Aerospace manufacturer Héroux-Devtek Inc. took a hit in the third quarter due to soft military sales as governments sought to trim deficits, but the company expects its commercial customers will provide a strong finish to the fiscal year.
The Montreal-area company said Friday it expects a traditionally strong fourth-quarter will allow its full-year sales to increase by up to 5 per cent, based on growing demand for landing gear for large airplanes and business jets.
"Conditions remain favourable in the commercial aerospace market," chief executive officer Gilles Labbe said in a news release.
"Large commercial aircraft manufacturers are proceeding with production rate increases on certain leading programs and delivered more aircraft in calendar 2012 than a year earlier."
Mr. Labbe said the military aerospace market remains uncertain but the company's exposure to defence budget cuts should be reduced by its balance between component manufacturing and aftermarket products and services.
Héroux-Devtek missed expectations as it earned $4.6-million, or 15 cents per share, including discontinued operations in the period ended Dec. 31.
That's down from $6.9-million, or 23 cents per share, a year earlier, before Héroux-Devtek sold part of its business in August to focus on aircraft landing gear.
Net income from continuing operations decreased nearly 27 per cent to $3.3-million, or 11 cents per share, compared to $4.5-million, or 15 cents per share, in the prior year.
Revenues from continuing operations were almost flat at $61.7-million
Analysts had forecast 14 cents per share in adjusted income on $64-million of sales.
Net income from discontinued operations was cut almost in half to $1.29-million from $2.4-million a year ago.
Héroux-Devtek said a 22 per cent increase in commercial sales to $27.6-million offset a 13 per cent decrease to $34.1-million in military sales.
Although some military orders were delayed in the third quarter, the company continued to win important awards, including a multi-year contract from Boeing to manufacture the landing gear for all H-47 Chinook helicopters aircraft destined to the U.S. Army, beginning in the first half of 2014, Mr. Labbe said.
"Our financial position remains solid, enabling us to consider investments in growth initiatives and in strategic acquisitions in our core landing gear market."
Benoit Poirier of Desjardins Capital Markets said the results were negative, noting that the company's EBITDA margin decreased 3.1 percentage points to 12.4 per cent because overhead costs including those to develop new landing gear systems were spread over lower production volumes.
In December, Héroux-Devtek shareholders approved a $160-million special distribution, the equivalent of $5 per share, resulting from the sale of its industrial and aerostructure operations in a $232-million deal last summer.
Héroux-Devtek also used proceeds from the sale to pay $54-million of debt.
The Quebec-based company's plan is to grow its position as the world's third-largest manufacturer of aircraft landing gear.
The company has warned that aircraft parts suppliers could face long-term negative consequences if Canada abandons plans to purchase the F-35 fighter jet from Lockheed Martin.
The federal government is reviewing the planned purchase of 65 of the military jets after a KPMG report warned that the planes could cost as much as $45.8-billion over 42 years, including maintenance and other costs. That's far more than the $9-billion set aside by the Defence Department.