Kaman Corporation

Kaman reported third-quarter 2023 sales of $183 million, up 6.4% year over year. Adjusted EBITDA was $25.2 million, versus $19.5 million a year ago, and adjusted EBITDA margin was 13.8% versus 11.3%. Gross margin was 35.3%, up 350 basis points year over year. Operating income was $11.9 million, compared with a slight operating loss in the prior year, and GAAP net income was $1.5 million, or $0.05 per diluted share, versus a loss of $280,000, or $0.01 per diluted share. Adjusted net income was $2.7 million, or $0.10 per diluted share, versus $8.1 million, or $0.29 per diluted share. For full-year 2023, management raised revenue guidance to $765 million-$775 million, adjusted EBITDA to $102.5 million-$110 million, net earnings to $6.5 million-$12.2 million, and adjusted EPS to $0.40-$0.60; operating cash flow guidance remains $60 million-$70 million and free cash flow guidance remains $35 million-$45 million.

Ian Walsh framed the quarter as continued evidence that Kaman’s transformational strategy is working, with the company focusing on higher-growth, higher-margin businesses, cost structure optimization, and reducing historical variability. He highlighted strong demand in commercial aviation and industrial markets, progress in TDH innovation, and the company’s push to reposition Precision Products through JPF consolidation and K-MAX wind-down. His tone was confident and upbeat, emphasizing that the business is becoming more consistent and better positioned for future earnings growth and lower debt.

Carroll Lane walked through the financial upside from stronger volume, operating leverage, and cost actions. He said gross margin improved to 35.3%, SG&A fell 13.3% to $42.5 million, interest expense rose to $9.4 million from $3.6 million due to higher rates and acquisition debt, and free cash flow was $3.8 million in the quarter and $9.8 million year to date. He reiterated $22 million-$25 million of 2024 savings, with over $12 million expected in 2023, and said the company expects to settle convertible notes with available borrowing capacity under its credit agreement while continuing to evaluate refinancing options ahead of the May 2024 maturity.

Analysts focused on the raised outlook, particularly the implied Q4 step-up in sales and free cash flow, and management said the confidence mainly comes from Engineered Products, with some support from a K-MAX aircraft sale and improving cash generation in Structures. There was also a question on Engineered Products margins, and management said demand remains robust, book-to-bill is north of 1.0, and the challenge is fulfilling strong orders amid supplier and labor constraints. On Precision Products, management confirmed that KARGO R&D flows through that segment and that JPF wind-down remains the main pressure, while explaining that KARGO milestones are still progressing, including an Army demonstration and a later-2024 Marine Corps fly-off.