Standex International Corporation (NYSE:SXI) is a diversified industrial manufacturer with leading positions in a variety of products and services used across diverse commercial and industrial markets. Headquartered in Salem, New Hampshire, Standex operates through five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions.

Business Strategy

Standex's long-term business strategy is centered around its Standex Value Creation System, which employs four key components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management. This comprehensive approach has enabled Standex to create, improve, and enhance shareholder value by building more profitable and focused industrial platforms.

Financials

In the fiscal year 2023, Standex reported annual net income of $138,992,000, annual revenue of $741,048,000, annual operating cash flow of $90,801,000, and annual free cash flow of $66,531,000. Standex's diverse portfolio and disciplined execution have allowed it to navigate market headwinds and deliver solid financial performance.

During the third quarter of fiscal year 2024, Standex reported revenue of $177,267,000, down 3.8% year-over-year. This decline was primarily driven by an organic sales decrease of 5.7%, partially offset by a 2.7% net impact from recent acquisitions and a prior program divestiture. The organic sales decrease was due to transitory headwinds in several end markets, including continued softness in appliances and general industrial markets in China and Europe, as well as the impact of a lower number of projects and inventory destocking by some large electronics customers.

Despite the top-line challenges, Standex demonstrated its ability to maintain strong profitability. In the third quarter, Standex reported adjusted operating margin of 15.4%, a 20-basis-point increase year-over-year. This performance was achieved through the execution of Standex's price and productivity initiatives, which helped offset the impact of lower organic sales. Excluding a one-time stock compensation charge, Standex's adjusted operating margin would have been similar to the record level achieved in the previous quarter.

Segment Performance

The Electronics segment, Standex's largest business unit, reported revenue of $80,431,000, an increase of 2.8% year-over-year. This growth was driven by a 13.5% contribution from recent acquisitions, partially offset by a 9.3% organic decline and a 1.3% negative impact from foreign currency. The segment's adjusted operating margin was 20.5%, down 130 basis points year-over-year, as the benefits from acquisitions and productivity initiatives were more than offset by the lower organic sales and unfavorable product mix.

The Engraving segment reported revenue of $36,297,000, a decrease of 1.7% year-over-year, primarily due to a 1.5% negative impact from foreign currency. The segment's operating margin improved by 270 basis points to 17.2%, reflecting the realization of productivity actions. The Scientific segment's revenue declined 10.4% to $16,925,000, driven by general market softness and its impact on retail pharmacies. However, the segment's operating margin increased by 480 basis points to 28.9%, aided by lower freight costs and productivity initiatives.

The Engineering Technologies segment reported revenue of $20,098,000, an increase of 11.3% year-over-year, driven by higher demand in the aviation market, partially offset by lower defense sales due to delays in government funding. The segment's operating margin improved by 450 basis points to 17.5%, reflecting the leverage on higher sales and the impact of pricing and productivity initiatives. The Specialty Solutions segment's revenue declined 27.1% to $23,516,000, primarily due to the divestiture of the Procon business and normalization in the display merchandising business, partially offset by organic growth in the hydraulics business. The segment's operating margin decreased by 230 basis points to 19.9%.

Outlook

Looking ahead, Standex expects slightly to moderately higher revenue and slightly to moderately higher adjusted operating margin in the fourth quarter of fiscal year 2024, driven by favorable project timing in the Engineering Technologies segment, increased market demand in the Specialty Solutions segment, and the impact of recent acquisitions. For fiscal year 2025, Standex anticipates a return to organic growth rates in line with its long-term financial objectives.

Standex's long-term financial outlook for fiscal year 2028 includes high single-digit organic growth to over $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital exceeding 15%, and free cash flow conversion of approximately 100% of GAAP net income. Standex's focus on fast-growth markets, new product development, and strategic acquisitions positions it well to achieve these ambitious targets.

Liquidity

Standex's strong balance sheet and consistent cash flow generation provide the financial flexibility to fund organic and inorganic growth initiatives, as well as return capital to shareholders through dividends and share repurchases. As of the end of the third quarter of fiscal year 2024, Standex had $347 million in available liquidity and net debt of $10 million.

Conclusion

Standex's diversified business model, operational excellence, and strategic initiatives have enabled Standex to navigate the current market challenges and position itself for long-term success. Standex's commitment to innovation, productivity improvements, and disciplined capital allocation underscores its ability to create value for shareholders over the coming years.