Héroux-Devtek reports third quarter results

    
    - Sales of $76.7 million compared with $85.6 million last year
    - EBITDA margin of 15.2%, stable in comparison with a year ago
    - Diluted EPS of $0.12, versus $0.16 last year
    - Funded backlog of $418 million
    
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<p>LONGUEUIL, QC, <chron>Feb. 5</chron> /CNW Telbec/ - Héroux-Devtek Inc. (TSX: HRX), a leading Canadian manufacturer of aerospace and industrial products, today reported results for the third quarter of fiscal 2010 ended <chron>December 31, 2009</chron>. Consolidated sales were <money>$76.7 million</money>, versus <money>$85.6 million</money> for the same period last year, the decline coming mainly, as explained below, from the Industrial segment and currency impact. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was <money>$11.7 million</money>, or 15.2% of sales, compared with <money>$13.1 million</money>, or 15.3% of sales, last year. Operating income stood at <money>$6.1 million</money>, compared with <money>$7.8 million</money> a year ago. The Company reported net income of <money>$3.5 million</money>, or <money>$0.12</money> per share, fully diluted, compared with net income of <money>$5.2 million</money>, or <money>$0.16</money> per share, fully diluted, a year ago. Cash flow from operations amounted to <money>$10.1 million</money> this year, down from <money>$11.7 million</money> last year.</p>
<p>For the first nine months of the current fiscal year, consolidated sales totalled <money>$235.4 million</money> compared with <money>$245.5 million</money> a year earlier. EBITDA amounted to <money>$36.2 million</money>, or 15.4% of sales, compared with <money>$39.2 million</money>, or 16.0% of sales, last year. Operating income was <money>$19.9 million</money>, versus <money>$24.4 million</money> last year. Net income reached <money>$11.6 million</money>, or <money>$0.38</money> per share, fully diluted, compared with <money>$14.9 million</money>, or <money>$0.47</money> per share, fully diluted, in the prior year. Cash flow from operations amounted to <money>$33.6 million</money> this year, essentially stable in comparison with <money>$34.0 million</money> last year.</p>
<p>Fluctuations in the value of the Canadian dollar versus the US currency decreased third quarter sales by <money>$3.4 million</money> or 4.0%, compared with last year, and had a negative impact of 1.8% on gross profit expressed as a percentage of sales. These fluctuations increased sales by <money>$6.8 million</money> in the first nine months of fiscal 2010, but reduced gross profit as a percentage of sales by 1.0%. The impact of currency movements on the Company's gross profit is mitigated by the use of forward foreign exchange sales contracts and the natural hedging from the purchase of materials made in US dollars.</p>
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    Financial highlights
    (in thousands of dollars, except per share data)
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                                     Quarters ended        Nine months ended
                                       December 31,            December 31,
                                    2009        2008        2009        2008
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    Sales                         76,659      85,578     235,389     245,489
    Operating income               6,061       7,834      19,890      24,433
    Net income                     3,538       5,178      11,598      14,932
      Per share - basic and
       diluted ($)                  0.12        0.16        0.38        0.47
    Cash flows from
     operations                   10,129      11,709      33,617      33,986
    Weighted-average shares
     outstanding              30,552,388  31,639,589  30,714,152  31,647,603
    -------------------------------------------------------------------------
    
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<p>"Driven by cost saving initiatives proactively implemented earlier this year and greater productivity from its business units particularly at landing gear, Héroux-Devtek has maintained a sound EBITDA margin despite reduced activity in markets affected by challenging global economic conditions, especially in the Industrial segment," said President and CEO Gilles Labbé. "This performance further confirms the Company's status as a reliable leading provider of high-quality, value-added services to its strategic markets. Our balance between commercial and military programs, as well as between new components and aftermarket services, provides multiple growth avenues and positions the Company at the forefront of business opportunities that will arise."</p>
<p>As at <chron>December 31, 2009</chron>, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of <money>$30.2 million</money> and long-term debt, including the current portion, of <money>$83.0 million</money>. As a result, the net debt-to-equity ratio stood at 0.25:1 at the end of the third quarter, compared with 0.29:1 three months earlier. The net-debt-to-equity ratio is defined as the total long-term debt, including the current portion, less cash and cash equivalents over shareholders' equity.</p>
<p>During the third quarter, Héroux-Devtek renewed its normal course issuer bid program which allows the Company to acquire 1.5 million of its common shares between <chron>November 25, 2009</chron> and <chron>November 24, 2010</chron>. Under this new program, the Company purchased 53,500 common shares at an average price of <money>$5.14</money> per share during the late stages of the quarter. The Company had previously concluded its previous program on <chron>November 23, 2009</chron>, under which it had acquired 1,202,200 shares out of an authorized amount of 1.5 million shares.</p>
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<p>THIRD QUARTER HIGHLIGHTS</p>
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    - The Aerospace segment renewed an important multi-year contract with
      Goodrich Corporation - Landing Gear Division to manufacture various
      landing gear components for a number of important large commercial
      aircraft programs. Under the terms of the agreement, Héroux-Devtek will
      fabricate and deliver major landing gear components to be used in the
      production of new aircraft and for aftermarket applications. The
      renewal extends the Company's current agreement with Goodrich to the
      end of calendar year 2012.

    - Brazilian aircraft manufacturer Embraer awarded the Aerospace segment's
      landing gear products operations the Embraer Suppliers Award - ESC 2009
      in the Development Program category. This award recognizes Héroux-
      Devtek's performance excellence in quality, flexibility, deliveries,
      customer support and development for its involvement in the Legacy 450
      and 500 business jet programs. The Aerospace segment designs and
      develops the landing gear for these jets as part of a life-cycle
      contract obtained in July 2008. Héroux-Devtek was one of nine companies
      worldwide honoured in as many categories.
    
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<p>SEGMENT RESULTS</p>
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<p>Aerospace sales for the third quarter declined 3.3% to <money>$72.6 million</money> compared with <money>$75.0 million</money> last year. Excluding the currency impact, as explained above, sales for this segment were slightly higher when compared with last year. Sales of landing gear products increased by 7.2% to <money>$48.2 million</money> reflecting higher military sales and new business in the large commercial aircraft segment, partially offset by the deceleration of production schedules for business jet and commercial helicopter programs. Aerostructure product sales decreased 19.2% to <money>$24.0 million</money>, as the ramp-up of the JSF program was more than offset by lower military aftermarket sales and business jet activity as well as by unfavourable currency fluctuations. Operating income was <money>$6.1 million</money>, or 8.4% of sales, compared with <money>$6.3 million</money>, or 8.4% of sales, in the third quarter of last year, as better throughput for landing gear products was offset by lower aerostructure product margins due to a less favourable sales mix.</p>
<p>For the first nine months of the current fiscal year, Aerospace sales amounted to <money>$218.7 million</money>, up 0.7% over sales of <money>$217.2 million</money> a year earlier. Operating income was <money>$18.4 million</money>, or 8.4% of sales, compared with <money>$20.0 million</money>, or 9.2% of sales, last year.</p>
<p>Industrial sales totalled <money>$4.1 million</money> in the third quarter of fiscal 2010, down from <money>$10.5 million</money> in the third quarter of fiscal 2009. This decline continues to reflect soft conditions in the power generation industry, including wind energy, and in the heavy equipment industry as a result of a weak economy. Due to lower sales, operating income was basically at breakeven, versus <money>$1.6 million</money>, or 14.8% of sales, last year.</p>
<p>After the first nine months of fiscal 2010, Industrial sales reached <money>$16.7 million</money>, versus <money>$28.3 million</money> a year ago, while operating income amounted to <money>$1.5 million</money>, or 9.0% of sales, versus <money>$4.5 million</money>, or 15.8% of sales, a year ago.</p>
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<p>OUTLOOK</p>
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<p>Despite significantly lower new orders for large commercial aircraft in 2009, manufacturers have confirmed 2010 production schedules and have not announced further build rate reductions. Moreover, their backlogs remain healthy. Conditions remain difficult in the business jet market following order cancellations and deferrals, although some indicators are improving, such as better access to financing, reduced availability of used aircraft and stable utilization of certain fleet. The military aerospace market remains solid with the ramp-up of the JSF program, although it has been announced that this ramp-up will occur at a slightly more moderate pace over the near term. While funding was increased for the US Department of Defense 2010 fiscal year budget and a further increase is being proposed for fiscal 2011, subsequent budget funding may be reduced. For the Industrial market, the power generation industry, while still impacted over the short-term by the economic situation, appears to have bottomed out and the wind energy market still holds considerable potential over the mid-term. Funded backlog was <money>$418 million</money> as at <chron>December 31, 2009</chron>.</p>
<p>"With a healthy balance sheet, strong customer relationships and a proven track record for on-time delivery, Héroux-Devtek remains well positioned to gain further market share and emerge stronger from this uncertain economic situation, as customers are increasingly rationalizing their supplier base. We must continue to seek productivity gains to remain globally competitive in light of the Canadian dollar's ongoing strength. Given the currency situation and the prevailing Industrial market environment, we are anticipating slightly lower sales for the current fiscal year ending <chron>March 31, 2010</chron> compared with the previous year," concluded Mr. Labbé.</p>
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<p>CONFERENCE CALL</p>
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<p>Héroux-Devtek Inc. will hold a conference call to discuss these results on <chron>Friday, February 5, 2010</chron> at <chron>10:00 A.M. Eastern Time</chron>. Interested parties can join the call by dialling [phone] (<location>Toronto</location> or overseas) or 1-888-231-8191 (elsewhere in <location>North America</location>). The conference call can also be accessed via live webcast at Héroux-Devtek's website, <a href="http://www.herouxdevtek.com">www.herouxdevtek.com</a>, <a href="http://www.newswire.ca">www.newswire.ca</a> or <a href="http://www.q1234.com">www.q1234.com</a>.</p>
<p>If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-800-642-1687 and entering the passcode 50840254 on your phone. This tape recording will be available on <chron>Friday, February 5, 2010</chron> as of <chron>1:00 PM Eastern Time</chron> until <chron>11:59 PM Eastern Time</chron> on <chron>Friday, February 12, 2010</chron>.</p>
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<p>PROFILE</p>
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<p>Héroux-Devtek (TSX: HRX), a Canadian company, serves two main market segments: Aerospace and Industrial Products, specializing in the design, development, manufacture and repair and overhaul of related systems and components. Héroux-Devtek supplies both the commercial and military sectors of the Aerospace segment with landing gear (including spare parts, repair and overhaul services) and airframe structural components. The Company also supplies the Industrial segment with large components for power generation equipment and precision components for other industrial applications. Approximately 65% of the Company's sales are outside <location>Canada</location>, mainly in the <location>United States</location>. The Company's head office is located in Longueuil, Québec with facilities in the Greater <location>Montreal</location> area (Longueuil, Dorval, Laval and Rivière-des-Prairies); Kitchener and <location>Toronto</location>, Ontario; Arlington, Texas and <location>Cincinnati</location>, Ohio.</p>
<p>Héroux-Devtek was recognized, in the July/August edition of The Globe & Mail's Report on Business magazine, as the fourth fastest growing company in <location>Canada</location> measured in terms of net earnings growth between 2003 and 2008.</p>
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<p>Forward-looking statements</p>
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<p>Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.</p>
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<p>Non-GAAP Measures</p>
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<p>Earnings before interest, taxes, depreciation and amortization ("EBITDA") and cash flows from operations are financial measures not prescribed by Canadian generally accepted accounting principles ("GAAP") and are not likely to be comparable to similar measures presented by other issuers. Management, as well as investors, considers these to be useful information to assist them in evaluating the company's profitability, liquidity and ability to generate funds to finance its operations.</p>
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    Note to readers: Complete unaudited interim consolidated financial
                     statements and Management's Discussion & Analysis are
                     available on Héroux-Devtek's website at
                     www.herouxdevtek.com.
    

For further information: Héroux-Devtek Inc.: Gilles Labbé, President and Chief Executive Officer, [phone]; Réal Bélanger, Executive Vice-President and Chief Financial Officer, [phone]; MaisonBrison: Martin Goulet, CFA, [phone]