Astronics’ downturn disappoints investors
Execs say company is on growth track
By David Robinson
Updated: 05/07/08 6:47 AM
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- Astronics Corp. President and CEO Peter J. Gunderman, left, discusses the state of the company with longtime shareholder Edward Sherman after Tuesday’s annual meeting.
A year ago, Astronics Corp. was flying high.
The East Aurora aircraft lighting and electrical systems manufacturer’s sales were soaring, profits were at record levels and its stock was in the midst of a surge that would lead to a 148 percent jump in 2007.
This year, it’s a much different story. First-quarter sales slipped by 4 percent and profits tumbled by 45 percent, and the stock has lost nearly 60 percent of its value.
That hurts, said Clark Johns, an Astronics investor from Lockport who came to the company’s annual shareholder’s meeting on Tuesday and told the firm’s executives that the shares he bought at $37 now are worth just $17.01.
Another shareholder, Edward Sherman of Amherst, urged company executives to do a better job informing the investment community about new contracts that the company has won and other business opportunities.
Astronics executives said they feel the shareholders’ pain, and they described last year’s spike in share price as irrational volatility that pushed the stock price far above what it historically has averaged, compared with its earnings.
“It was an enthusiastic momentum,” said Kevin T. Keane, Astronics’ chairman. “The momentum interests in the stock at the time drove it to a big multiple — 60 times earnings.”
Now, Astronics’ shares are trading at about 11 times its expected profits, a multiple more in line with its traditional valuation and one that Keane believes may even be too low.
The drop in Astronics’ stock price “is something that puzzles us. We wouldn’t have predicted that,” said Peter Gundermann, Astronics’ president and chief executive officer.
Even with the ups and downs of Astronics’ stock, Keane stressed that the company remains on a long-term growth track, with sales this year forecast to be around $170 million, nearly five times what they were four years ago and about 8 percent more than in 2007.
“You will have periods of [stock price] volatility during that growth,” Keane said. “We had one of the two or three best quarters in the history of the company [during the first quarter], and the stock is down.”
Gundermann said the company this year is investing about 33 percent more in new products and aircraft programs in an effort to build up its future workload. But that investment, which will cost Astronics $20 million to $22 million this year in engineering and development costs, will hurt the company’s profits this year in hopes of bolstering its sales in years to come.
“I view this as the lifeblood of our business,” Gundermann said. “If we don’t win it now, we don’t ship it in the future.”
Development efforts in recent years have won Astronics work on upcoming aircraft programs, ranging from the Boeing 787 and Airbus A380, as well as the military’s Joint Strike Fighter.
“To a large extent, we’ve paid the development costs, but we haven’t seen it in the benefit,” Gundermann said. “We think there’s a lot of room to growth.”
So far this year, Astronics has made no new announcements about major contract wins, although Gundermann said the company is in the final stages of negotiating a contract to supply a significant amount of equipment on a new business jet being developed.
But with the U. S. airlines under intense pressure from a weakening economy and soaring fuel prices, Gundermann said after the meeting that it’s possible some of those future projects could be delayed, while foreign projects are less pressured.
Still, Gundermann said he is optimistic that the company’s investments in winning work on new programs will pay off. “There still are significant opportunities out there,” he said.
