The L.S. Starrett Company Announces Fiscal 2024 Second Quarter Results
- International sales growth compared to the prior year
- Reduction of debt by $5.7 million during the second quarter
- Improved operating cash flow due to inventory reductions
- Stabilization of demand for industrial products
- Focus on growth initiatives and reducing debt levels
- Decline in net sales compared to the prior year
- Decrease in gross margin from 32.3% to 30.5%
- Operating income dropped from 8.9% to 4.0%
- Net loss for the quarter of $0.4 million
- Negative impact on net income due to an unfavorable tax adjustment
Insights
The decline in net sales by 7.0% and the currency neutral net sales by 9.2% for The L.S. Starrett Company reflects a contraction in revenue streams that could concern investors regarding the company's growth trajectory. The factors contributing to this decline, such as labor availability and lower factory utilization, are indicative of operational challenges that may persist if not addressed. The decrease in sales of high-margin products and the impact of customer consolidation and capital expenditure delay in the automotive sector are reflections of market and industry-specific headwinds. The increase in SG&A expenses, partly attributed to currency translation, signals cost management issues that might affect profitability margins.
From a balance sheet perspective, the reduction of debt to its lowest level in over a decade is a positive sign of financial prudence. However, the net loss of $0.4 million, compared to a net income in the previous year, alongside an unfavorable tax adjustment, is a notable concern for the financial health of the company. Investors should consider the potential for a rebound in profitability as the company invests in growth initiatives and continues to manage its inventory and expenses effectively.
The performance of The L.S. Starrett Company within the precision measuring tools and metrology solutions market is reflective of broader economic conditions, including labor market tightness and capital expenditure cycles. The company's focus on high precision granite measuring products and the noted international sales improvement suggest a strategic pivot towards areas of growth and diversification. However, the downturn in the North American industrial markets, particularly the automotive sector, underscores the importance of market diversification and the potential volatility associated with dependency on specific industries.
Investors should monitor the company's ability to adapt to the changing market demands and to capitalize on international growth opportunities. The reported stabilization of demand for industrial products internationally may provide a buffer against domestic market fluctuations. Additionally, the strategic reduction of inventory and debt could enhance operational efficiency and financial flexibility, potentially leading to improved shareholder value in the long term.
The L.S. Starrett Company's financial results are occurring against a backdrop of macroeconomic factors such as labor shortages, currency fluctuations and sector-specific issues like the automotive workers' strikes. These factors can have a ripple effect throughout the economy, affecting both supply chains and consumer demand. The company's international sales performance may reflect global economic resilience or targeted growth strategies in less volatile markets.
Moreover, the use of non-U.S. GAAP financial measures like 'currency-neutral net sales' can offer a more nuanced view of the company's performance by isolating the impact of currency exchange rate fluctuations. This analytical approach provides insights into the company's core operating performance, which is crucial for stakeholders seeking to understand the fundamental health of the business amidst external economic pressures.
Financial results include non-
Fiscal 2024 Second Quarter Financial Highlights
-
Net sales for the quarter of
$62.1 million 7.0% lower compared to the second quarter of the prior year, while currency neutral net sales of$60.7 million 9.2% compared to the second quarter of fiscal 2023. The decline in net sales compared to the comparative period was primarily driven by continued challenges with labor availability and resulting lower factory utilization in the Company’s measuring tools plant, and a decline in sales of the Company’s in-line laser measuring systems, which was attributed to customer consolidation and capital expenditure delay in that sector, and the recent automotive workers’ strikes, which also paused sector capital spending. International sales continued to improve compared to the prior year, and sales of the Company’s high precision granite measuring products continued to grow. -
Gross margin for the quarter was
30.5% , a decline of 180 basis points from32.3% in the second quarter of the prior year. This was partially a result of the forementioned labor headwinds in our measuring tool production facility, and partially due to product mix, as net sales of the Company’s higher margin in-line laser measuring systems declined disproportionately relative to other products compared to the prior year quarter. -
Second quarter operating income was
4.0% , compared to8.9% in the second quarter of the prior year. In addition, selling general and administrative expenses increased as a percentage of net sales compared to the prior year quarter. Approximately one-third of the increase was due to the translation of foreign currencies, particularly the Brazilian Real, intoU.S. Dollars. In addition, the Company has continued to reinvest in growth initiatives, and incurred additional consulting costs during the quarter. -
The Company continues its efforts to reduce inventory, resulting in improved operating cash flow and the retirement of
$5.7 million -
Net loss for the quarter was
$0.4 million $3.1 million $2.0 million $0.05 $0.42
“I am pleased to see the continued profitable growth of our high precision granite measuring products and a stabilization of demand of our industrial products internationally. This helped offset challenges in our North American industrial markets, particularly in the automotive sector, impacting both industrial distribution and capital equipment demand over the past couple of quarters. Our team continued to drive inventory reductions, allowing us to reduce debt to its lowest level in more than a decade. We remain committed to strengthening our financial position, giving us increased flexibility to invest in our business to drive long-term growth and shareholder value creation.” remarked Douglas A. Starrett, President and CEO.
Use of Non-
The Company uses the following non-
The Company discusses these non-
References to currency-neutral net sales should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with
About The L.S. Starrett Company:
Founded in 1880 by Laroy S. Starrett and incorporated in 1929, The L.S. Starrett Company is a leading manufacturer of high-end precision tools, cutting equipment, and metrology systems for industrial, professional and consumer markets and is engaged in the business of manufacturing over 5,000 different products for industrial, professional and consumer markets. The Company has a long history of global manufacturing experience and currently operates three major global manufacturing plants. All subsidiaries principally serve the global manufacturing industrial base with concentration in the metalworking, construction, machinery, equipment, aerospace and automotive markets. The Company offers its broad array of measuring and cutting products to the market through multiple channels of distribution throughout the world. Starrett is a brand recognized around the world for precision, quality and innovation. For more information, please visit: https://www.starrett.com.
Forward-Looking Statements:
This press release may contain forward-looking statements concerning the Company’s expectations, anticipations, intentions, beliefs or strategies regarding the future. These forward-looking statements are based on its current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that it has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond its control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, and other risks and uncertainties described in its Annual Report on Form 10-K, as amended, which was filed with the Securities and Exchange Commission on September 27, 2023 in the section entitled “Risk Factors,” and in its other filings from time to time with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of its assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
L.S. Starrett Company Summary of Operations Quarter and Six Months Ended December 31, 2023 TABLE 1 |
||||||||||||||||||||
Quarter
12/31/2023 |
Comparison to Quarter Ended 12/31/2022 |
Fiscal 2024
12/31/2023 |
Comparison Fiscal 2023 YTD 12/31/2022 |
|||||||||||||||||
| (Amounts in Thousands, except income per share) | 12/31/2022 |
$ Change |
% Change |
12/31/2022 |
$ Change |
% Change |
||||||||||||||
| Net sales | $ |
62,076 |
|
$ |
66,775 |
|
|
(4,699) |
-7.0 |
% |
$ |
122,712 |
|
$ |
127,236 |
|
|
(4,524) |
-3.6 |
% |
| Gross Profit |
|
18,964 |
|
|
21,576 |
|
|
-2,612 |
-12.1 |
% |
|
38,500 |
|
|
41,776 |
|
|
-3,276 |
0 |
|
| as % of Net Sales |
|
30.5 |
% |
|
32.3 |
% |
|
31.4 |
% |
|
32.8 |
% |
||||||||
| Selling, general, and administrative expenses |
|
16,470 |
|
|
15,561 |
|
+909 |
5.8 |
% |
|
33,548 |
|
|
31,855 |
+1,693 |
5.3 |
% |
|||
| as % of Net Sales |
|
26.5 |
% |
|
23.3 |
% |
|
27.3 |
% |
|
25.0 |
% |
||||||||
| Restructuring charges |
|
- |
|
|
54 |
|
|
(54) |
-100.0 |
% |
|
- |
|
|
244 |
|
|
(244) |
-100.0 |
% |
| Operating income |
|
2,494 |
|
|
5,961 |
|
|
(3,467) |
-58.2 |
% |
|
4,952 |
|
|
9,677 |
|
|
(4,725) |
-48.8 |
% |
| as % of Net Sales |
|
4.0 |
% |
|
8.9 |
% |
|
4.0 |
% |
|
7.6 |
% |
||||||||
| Other expense |
|
(526 |
) |
|
(1,121 |
) |
+595 |
-53.1 |
% |
|
(890 |
) |
|
(1,797 |
) |
+907 |
-50.5 |
% |
||
| Income before income taxes |
|
1,968 |
|
|
4,840 |
|
|
(2,872) |
-59.3 |
% |
|
4,062 |
|
|
7,880 |
|
|
(3,818) |
-48.5 |
% |
| Income tax expense |
|
2,362 |
|
|
1,709 |
|
+653 |
38.2 |
% |
|
2,537 |
|
|
2,693 |
|
|
(156) |
-5.8 |
% |
|
| Net (loss) income | $ |
(394 |
) |
$ |
3,131 |
|
|
(3,525) |
-112.6 |
% |
$ |
1,525 |
|
$ |
5,187 |
|
|
(3,662) |
70.6 |
% |
| Basic net income per share | $ |
(0.05 |
) |
$ |
0.42 |
|
$ |
(0.47) |
-111.9 |
% |
$ |
0.20 |
|
$ |
0.71 |
|
$ |
(0.51) |
-71.8 |
% |
| Diluted net income per share | $ |
(0.05 |
) |
$ |
0.42 |
|
$ |
(0.47) |
-111.9 |
% |
$ |
0.20 |
|
$ |
0.69 |
|
$ |
(0.49) |
-71.0 |
% |
L.S. Starrett Company Consolidated, Condensed Balance Sheet December 31, 2023 TABLE 2 |
||||
| ASSETS | 12/31/2023 | 6/30/2023 | ||
| Cash | $ |
5,684 |
$ |
10,454 |
| Accounts receivable |
|
34,826 |
|
36,611 |
| Inventories, net |
|
61,284 |
|
65,414 |
| Prepaid expenses and other current assets |
|
10,950 |
|
9,723 |
| Total current assets |
|
112,744 |
|
122,202 |
| Property, plant and equipment, net |
|
44,852 |
|
39,375 |
| Other long-term assets |
|
29,466 |
|
31,225 |
| Deferred tax assets, net |
|
15,667 |
|
19,073 |
| Intangible assets, net |
|
4,829 |
|
4,888 |
| Goodwill |
|
1,015 |
|
1,015 |
| Total assets | $ |
187,062 |
$ |
192,802 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | 12/31/2023 | 6/30/2023 | ||
| Notes payable and current maturities of long-term debt | $ |
4,403 |
$ |
4,961 |
| Current lease liability |
|
1,604 |
|
1,650 |
| Accounts payable |
|
13,487 |
|
15,047 |
| Other current liabilities |
|
18,379 |
|
19,555 |
| Accrued compensation |
|
4,613 |
|
8,040 |
| Total current liabilities |
|
36,269 |
|
39,563 |
| Other long term liabilities |
|
2,899 |
|
2,884 |
| Long-term lease liability |
|
2,966 |
|
3,423 |
| Long-term debt, net of current portion |
|
3,103 |
|
5,273 |
| Postretirement benefit and pension obligations |
|
10,699 |
|
12,192 |
| Total Liabilities |
|
55,936 |
|
63,335 |
| Stockholders' Equity |
|
131,126 |
|
129,467 |
| Total liabilities and stockholders' equity | $ |
187,062 |
$ |
192,802 |
L.S. Starrett Company Reconciliation of Net Sales to Currency Neutral Net Sales Quarter and Six Months Ended December 31, 2023 TABLE 3 |
||||||||||||||||||
Quarter Ended 12/31/2023 |
Comparison to Quarter Ended 12/31/2022 | Fiscal 2024 YTD 12/31/2023 |
Comparison Fiscal 2023 YTD 12/31/2022 | |||||||||||||||
| (Amounts in Thousands) | 12/31/2022 |
$ Change |
% Change |
12/31/2022 |
$ Change |
% Change |
||||||||||||
| Net sales, as reported |
|
62,076 |
|
|
66,775 |
(4,699 |
) |
-7.0 |
% |
|
122,712 |
|
|
127,236 |
(4,524 |
) |
-3.6 |
% |
| *Currency Impact |
|
(1,412 |
) |
|
- |
(1,412 |
) |
-2.1 |
% |
|
(2,986 |
) |
|
- |
(2,986 |
) |
-2.35 |
% |
| Currency neutral net sales | $ |
60,664 |
|
$ |
66,775 |
(6,111 |
) |
-9.2 |
% |
$ |
119,726 |
|
$ |
127,236 |
(7,510 |
) |
-5.9 |
% |
| *Change when converting FY24 sales in non USD functional currencies at the same exchange rates used in the comparison period | ||||||||||||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240216508949/en/
John C. Tripp
Chief Financial Officer
(978) 249-3551
jtripp@starrett.com
Source: The L.S. Starrett Company
FAQ
What were the net sales for the quarter ended December 31, 2023?
How did the international sales perform compared to the prior year?
What was the gross margin for the quarter?
What impacted the decline in net sales?
Why did the net income decrease?
How did the Company focus on improving its financial position?
What was the impact on diluted earnings per share?
