STANDEX INTERNATIONAL CORP/DE/ Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Achieved record sales since Refrigeration business divestiture in 2020, record adjusted gross margin (42.3%) and adjusted operating margin (19.4%).
• Sales into fast-growing end markets increased to 29% of total sales, driven by electrical grid, space commercialization, defense, and renewable energy.
• New product sales doubled y/y to $13.4 million in Q3, contributing ~3% to top line. Released 13 new products YTD, on track for over a dozen products FY.
• Integration of Amran/Narayan and McStarlite progressing well. Expansion plans in India, Europe, and USA with customer commitments extending years into future.
• Tariff impact mitigated through regional operations (85% of products manufactured/sold in same region), price and productivity actions, and supply chain optimization.

Segment Performance

• Electronics: Revenue of $111.3 million, up 38.4% y/y (48.1% benefit from acquisitions, 8.9% organic decline, 0.8% FX impact). Adjusted operating margin 29.8%, up 760 basis points y/y. New business opportunity funnel increased ~50% y/y to $117 million. Book-to-bill 0.98 with orders ~$109 million.
• Engraving: Revenue $30.6 million, down 15.7% y/y (12.6% organic decline, 3.1% FX impact). Adjusted operating margin 11.2%, down 720 basis points y/y.
• Scientific: Revenue $18.3 million, up 8.1% y/y (16.1% benefit from acquisitions, 8% organic decline). Adjusted operating margin 22.6%, down 780 basis points y/y.
• Engineering Technologies: Revenue $27.4 million, up 36.2% y/y (26.3% benefit from McStarlite acquisition, 9.9% organic growth). Adjusted operating margin 18.6%, up 110 basis points y/y.
• Specialty Solutions: Revenue $20.2 million, down 13.9% y/y. Operating margin 16.2%, down 370 basis points y/y.

Guidance

• Fiscal Q4 2025 expected slightly to moderately higher revenue from recent acquisitions, sales into fast-growth markets, and pricing initiatives. Slightly to moderately higher adjusted operating margin due to higher revenue and productivity, offset by tariff costs and investments in S&M/R&D.
• Fiscal year targets: Sales >$1.15 billion, adjusted operating margin >23%, ROIC >15.5%.

Risks

• Tariff impact on cost of goods sold, with ~6% of COGS from China imports, ~4% from India, ~3% from other countries.
• Economic uncertainty affecting end markets, particularly for Engraving and Scientific segments.
• NIH funding cuts impacting Scientific segment's revenue and margins.

Question and Answer

Q: About tariffs, 6% of COGS imported from China. How is it split across segments?

A: Split ~equally: ~1/3 into Electronics, ~1/3 into Specialty, ~1/3 into Scientific.

Q: On pricing power, how does it vary by segment?

A: Varies by business. Electronics and Specialty have confidence in covering China tariffs with price/productivity; Scientific may need ~70% coverage with price/productivity now, with longer-term supply chain/product design changes needed.

Q: Thoughts on organic growth in FY '26?

A: Electronics showing good order intake; expecting to start seeing organic growth in FY '26 assuming no significant economic changes. New products and Amran/Narayan acquisition contributing to growth.

Q: Amran/Narayan expansion in Europe?

A: Initial investment not significant, with plans to gradually expand. First year or 2 may have $1-2 million investment, with growth leading to further expansion.

Q: Capacity utilization and margins for Amran/Narayan?

A: Current capacity utilization ~60-70%, with expansion plans in India, US, and Europe to meet demand. Margins in Europe expected to be similar to consolidated group.

Q: Leverage and acquisition plans?

A: Leverage at ~2.8%, priority is to invest in organic growth and pay down debt. Will consider acquisitions when at more favorable leverage levels.

Q: Impact of NIH funding on Scientific segment?

A: NIH funding cuts impact, with potential ~couple million impact, but pharmacies expected to see uptick in near future as capital equipment requests recover.

Q: McStarlite major programs?

A: Involved in Boeing and Airbus wide-body programs, both sole-sourced.