Best Ideas Newsletter holding EDAC Tech (click ticker for report: ) announced fantastic fourth quarter results. Revenue rose 25% year-over-year to $28.4 million during the period, leaving the company with full-year revenue of $106.5 million, 23% higher than a year ago. Earnings growth was also strong, growing 24% year-over-year during the fourth quarter to $0.26 per share. For the full year, earnings increased a whopping 53% to $1.06 per share.
We saw a nice improvement in gross margins during the fourth quarter, rising 140 basis points year-over-year to 19.3%. The higher-margin processing business that EDAC acquired when it purchased EBTEC helped boost overall gross margins. On the other side of the cost equation, SG&A rose nearly 43% on an absolute basis, but it increased just 130 basis points as a percentage of sales to 10.2%. Management doesn’t play accounting games with adjusted earnings per share or several non-GAAP figures, but the quarter did include a one-time relocation charge of $300,000, which makes the increase in SG&A look much more palpable. The new facility should pay off in the form of better margins and increased productivity in 2013 and beyond.
On a segment basis, the primary revenue driver was the Aerospace segment, which saw revenue advance 36% year-over-year to $20.6 million. A large portion of the increase was attributable to the EBTEC acquisition, but core performance was still solid, and the Pratt & Whitney (click ticker for report: ) turbofan engine helped drive sales growth. Management provided some deeper commentary on the quarter, saying:
“Our legacy aerospace business grew 17% with sales of military and replacement parts especially strong. As indicated in today’s press release, our sales also included stationary inter-components for the GEnx used in a Dreamliner and the G90 used in a 777. We have now reached full ramp up in both programs.
They also included rotating parts for industrial gas turbines which are basically ground based aircraft engines. In addition to this legacy and current programs, we had sales for emerging engine programs including the development parts for Pratt & Whitney’s geared turbofan engine. We are continuing to ramp-up production of parts for the Rolls-Royce Trent 800 and 900 engines.”
Operating income expansion trailed behind revenue growth, up 15% year-over-year to $1.6 million. Much of the lag can be blamed on the higher SG&A costs, so we fully expect operating leverage to kick in the next few quarters. The Industrial segment saw only 4% growth to $7.8 million, but virtually all of that increase fell to the bottom line, as segment earnings surged 55% year-over-year to $975 thousand.
With respect to the firm’s backlog of unfulfilled orders, it fell about $10 million sequentially to $304 million, but was $52 million higher than a year ago. Demand in the coming years looks robust, and management indicated incremental capacity increases could lead to additional growth in 2014 and beyond. Looking ahead, we think the market was a little disappointed in that no huge order was announced and in guidance that called for sales and earnings for the first quarter of 2013 to be equal to what we saw in the fourth quarter of 2012. Still, this translates into both solid revenue and earnings expansion, and management is notoriously conservative.
We continue to have tremendous confidence in the aerospace supply chain, and we believe EDAC Tech has plenty of upside left. The firm remains a key holding in the portfolio of our Best Ideas Newsletter.