Sales Increase 10.3 percent; Net Income Declines 3 percent
Net sales in the quarter ended March 31, 2007, were $32.2 million, up 10 percent from $29.2 million in the quarter ended March 31, 2006. Net income for the first quarter of 2007 was $2.2 million or $0.20 per diluted share, compared to $2.3 million, or $0.27 per diluted share, for the first quarter of 2006.
Gross profit for the first quarter of 2007 was $8.3 million or 25.7 percent of sales, compared to $8.3 million or 28.5 percent of sales in the first quarter of 2006. Higher sales volume was offset by increased reserves for workers' compensation insurance and losses on uncompleted contracts for machined products. Selling, general and administrative expenses were $5.0 million in the first quarter of 2007 compared to $4.2 million in the first quarter of 2006. This increase was due to higher salaries, wages and fringe benefits for additional staffing and a one-time $170,000 bad debt expense from a corporate jet customer.
Interest income for the first quarter of 2007 was $206,000, compared to interest expense of $427,000 in the 2006 quarter. During the first quarter of 2006, LMI completed a public offering of common stock, using a portion of the proceeds to repay debt and investing the balance in short-term securities. In late 2006 and February 2007, LMI completed a sale and leaseback transaction with a subsidiary of CIT Group, Inc., which yielded net proceeds of $10.2 million. This capital has also been invested in short-term securities and used for working capital requirements.
Income taxes were $1.2 million in the first quarter of 2007, compared to $1.4 million in the year-ago quarter. The effective tax rate declined in the first quarter of 2007 to 35.5 percent from 37.5 percent in first quarter of 2006 due to increased deductions available to manufacturers and certain state tax strategies.
"Beginning in the second half of 2006, demand for our products from our OEM and Tier 1 customers began to diminish, especially in our military and corporate aircraft sectors, and we announced that revenue and earnings would fall below previous estimates," said Ronald Saks, President and Chief Executive Officer of LMI Aerospace, Inc. "In the first quarter of 2007, customer orders began to increase as their inventories declined and certain monthly production rates were raised. Booked backlog at March 31, 2007, was $134 million, up from $94 million at March 31, 2006.
"As we progress through 2007, we expect increased aircraft production rates in the military, corporate aircraft and large commercial aircraft sectors will create higher customer demand for the balance of the year," Saks said. "In addition, new orders for Boeing Model 787 and Blackhawk components should contribute to increased second half 2007 revenue. Manufacturing efficiencies also should result in LMI achieving improved gross margins. Accordingly, we expect 2007 revenue to range between $145 million and $155 million; gross profit of 26.5 percent to 28.5 percent; selling, general and administrative expenses between $19.5 million and $20.5 million; net interest income of approximately $1.0 million, and an effective income tax rate of 35.5 percent to 36.5 percent, which is in line with our previously issued guidance.
"In the first quarter of 2007, our finished goods-and-work in process inventories increased by $2.3 million as we manufactured product to be shipped later this year," Saks added. "The capacity increases from LMI's investment in people, equipment and facilities are sufficient to support expected customer demand. We remain committed to our strategy and execution plan, including extensive use of lean manufacturing practices and emphasis on quality improvement in order to meet our customer needs. In addition, we continue to review potential acquisition opportunities designed to widen our product offering to our customers."
LMI Aerospace, Inc., is a leading provider of structural components, assemblies and kits to the aerospace, defense and technology industries. The company fabricates machines, finishes and integrates formed, close tolerance aluminum and specialty alloy components and sheet metal products primarily for large commercial, corporate and military aircraft. LMI Aerospace, Inc., manufactures more than 30,000 products for integration into a variety of aircraft platforms manufactured by leading original equipment manufacturers and Tier 1 aerospace suppliers.
This news release includes forward-looking statements related to LMI Aerospace, Inc.'s outlook for 2007, which are based on current management expectations. Such forward-looking statements are subject to various risks and uncertainties, many of which are beyond the control of LMI Aerospace, Inc. Actual results could differ materially from the forward-looking statements as a result, among other things, of the factors detailed from time to time in LMI Aerospace, Inc.'s, filings with the Securities and Exchange Commission. Please refer to the Risk Factors contained in the company's Annual Report on Form 10-K for the year ended December 31, 2006, for more details.
LMI Aerospace, Inc. Condensed Consolidated Balance Sheets (Amounts in thousands, except share and per share data) March 31, 2007 December 31, 2006 (Unaudited) Assets Current assets: Cash and cash equivalents $10,847 $24,411 Short-term investments 16,093 2,243 Trade accounts receivable, net of allowance of $240 at March 31, 2007 and $311 at December 31, 2006 18,778 14,658 Inventories 36,687 33,956 Prepaid expenses and other current assets 1,787 1,760 Deferred income taxes 2,200 2,210 Income taxes receivable 204 232 Total current assets 86,596 79,470 Property, plant and equipment, net 16,736 19,514 Goodwill 5,653 5,653 Customer-related intangible assets, net 3,323 3,425 Other assets 505 548 Total assets $112,813 $108,610 Liabilities and stockholders' equity Current liabilities: Accounts payable $8,875 $9,758 Accrued expenses 4,794 3,916 Short-term deferred gain on sale of real estate 228 147 Current installments of long-term debt and capital lease obligations 309 238 Total current liabilities 14,206 14,059 Long-term deferred gain on sale of real estate 3,960 2,493 Long-term debt and capital lease obligations, less current installments 836 583 Deferred income taxes 965 965 Total long-term liabilities 5,761 4,041 Stockholders' equity: Common stock, $.02 par value per share; authorized 28,000,000 shares; issued 11,596,778 shares and 11,577,631 shares at March 31, 2007 and December 31, 2006, respectively 232 232 Preferred stock, $.02 par value per share; authorized 2,000,000 shares; none issued in both periods -- -- Additional paid-in capital 66,198 66,104 Treasury stock, at cost, 389,732 shares at March 31, 2007 and December 31, 2006, respectively (1,849) (1,849) Retained earnings 28,265 26,023 Total stockholders' equity 92,846 90,510 Total liabilities and stockholders' equity $112,813 $108,610 LMI Aerospace, Inc. Condensed Consolidated Statements of Operations (Amounts in thousands, except share and per share data) (Unaudited) Three Months Ended March 31, 2007 2006 Net sales $32,176 $29,242 Cost of sales 23,905 20,921 Gross profit 8,271 8,321 Selling, general and administrative expenses 5,009 4,201 Income from operations 3,262 4,120 Other income (expense): Interest income (expense), net 206 (427) Other, net 6 2 Income before income taxes 3,474 3,695 Provision for income taxes 1,233 1,386 Net income $2,241 $2,309 Amounts per common share: Net income per common share $0.20 $0.27 Net income per common share assuming dilution $0.20 $0.27 Weighted average common shares outstanding 11,150,899 8,547,398 Weighted average dilutive common shares outstanding 11,275,337 8,670,549