Wednesday, December 19, 2018

A Current AIM Program Small Cap Equity Holding: Standex International Corp. (SXI) by: Sean Halverson. “Time to take a different ‘Stand’ with Standex”

Standex International Corp. (SXI, $73.51): “Time to take a different ‘Stand’ with Standex”
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.


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