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Thursday, Sep 29, 2022

Plane Parts Maker’s Stock Falls Back Down to Earth

Airplane parts manufacturer Ducommun Inc. was flying high earlier this year thanks to improved prospects in the aerospace industry and deals with its biggest customer, Boeing Co.

But the Carson company hit turbulence last week when its earnings fell below Wall Street expectations and sent shares into a nosedive.

Ducommun’s stock was down 26 percent to close at $18 on May 8, making it the biggest loser on the LABJ Stock Index. (See page 40.)

Ken Herbert, an analyst at Imperial Capital in San Francisco, said it was due in part to concern over Ducommun’s sales to the mining and natural resources industries – a small but closely watched complement to its core business, selling to the aerospace and defense industries.

“The markets they’re in – mining and natural resources – they’ve been soft. Capital spending in the energy industry is down,” he said. “It was significantly worse than people were expecting.”

The company reported net income of $3.7 million (or 35 cents a share) on revenue of $176 million for the quarter ended March 30. Analysts had expected earnings of 41 cents a share on revenue of $186 million.

Sales to aerospace and defense customers increased 4 percent compared with the same quarter a year ago – but not enough to compensate for the loss of sales in mining and oil drilling, analysts said.

The company reported revenue from its nonaerospace and defense businesses was down 32 percent compared with the same quarter a year ago.

Still, that side of the company is relatively small and accounted for just 22 percent of Ducommun’s revenue last year – causing another analyst to downplay its importance to the stock price.

Ducommun’s customers in the energy and natural resource industries include oil field services giants Halliburton and Schlumberger Ltd., both of Houston. For example, Halliburton has purchased electronic motors from Ducommun to power drills that go miles beneath the Earth’s surface.

The business expanded with Ducommun’s $338 million purchase in 2011 of LaBarge Inc. of St. Louis, which gave the company a fresh roster of clients outside the aerospace business, such as Schlumberger.

But such customers simply weren’t spending heavily on equipment last quarter and it’s unclear when demand will pick up, Herbert said.

Ducommun Chief Executive Anthony Reardon said in the earnings report that he expects that side of the business to pick up in the latter part of the year.

The earnings also pushed some investors to take profits. Ducommun’s stock was still trading at about double its May 2012 price even after the dip.

“The stock had a huge run,” Herbert said. “There was profit taking.”


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