Best idea Astronics (ATRO) reported strong fourth-quarter results Monday and offered an outlook for 2012 that pleased most investors. The stock is surging roughly 8% today, and we continue to believe the company belongs in the portfolio of our Best Ideas Newsletter.
We were impressed with Astronics’ performance pretty much across the board. Fourth-quarter revenue jumped 18% led by a 24.5% increase in aerospace sales, while gross profit surged nearly 40% on the heels of 4.4 percentage points of gross-margin expansion. Astronics continues to reap the benefits of higher demand for both aircraft cabin electronics products and aircraft lighting products. The company’s operating margin was roughly flat in the period, but after excluding a goodwill impairment loss related to its Test Systems segment, the company’s operating margin increased to 16.4% in the period from 12.4% in the same quarter a year ago. We think the firm’s operating margin has even more upside potential, as operating profit on aerospace sales was well over 20% in the fourth quarter, for example. Adjusted operating income grew a whopping 56% to over $10 million, while net income in the fourth quarter came in at $0.40 per share compared with $0.35 per share in the prior-year quarter. However, excluding non-recurring items, the bottom-line per share number was $0.52, beating expectations by nearly $0.11.
Looking ahead to 2012, we continue to expect a strong year from Astronics thanks to robust commercial aircraft demand supported by the large backlogs at the airframe makers. Bookings in Astronics’ fourth quarter surged nearly 34%, to $54 million (slightly lower than sales in the period), while total backlog was roughly $106 million at the end of the year, up from roughly $100 million at the end of 2010. Astronics expects revenue to grow as much as 10% at the high end of its guidance range for 2012, and we think such a forecast is achievable. We also expect robust bottom-line expansion this year as the company benefits from increased throughput, higher operating leverage, and anniversaries the impairment loss registered in the most recently-reported quarter.