Heroux Devtek boosts profits, raises sales guidance following acquisitions
The Quebec landing gear manufacturer now expects sales to reach between $600 million and $610 million for its 2020 financial year
LONGUEUIL, Que. — Heroux-Devtek Inc. saw recent acquisitions boost sales by 9% year over year last quarter, as renewed confidence in its defence division spurred a higher revenue forecast.
Last year the company bought landing gear maker Alta Precision and surface treatment provider Tekalia, both based in Montreal.
Despite a slight decline in Heroux-Devtek’s profit margin, the two companies accounted for the vast majority of growth in revenue, which rose 9% year over year to $157.3 million in the quarter ended Dec. 31.
“When we bought these companies they were in financial difficulty,” chief executive Martin Brassard said on a conference call with investors Feb. 6, noting their lower margins.
Since the acquisitions, Heroux-Devtek has implemented cost reduction programs, he said.
Net income hit $8.7 million in the third quarter, up from $7.4 million in the same period in 2018.
The landing gear manufacturer, based across the St. Lawrence River from Montreal, now expects sales to reach between $600 million and $610 million for its 2020 financial year. The guidance was revised from earlier expectations of $580 million to $600 million.
The optimism stems in part from a bolstered backlog of $839 million, a 9% increase from the previous quarter that marks a company record.
Feeding the backlog are contracts to churn out landing gear for Boeing’s F-15 Eagle and F/A-18 Hornet fighter jets and repair and replace it for the U.S. Air Force via a contract with Illinois-based AAR Corp.
“The backlog increase is more related to the defence side,” Brassard said in a phone interview from London, U.K. “It looks like they all have second life.”
Heroux-Devtek had lost out on the direct air force bid a couple of years ago after holding it for nearly four decades, the CEO said, but regained a portion of that lost income with the AAR subcontract. Recently, Boeing cut its annual orders related to the 777x long-range jetliner nearly in half.
“So we had two major hits in terms of sales expectations or reductions,” Brassard said. “But now we’re O.K. We’re growing.”
The defence unit comprised more than 54 per cent of sales last quarter compared with just under half a year earlier.
Analyst Mona Nazir of Laurentian Bank Securities said that Heroux-Devtek is “extremely well-positioned for the coming year,” citing the potential for future mergers and acquisitions and a ramp-up in the 777x program.
“We have seen tremendous progress over the last 12 months,” she said in an email.
Profits at the Longueil-based company amounted to 24 cents per share, up from 20 cents per share the previous year.
On an adjusted basis, Heroux-Devtek earned 24 cents per share, down from 26 cents per share in the same quarter a year earlier due to foreign exchange fluctuations.