Sparton releases Q2 results

Electronic Design and Manufacturing Service (EMS) provider, Sparton Corporation (NYSE:SPA) announced the financial results for the second quarter and six months ended December 31, 2003. Sales for the three months ended December 31, 2003, totaled $33,240,000, compared to $43,279,000 for the second quarter last year and $36,425,000 for the first quarter of the current year. Sales for the six-month period ended December 31, 2003, totaled $69,665,000, a decline of $10,382,000 (13%). Many of the problematic issues reported in the First Quarter carried into the Second Quarter with continuing negative impact on both sales and margins. All are being aggressively addressed with progress noted during the month of December. Sales to the industrial market in both the three-month and six-month periods declined sharply due to reduced sales for homeland security related products. Prior year's sales benefited from strong demand for homeland security products, which was driven by the installation of chemical trace detection equipment in both the U.S. and Canadian airports. With respect to sonobuoys, the limited access to U.S. Navy test facilities in the first quarter of the fiscal year, along with design and production issues, resulted in reduced government sales and margins through December 31, 2003. During the second quarter of fiscal 2004, three commercial programs continued in start-up mode. These contracts reported sales of $2,295,000, with negative gross margins of $615,000. Sparton is focused on improving these margins through pricing actions, forward looking cost reductions, and the recoupment of out of scope expenses from the customers involved. Additionally, a redesign effort on an existing proprietary product line resulted in year-to-date charges of $455,000. While sales for the second quarter ended December 31, 2003, were below the first quarter's sales, gross margins for the second quarter improved and the month of December was profitable. Gross margin for the three months ended December 31, 2003, was 4%, up from 1% for the previous three months. This improved margin reflects the conclusion of the start-up phase of several new programs. In addition, one lower than normal margin sonobuoy contract has now been completed, and extensive redesign on a proprietary product program is winding down. The Company believes that the resolution of these three issues should favorably impact results in future periods. Finally, while sales have been depressed, reflective of the continued struggling industrially based North American economy, Sparton has not lost any customer or contract during this challenging period. Based upon customer orders received from both existing and new customers, we would expect improved results in the quarters ahead. Included in the prior year's operating income was a $5,500,000 ($3,630,000 net of tax) recovery of certain environmental remediation costs. This recovery reflected Sparton's settlement with the Department of Energy and others regarding the reimbursement of costs incurred at the Company's Sparton Technology Coors Road property in Albuquerque, New Mexico. For the three-month and six-month periods ended December 31, 2003, the Company reported a loss of $1,516,000 (($.18) per share) and $3,697,000 (($.44) per share), respectively. This compares to the previous year's earnings of $2,178,000 ($.26 per share) and $5,756,000 ($.69 per share basic, $.68 per share diluted) for the same periods. All per share amounts reported reflect the 5% stock dividends distributed in February and December of 2003. Sparton is opening an international purchasing office in Singapore. This will allow access to the Asian electronics components market providing a means of both material cost reduction and improved logistics on some components utilized in Sparton's manufacturing operations. In December 2003 Sparton purchased a new facility in Albuquerque, New Mexico. This new facility will replace the Company's older existing facility in Rio Rancho, New Mexico. With the new facility, the Company anticipates additional new contract opportunities that were previously unavailable to it in the older facility. In addition, the Company continues to pursue a South East Asia production facility in Vietnam, with Texatronics, Sparton's Alliance Partner in Richardson, Texas. Finally, the Company is continuing an aggressive program of identifying and evaluating potential acquisition candidates in both the defense and medical markets.Source: PCBnewsline