SXI Q1 Earnings Call: Acquisitions and New Product Growth Offset Organic Weakness, Margins Hold Steady

Industrial manufacturer Standex (NYSE: SXI) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 17.2% year on year to $207.8 million. Its non-GAAP profit of $1.95 per share was 1.5% above analysts’ consensus estimates.

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StockStory’s Take

Standex’s first quarter results reflected the company’s ongoing shift towards growth in fast-expanding end markets and successful integration of recent acquisitions. Management pointed to higher sales contributions from the Amran/Narayan Group and McStarlite, as well as an acceleration in new product launches, as key drivers behind the quarter’s revenue increase. CEO David Dunbar highlighted that “sales into fast-growth markets increased to 29% of total company sales,” underlining the company’s focus on sectors like electrical grid modernization and aerospace.

Looking ahead, management signaled that new product ramp-ups and continued investment in capacity expansion—particularly in Europe and India—will be central themes. Dunbar indicated that customer commitments for Amran/Narayan products “extend years into the future,” giving the company confidence in ongoing expansion. However, he acknowledged ongoing macro uncertainties, including tariffs and slower demand in scientific and certain industrial markets, with the company planning additional pricing and productivity actions to mitigate these headwinds.

Key Insights from Management’s Remarks

Standex’s management attributed first quarter performance primarily to acquisition contributions and targeted growth in select end markets, while addressing challenges in organic growth and tariff impacts.

• Acquisition-Driven Revenue Gains: Standex’s revenue growth was bolstered by the contributions from the Amran/Narayan Group (electronics) and recent McStarlite (aerospace components) acquisitions. These acquisitions expanded the company’s exposure to fast-growing markets, with Amran/Narayan’s integration performing ahead of expectations.
• Expansion in Fast-Growth Markets: Sales into markets such as electrical grid modernization, space, defense, and renewable energy represented a larger share of the portfolio. Management noted that these segments not only provided top-line growth but also supported higher margins due to favorable product mix and value-added offerings.
• New Product Momentum: The company doubled year-on-year new product sales, with 13 product launches year-to-date. Management expects new products to contribute over 200 basis points of incremental growth for the full year, emphasizing the long ramp-up cycle typical for products integrated into OEM platforms.
• Tariff and Supply Chain Management: While new tariffs—especially on imports from China—presented a risk, management downplayed the overall impact, citing regional manufacturing strategies and the ability to offset most tariff costs through pricing and productivity improvements. They noted that only about 6% of total cost of goods sold was exposed to Chinese imports.
• Margin and Cash Flow Dynamics: Operating margin remained stable despite organic sales declines, benefitting from price and productivity initiatives. However, free cash flow declined significantly year-on-year due to transaction-related payments, longer customer credit terms from acquired businesses, and annual tax payments. Management highlighted ongoing efforts to improve working capital efficiency in upcoming quarters.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on executing expansion plans for recent acquisitions, ramping up new product launches, and navigating external cost pressures. The focus is on sustaining growth in targeted end markets while managing margin and cash flow headwinds.

• Capacity Expansion Progress: The company is investing in expanded manufacturing capacity for Amran/Narayan in India, the United States, and a new European site, with initial investment levels described as modest. Management expects these expansions to support growing demand from major OEM customers, particularly in the electrical grid and data center sectors.
• Organic Growth Resumption: While organic revenue declined in the latest quarter, management expressed confidence in an inflection towards organic growth in electronics and engineering technologies, citing improving order trends in Asia and stable demand from core customers.
• Tariff and Demand Risks: Management acknowledged risks from tariffs and ongoing softness in scientific and general industrial end markets. The company is responding with a combination of price increases, productivity initiatives, and supply chain adjustments, but scientific remains the most exposed segment to tariff-related margin pressure.

Top Analyst Questions

• Chris Moore (CJS Securities): Asked about the impact and mitigation strategies for tariffs across segments; management detailed pricing and productivity actions, highlighting scientific as the most challenging area for full cost recovery.
• Matt Koranda (ROTH Capital): Inquired about capacity utilization and margin implications of Amran/Narayan’s European expansion; management responded that current capacity is sufficient and margin impact from the expansion is expected to be minimal.
• Ross Sparenblek (William Blair): Sought clarity on organic growth outlook and restocking trends in electronics; management indicated improvement in Asia and confidence in returning to organic growth in the next fiscal year.
• Gary Prestopino (Barrington Research): Questioned the margin profile of fast-growth markets and how Amran/Narayan affects it; management confirmed that these markets yield higher margins, with Amran/Narayan adding “a couple of hundred basis points” to segment margins.
• Mike Shlisky (D.A. Davidson): Asked about working capital improvements and the overall impact of tariffs; management outlined ongoing efforts to optimize receivables and inventories and reiterated that tariff exposure is minor at the corporate level.

Catalysts in Upcoming Quarters

In the next few quarters, our analysts will be monitoring (1) the pace and execution of capacity expansion for Amran/Narayan in Europe and India, (2) the ramp-up and market adoption of recently launched products, and (3) progress in improving working capital efficiency to support free cash flow recovery. Sustained strength in fast-growth markets and successful mitigation of tariff and demand headwinds will also be key markers for operational execution.

Standex currently trades at a forward P/E ratio of 17.5×. In the wake of earnings, is it a buy or sell? The answer lies in our free research report.

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