By:
Sean Halverson, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• Standex International Corp. (NYSE: SXI) operates as a manufacturer
of a variety of products and services for diverse commercial and industrial
markets. The majority (68.3%) of their revenues come from the United States.
• SXI has announced their
decision to sell off their Cooking Solutions business in spite of declining
sales and to reposition the company.
• At the quarter to date,
the stock price for SXI has experienced a 29.49% decrease which has caused
serious questioning of the company.
• The stock struggled
through the end of October because of concerns surrounding a potential slowing
of first quarter fiscal 2019 sales in Electronics, the company’s fastest
growing segment.
• Tariffs have beaten
down the Hydraulics business which has put serious pricing pressures on certain
areas of the segment.
Key
points:
In February of 2019, Standex International Corp. is
going to be selling off their Cooking Solutions business in addition to
acquiring two new companies, Agile Magnetics and Tenibac-Graphion. This is a
movement by management to further develop their Engraving and Electronics
segment. A driver behind the “modest” organic sales growth (2.4%) for Engraving
was because of a low profitable plant in Virginia. The company has recently
sold off the plant which declined sales for the segment, but was seen as a
strategic choice to better the company in the long run.
As tariffs rise with
imports from China, Standex International Corp. is going to see even more
struggles with trying to generate positive sales growth within their Hydraulics
segment. The reason being that almost half of the cylinders they are importing
are from China. The segment accounts for only 5.5% of total revenues for SXI;
however, the segment will continue to be a drag on the company if tariffs
remain unchanged.
There are expectations
that SXI is planning to repurchase $100 million of the shares outstanding. Additionally,
SXI has dedicated resources to making sure their shareholders are content; for
example, they have paid consecutive quarterly dividends since 1964. Management
believes that holding onto their shareholders is more important than canceling
the dividend to drive stronger growth.
What
has the stock done lately?
Since the acquisitions of
both Agile Magnetics and Tenibac-Graphion, the stock has still not experienced
positive growth. At October 26, 2018 the stock price was at a healthy $96.55.
After earnings were released, the stock has violently dropped to new a low for
the year. It has continued to decrease with no significant positive growth.
Past
Year Performance:
SXI has seen ~15% increase in sales and
~30% increase in EBIT between June of 2017 and June of 2018. However, net
income has decreased ~21% and its after-tax Return on Assets has declined from
5.98% to 4.11%.
Source:
FactSet
My
Takeaway:
Although Standex
International Corp. has seen sales growth from the end of 2017 and two new
acquisitions to the company, it has not been representative in the value of the
stock. The company appears to be creating value by divesting off slower pieces
of its operations but the shareholder has suffered regardless of improvements
to company’s business model. Even with hopeful expectations in 2019 with their
Electronics segment, the stock has been a nightmare. With regards to Relative
Returns (9mos) to the Russell 2000, SXI has underperformed at a frightening -19.06%.
It is time to reconsider if the company is actually creating value for its business.
Source:
FactSet
