30 May Astronics Corp: Flying to New Heights
Astronics Corporation (NASDAQ: ATRO) is a supplier of advanced technologies and products to the global aerospace, defense, and other mission-critical industries. The Company’s products and services include advanced, high-performance electrical power generation, distribution, and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures, and automated test systems.
Astronics Corporation (NASDAQ: ATRO)
Market Cap: $721.457M; Current Share Price: 20.70 USD
Data by YCharts
The Company and its Products
Astronics’s Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, etc.
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The Company’s Aerospace customers are the airframe manufacturers (OEM) that build aircraft for commercial transport, military, and general aviation markets, suppliers to OEMs, aircraft operators such as airlines, aircraft operators, and U.S. Department of Defense branches. During 2023, this segment’s sales were divided 72% to the commercial transport market, 10% to the military aircraft market, 13% to the general aviation market, and 5% to other markets. Most of this segment’s sales result from contracts or customer purchase orders placed daily or for single-year procurements rather than long-term multi-year contract commitments. On occasion, the Company does receive contractual commitments or blanket purchase orders from customers covering multiple-year hardware deliveries to customers.
Astronics’ Test Systems segment designs, develops, manufactures, and maintains automated test systems that support the aerospace, defense, communications, and mass transit industries, as well as training and simulation devices for commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base, including OEMs and prime government contractors for electronics and military products. The nature of the Company’s Test Systems business is such that it pursues large, often multi-year, projects.
We will discuss the critical rationale for covering this Company.
- Strong tailwinds and growth drivers
In the Aerospace segment, Astronics caters to the following three markets:
The main growth driver for Astronics is expected to be the recovery in commercial aerospace, which in turn should lead to
Other than the above, Astronics is also expected to benefit from
Post-COVID, Astronics has seen significant improvement in segment sales and booking, as shown in the table below.
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Specifically, the Company’s In-seat Power System (ISPS) holds great promise – \ line-fit and retrofit, now powers one million+ seats on over 280 airlines worldwide. The product has high entry barriers; therefore, the Company commands more than 90% market share for ISPS, with an Average Selling Price between $350 – $850 per seat.
Astronics is the industry leader in Aircraft Lighting and illuminating commercial, business, and military aircraft, including Airbus, Boeing, Embraer, Lockheed, and Textron.
Overall, Astronics is well-positioned on a wide range of high-profile aircraft in the Aerospace segment.
Image Source: Company
In the Test Systems segment, Astronics provides testing for mission-critical industries and boasts award-winning test solutions.
Thus, it seems that Astronics has a significant foothold in the markets it serves and is poised to grow sales further due to strong tailwinds.
- Financial Performance
For Q1 FY24, consolidated sales were up $28.5 million, or 18.2% YoY. Aerospace sales increased $28.0 million, or 20.7%, driven by increased Electrical Power & Motion product line demand. Test Systems sales increased by $0.5 million.
Consolidated operating income was $1.7 million, compared with an operating loss of $2.4 million in the prior-year period. Improved operating income reflects higher sales volume, partially offset by $3.6 million in non-cash stock bonuses as the Company’s bonus programs resumed. Consolidated net loss was $3.2 million, or $0.09 per diluted share, compared with net loss of $4.4 million, or $0.14 per diluted share, in the prior year.
For the full year 2023, sales were up 28.8% to $689.2 million. The consolidated operating loss was $6.8 million, compared to $30.0 million the previous year.
The Company expects second-quarter revenue to be between $185 million and $195 million. It is maintaining its 2024 revenue guidance of approximately $760 million to $795 million. The midpoint of this range would be a 13% increase over 2023 sales.
In the future, sales and margins are expected to improve due to higher volume, improved supply chain, lower input costs (reducing spot market purchases), and the pricing of new contracts beginning to roll on.
Risks
Astronics seems to have a promising future; however, the Company is also exposed to certain risks. Firstly, the markets Astronics serves are cyclical and sensitive to domestic and foreign economic conditions, conflicts, and events, which may cause operating results to fluctuate.
Secondly, the Company depends on government contracts and subcontracts with defense prime contractors and subcontractors that may not be fully funded, terminated, or awarded to competitors. Failure to be awarded these contracts, failure to receive funding or termination of one or more of these contracts could reduce Company sales.
Thirdly, in 2023, 2022, and 2021, Astronics concentrated its sales on Boeing, representing approximately 11.0%, 11.0%, and 10.0% of sales, respectively. Thus, the loss of Boeing as a major customer or a significant reduction in business with this customer would reduce sales and earnings.
Conclusion
Astronics is a market leader in several segments that it serves and has shown steady revenue increase. For FY23, the Company demonstrated a 28.5% increase in revenues. Sales are expected to continue to expand due to favorable market dynamics and compelling growth drivers. Nevertheless, Astronics serves cyclical markets and depends heavily on government contracts and specific large customers for its sales – any change in these variables may cause sales and profits to fluctuate heavily. Hence, investors must proceed with caution.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/8063/000000806324000014/atro-20231231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/8063/000000806324000029/atro-20240330.htm
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