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Aerospace and defense company Ducommun (NYSE:DCO) beat analysts' expectations in Q2 CY2024, with revenue up 5.2% year on year to $197 million. It made a non-GAAP profit of $0.83 per share, improving from its profit of $0.54 per share in the same quarter last year.
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Ducommun (DCO) Q2 CY2024 Highlights:
- Revenue: $197 million vs analyst estimates of $194.9 million (1.1% beat)
- EPS (non-GAAP): $0.83 vs analyst estimates of $0.61 (36.6% beat)
- Gross Margin (GAAP): 26%, up from 21.7% in the same quarter last year
- EBITDA Margin: 15.2%, up from 13.9% in the same quarter last year
- Backlog: $1.07 billion at quarter end, up 5.7% year on year
- Market Capitalization: $878.9 million
California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
AerospaceAerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Ducommun's sales grew at a weak 2.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Ducommun's annualized revenue growth of 8% over the last two years is above its five-year trend, suggesting some bright spots.
We can dig further into the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Ducommun's backlog reached $1.07 billion in the latest quarter and averaged 5.5% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Ducommun was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, Ducommun reported solid year-on-year revenue growth of 5.2%, and its $197 million of revenue outperformed Wall Street's estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 5.8% over the next 12 months.
Operating Margin Ducommun was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 6.4%.
Looking at the trend in its profitability, Ducommun's annual operating margin decreased by 2.3 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
This quarter, Ducommun generated an operating profit margin of 7.1%, up 4.4 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
EPSAnalyzing revenue trends tells us about a company's historical growth, but earnings per share (EPS) growth points to the profitability of that growth–for example, a company could inflate sales through excessive spending on advertising and promotions.
Sadly for Ducommun, its EPS declined by 4.6% annually over the last two years while its revenue grew 8%. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Diving into the nuances of Ducommun's earnings can give us a better understanding of its performance. A two-year view shows Ducommun has diluted its shareholders, growing its share count by 21.3%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Ducommun reported EPS at $0.83, up from $0.54 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Ducommun to grow its earnings. Analysts are projecting its EPS of $2.93 in the last year to climb by 11.7% to $3.27.
Key Takeaways from Ducommun's Q2 ResultsWe were impressed by how significantly Ducommun blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $59.72 immediately after reporting.
