Kewaunee Scientific's Q2 Earnings Rise Y/Y Despite Sales Decline

Shares of Kewaunee Scientific Corporation KEQU have gained 3.9% since the company reported its earnings for the second quarter of fiscal 2025. This compares favorably with the S&P 500 index’s 0.8% growth over the same period. Over the past month, KEQU shares have surged 15.3%, outperforming the S&P 500’s 1.2% growth.Key Financial Performance MetricsThe company reported second-quarter fiscal 2025 earnings per share of $1.01, reflecting an 8.6% improvement from 93 cents reported in the year-ago quarter.For the second quarter of fiscal 2025, Kewaunee Scientific reported net sales of $47.8 million, a 5.3% decline compared with $50.4 million in the year-ago quarter.Despite softer sales, the improved earnings were supported by enhanced profitability in the domestic segment.Kewaunee Scientific Corporation Price, Consensus and EPS Surprise Kewaunee Scientific Corporation price-consensus-eps-surprise-chart | Kewaunee Scientific Corporation QuoteDomestic and International Segment AnalysisDomestic Segment: Domestic sales grew 6.5% year over year to $36.41 million in the second quarter of fiscal 2025, driven by robust demand. Segment net earnings surged 48.2% year over year to $4.52 million, supported by a 30.7% year-over-year increase in EBITDA to $6.84 million.International Segment: International revenues declined sharply to $11.36 million in the second quarter of fiscal 2025, down from $16.25 million in the prior-year quarter, due to delays in customer construction sites in India. This segment's net earnings fell to $0.36 million in the reported quarter, a 32.2% decrease year over year, while EBITDA dropped significantly to $0.59 million in second-quarter fiscal 2025 from $1.64 million reported in the prior-year quarter.Corporate Segment: The corporate segment reported a pre-tax net loss of $2.44 million in the second quarter of fiscal 2025 compared with a $1.24 million loss in the previous year. The EBITDA loss widened to $2.55 million, influenced by increased professional fees related to Sarbanes-Oxley compliance and acquisition expenses.Other Key Business MetricsThe company’s gross profit increased to $14 million from $13.5 million in the prior year, reflecting a gross margin improvement to 29.2% from 26.7%. Operating profit for the quarter stood at $4.4 million compared to $5.1 million in the prior-year period, a 13.2% decline due to higher operating expenses. Despite these pressures, the net profit margin improved to 6.3% from 5.4%, reflecting an enhanced ability to manage costs and generate earnings from lower sales.Pre-tax earnings stood at $3.9 million, down 18.9% year over year, while EBITDA declined 13.8% to $4.9 million. Adjusted EBITDA, which excludes acquisition-related costs, reached $6.4 million, up 13.4% from $5.7 million reported in the prior-year quarter.These metrics highlight the company’s ability to maintain profitability through effective cost management and strong domestic demand, even amid international headwinds and acquisition-related costs.Cash and Debt PositionKewaunee Scientific ended the second quarter of fiscal 2025 with $29.7 million in cash, up from $25.9 million at the end of April 2024. The company reduced its short-term debt to $805,000 from $3.1 million as of April 30, 2024, reflecting an improved liquidity position.Long-term debt stood at $28 million, slightly lower than $28.5 million as of April 30, 2024. Notably, $27.8 million of this is attributed to a building lease from the company's sale-leaseback transaction in December 2021. Excluding the lease, long-term debt was a modest $265,000, highlighting the company’s conservative leverage. The debt-to-equity ratio improved to 0.59-to-1 from 0.70-to-1 in April, showcasing the company’s strengthening financial stability.Management CommentaryThomas D. Hull III, president and CEO, emphasized the robust domestic performance and growing backlog, attributing the latter to continued market vitality and effective channel partnerships. He acknowledged challenges in international operations, particularly in India, but remained optimistic about long-term opportunities in the global market.Kewaunee Scientific’s order backlog stood at a record $184.4 million as of Oct. 31, 2024, up 26% from $146.3 million a year earlier, highlighting strong market demand, which positions Kewaunee for continued growth.Factors Influencing ResultsInternational segment disruptions primarily drove the decline in overall sales. Meanwhile, higher professional and other fees associated with the acquisition of Nu Aire, Inc., impacted corporate segment results, contributing to a wider pre-tax loss of $2.4 million versus $1.2 million in the prior year.The decline in international revenues stemmed from external factors such as project delays in India, which deferred product shipments. Meanwhile, domestic growth was supported by higher market demand. Increased corporate expenses, primarily related to compliance and acquisition activities, weighed on profitability.Other DevelopmentsOn Nov. 1, 2024, Kewaunee Scientific completed the acquisition of Nu Aire, Inc., a manufacturer of containment solutions such as biological safety cabinets and airflow products. This strategic move is expected to enhance the company’s product portfolio and expand its market presence, particularly in regions previously underserved by the company. Acquisition-related expenses of $2.3 million were recorded in the second quarter, which management views as a long-term investment in growth and diversification.The acquisition underscores the company's strategy to diversify its offerings and bolster its market position in laboratory furniture and technical products.In conclusion, Kewaunee Scientific’s latest results underscore the company’s resilience in its domestic operations and the strategic potential of its recent acquisition. While international challenges persist, a robust backlog and diversified portfolio position the company for future growth.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. 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