Call it the Boeing curse.
Aerospace subcontractor Ducommun Inc. has seen increasing business from Boeing Co. the last few years, resulting in a higher net income each year since 1994 and double-digit earnings increases for the first two quarters of this year.
But with Boeing's well-publicized problems, investors have shied away from subcontractors like Long Beach-based Ducommon, which makes airplane fuselages, wing parts and electronic components.
Ducommun "continues to plug away and do a good job at what they're doing, but at this point, their share price seems to be overshadowed by the news coming out of Boeing," said Mitchel J. Kummetz, an analyst at A.G. Edwards & Sons Inc.
After hitting a 52-week high of $26.83 last September, the stock has been trading at between $18 and $24 for most of this year, hitting a 52-week low of $17.38 last month.
Last week, shares were around $20, and the company had a price-to-earnings ratio of 10.78, as compared to an industry average P/E of about 15.
Still, Ducommun, which gets about half its business from Boeing, either directly or indirectly, continues to do well. The company reported net income of $14.3 million ($1.81 diluted earnings per share) in 1997, compared with $10.3 million ($1.34) a year earlier.
In the second quarter ended July 27, it reported net income of $5.1 million (43 cents), compared with $3.7 million (31 cents) for the like period a year ago.
"They continue to beat analysts' expectations," Kummetz said. "My projections are for net income and sales to continue to grow for the balance of this year and into next year. They're firing on all cylinders, yet they can't overcome some of the negative news that's surrounding the industry."
Joseph C. Berenato, Ducommun's president and chief executive, said Boeing's problems are one reason for Wall Street's restraint. But he added that low expectations for the commercial aircraft sector, as well as Wall Street's poor treatment of small-cap companies, also are having an impact.
Even so, Berenato said business remains quite strong.
"Boeing is not making money, it's true," he said. "But they're building a lot of planes, which means we're getting lots of work."
Furthermore, Berenato said, if the market for commercial aircraft levels out or drops after 1999 something many analysts are predicting Ducommun is prepared. In fact, it is far more prepared now, having a debt-to-capital ratio of 6, than it did in 1992, at the outset of the last downturn, when its debt-to-capital ratio was 120.
"We're a much stronger company, we're more diversified and we've got a great-looking balance sheet," he said, adding that a downturn might lower the value of competitors, thus allowing Ducommun to make affordable acquisitions. "While I'm not eager for a severe downturn, I think it will present us with different opportunities than we had last time around."
Even without a downturn, Ducommun has begun making acquisitions. In June, it bought Fullerton-based American Electronics Inc., which had $7.1 million in revenues last year. That company, which makes motors for satellites and other space applications, will help grow the space business, Berenato said. He also expects to hire a full-time merger-and-acquisition specialist by next month to find more companies to buy.
Ducommun, founded in 1849, is California's oldest continuously operating company. Charles Louis Ducommun came to Los Angeles during the Gold Rush. Rather than digging for gold himself, he sold picks and shovels to miners. In the early days of aerospace, his company sold metal to airplane makers, including aluminum for Charles Lindbergh's Spirit of St. Louis.
By the end of World War II, Ducommun was the largest metal distributor in the U.S. west of the Mississippi River.
In the 1970s and '80s, the company moved into the electronics distribution business, but later ran into financial difficulties and sold off that business. By the end of 1988, the company, now composed of four small aerospace subcontractors, had only $57 million in sales down from an early-'80s high of $450 million and had a negative net worth.
Today, following a turnaround and acquisitions of other aerospace companies, Ducommun makes such items as aluminum and titanium skins for jet wings and illuminated push-button switches for airplane instrument panels.
Last month, the board authorized the repurchase of up to $15 million of common stock. "If nobody else wants it at this price, then we'll take it," Berenato said.
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