

In the third quarter, sales increased 8.1% year-on-year to $224.6 million, including 6.5% organic growth. Electronics grew 6.8% organically. New product sales grew approximately 40% to approximately $18.7 million. Sales into fast-growth markets were approximately $69 million, more than 30% of total sales. Adjusted operating margin of 19.7% was up 30 basis points year on year. Electronics revenue increased 7.6% year-on-year to a record $119.7 million, driven by organic growth of 6.8% and 0.8% benefit from foreign currency. Adjusted operating margin of 29.3% in fiscal third quarter 2026 decreased 50 basis points year-on-year due to growth investments partially offset by higher volume, pricing initiatives, and product mix. Aerospace and defense revenue increased 33.7% to 36.6 million, driven by organic growth of 20.8%, 12.2% benefit from recent McStyleLite acquisition, and 0.7% benefit from foreign currency. Adjusted operating margin of 18% decreased 60 basis points year-on-year, primarily due to project mix. Scientific revenue decreased 1.7% to $18 million, primarily due to organic decline from lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 21.9% decreased 70 basis points year-on-year due to lower sales. Engraving and hydraulics revenue increased 2.2% to $44.8 million, driven by a 4% benefit from foreign currency, partially offset by organic decline of 1.8%. Adjusted operating margin of 14.3% in fiscal third quarter 2026 increased 210 basis points year-on-year due to higher sales and realization of previously executed restructuring actions

Analyst Q&A

• Q: Hey, good morning, guys. Thanks for taking a couple. Maybe we'll start on the defense opportunity. You've talked about, you know, providing missile nose cone solutions, include nose cones for interceptors, tactile missiles, as well as development hypersonics. Maybe can you just give us a sense for the scale of that opportunity? You know, what kind of orders look like? Are there long lead times? Just You know, any thoughts there would be, you know, really helpful.

  A: Yeah, so there we're talking about within engineering technologies. We serve defense in the magnetics business, in electronics, and in engineering technologies. The engineering technologies business provides nose cones out of their Wisconsin facility. And about, you know, 15% of the engineering technologies or aerospace and defense segments is defense. Most of that is missiles. There is an opportunity to significantly increase that in the coming years. We have had discussions with customers and actually with the Undersecretary of the Department of Defense asking if we are able to ramp and they gave us different scenarios. These upper scenarios really kind of depend on the government procurement process passing orders from multi-year commitments to us We have received some orders, so we expect a nice increase in those sales in 2027, potentially greater if they can unlock the procurement process.

• Q: Hey guys, good morning. I guess I just wanted to start with the electronics segment and the order flow looks like it's up north of 75% year on year. Wanted to hear a little bit about the drivers of the strength and order flow between grid and the core magnetics and sensing solutions business.

  A: Yeah, so the growth, I'm going to add America, the 75%. I don't see the 75% math. We had a great book to build, 1.14 on growing sales. We're seeing strong order flow in our core switches business, which for us is a good indication that general industry, certainly in Asia, is picking up. That in the quarter, the sales were up over 20% in switches. Relays are strong. Our sales in the grid are up about 20% with a book to bill of about 1.1 or something. So it's a very strong order flow there. And it's kind of a tale of two cities in the industrial world. Space, defense, grid, aviation, those businesses are all growing double digits. General industry in North America and Europe is still fairly slow. And as I said before, general industry in Asia looks like it has really picked up. Yeah, and if I can just add to that, Matt, as we said in our prepared remarks, we had two consecutive months of orders over $50 million for electronics, which has never happened before. And some of that is clearly the strength we had seen and continue to see in the grid space and some of these fast growth end markets. But also it's to David's point's indication that the general industrial markets are stabilizing and we are kind of turning the corner here. Now, it takes us a little time to convert those orders into sales, but it makes us pretty bullish about what we're going to see in FY27 in terms of top-line performance. Again, assuming there is no significant macroeconomic or geopolitical challenges.

• Q: Yes, hi, good morning. Can I just take my questions? Morning, Mike. Speaking of operating margins, just looking at the results, it's pretty clear that engraving and hydraulics are now kind of the lowest of the four. I guess those are kind of like two different businesses. Can you comment on your plans for those businesses if you're,你 know, always trying to hone it a little bit better and a little bit higher,你 know, year after year? Is there a potential that... Those are kind of next to go, I'd say, after federal.

  A: Well, you know, in their – as you know, they're strong businesses in their sectors. They're not burning platforms in that sense. So it's kind of a question of timing to find the best opportunities for those businesses. Within engraving, we have some – Pretty interesting growth initiatives going on. We talked about making these specialized parts, functional textures. Those are ramping up. So the businesses themselves are fundamentally sound. We have some profit improvement projects in both of them. And你 look at our history, where we've invested in acquisitions. We love the engineered components businesses. You will likely see more of that. And we have some very good businesses that,你 know, hydraulics and engraving, they could be fit somewhere else. And we continue to monitor the situation and we'll make the right decision at the right time. Okay. Okay. In aerospace, given the organic work you've seen now and we've got quite a few opportunities ahead of you, Do you see a need to expand capacity there on a greenfield basis? In the aerospace and defense segment, is that your question, Mike? Yes. Yeah. Not from a greenfield standpoint, at least not in the near term. We have a bit of a capacity in our sites, but obviously as the business continues to grow at some point, we might have to look at additional space, but no immediate plans as of right now. We feel we can service what's coming our way in the near term. Yeah, I guess the one caveat to that is we mentioned the missile programs. If these missile orders do appear for some of these higher scenarios, then we will expand footprint. That's correct. Okay, got it, got it. But we would only do that with a long-term commitment from the customer, and we'd certainly communicate that in a future quarter. Right. I imagine你有一个ROIC hurdle to meet there, and it wouldn't be any different than you would for Amaran or anything else. Right. Right, exactly. Great. And then it sounds like你're not looking to give us too much guidance yet on fiscal 2027, but can you at least comment on the new product menu for 2027? Do you have as many rolling out next year as you had this year? Do you have ones in the pipeline yet? Can you expect a halfway decent year from that part of the growth plan? A: Yeah, if you just step back and think, our general growth model, we think we've got these fast growth markets that continue to grow. Upper teens, 20% a year. That's like six points of growth from that. Our new products, we still expect that to add 300 basis points of growth. And then whatever happens with general industries may be a tailwind to that. So just as a high level, I would be thinking, in that zone for 2027. So in terms of numbers of products in 2027, that's in line with... Yeah, definitely, Mike. I think we think the momentum will continue. Actually, it might even increase because as we are adding, our funnel is increasing internally of new product ideas. Outstanding. I'll leave it there. Thank you.

• Q: Thanks. Good morning, everyone. In your new segment breakdown, the other category, is that legacy federal before the divestiture? What exactly is in there?

  A: Yeah, that's right. That's all it is. Okay, that's all it is. Yeah, okay. So with the sale of Federal, was the corporate expense associated with Federal? Does that come out of the equation? I noticed like your corporate expense was about $8.6 million this quarter, a step down from last quarter, which was a normally high, but As we're modeling, what kind of number should we be looking at for that corporate expense number? A: Yeah, Gary, it's adamant. I mean, we don't really allocate a lot of corporate costs, so there's no corporate cost that would go away with federal. I mean, what's really driving the reduction in the corporate cost for this quarter is, you know, some of it is we got slightly lower medical costs versus some of the prior quarters. there was some,你 know, uh, adjustment to the, to the bonus payouts. And that's, that's basically it. But we do assume that, uh,你 know, going forward, kind of,你 know, nine to $10 million run rate is probably, probably the right, the right number. Okay. And then, uh, just in terms of, um, your tax rate, because I noticed it was down, I think this quarter, um, and obviously a lot of moving parts with the numbers with the sale of Federal, but for Q4, is it looking like it'll be about 24%? A: Yeah, 24 to 25 is kind of what I would tell你. It's a good estimate. Okay. And then just last question in terms of what's your growth in electronics. I mean, can you, is it all across the board and grid? replacement of grid, data centers, or where are you starting to see abnormal growth? Did you say abnormal growth? Right, yeah. You know, growth in excess of what you were thinking in terms of application. Yeah, so the growth drive is certainly a grid, defense. There is a defense component in electronics. And like I mentioned earlier, Our sales of bare switches, reed switches, was up 20% year on year. So those go everywhere. It's a sign of general industry strength, primarily in Asia. And our relay sales are strong. They're driven by test and measurement equipment, similar drivers to the grid, serving data centers and the equipment that go into data centers. Now, another way to look at it, we have three businesses in there, as you know. We've got what we used to call magnetics, our edge business, which is really a North American business. That was down in the quarter year on year, largely due to some execution issues. Their book-to-bill was very strong. The detect, the SST business, which is where the switches and sensors are, was upper single digits. That includes the switch business I talked about before. And then grid, of course, which we talked about. So kind of that triangulates into你的 growth question from a couple different angles. Okay. Thank you. And at this time, Mr. Dunbar, we have no other questions registered. Please proceed, sir. All right. Thank you. I appreciate everybody connecting today on this call. We always enjoy reporting on our progress at StandEx. Thank you also to our employees and shareholders for your continued support and contributions. I look forward to speaking with you again in our fiscal fourth quarter call. Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.