Teledyne Warns Of Business Falloff; Outlook To Be Lowered
Teledyne Technologies, a key supplier of aerospace instruments, digital imaging products and defense electronics, has warned Wall Street of a dramatic falloff in commercial aerospace business and that its full 2020 outlook will be ramped down due to the novel coronavirus.
The company also unveiled a pretax write-off charge of $40 million due to customer OneWeb’s recent bankruptcy, as well as French opposition to a proposed acquisition there.
But it is the COVID-19 pandemic fallout coming on top of the earlier halt to Boeing 737 MAX production that is causing the revised forecast. More than a third of the Thousand Oaks, California-based company’s employees have been working from home over the last few weeks due to COVID-19 lockdowns. All sites remain open and senior management reports to work, but the company expects significantly less business in its commercial areas and is pursuing unidentified cost-cutting measures.
“Given likely reductions in customer capital expenditures, we currently expect a substantial change in demand in the second quarter for some of Teledyne’s commercial businesses, especially those serving North America and Europe-based customers,” the company said April 6.
Nevertheless, the company detailed preliminary financial results for the first quarter of 2020, ended March 31. Teledyne’s management stressed it expects to achieve record sales and earnings per diluted share (EPS) for the quarter, with sales up 5% to $785 million and EPS of $2.10-2.15 versus $2.02 a year before.
But in response, Jefferies analysts Greg Konrad and Sheila Kahyaoglu focused on the company’s new subdued outlook. “Teledyne’s positive momentum will be derailed near term from COVID-19,” they said. They see Teledyne’s organic growth in 2020 falling from a 3% expectation set by management in January now to a loss of around 8%, given the collapse in air traffic and the halt of production at several commercial aero OEMs, among other reasons.
Nonetheless, the analysts said Teledyne still has positive “momentum” in a normal environment and believes near-term headwinds are manageable by the company’s leaders. They noted the company carried out $9.4 million of restructuring activity in the first quarter, possibly due to the MAX’s production halt, before the coronavirus outbreak. Teledyne also has more than a $1 billion in so-called “dry powder” funding for potential acquisitions.
To that end, Teledyne also acknowledged April 6 that it is trying to buy Photonis International of France from private equity owner Ardian Funds for around $550 million. Photonis is a leader in French night vision and a provider of specialty microwave devices and ion detectors for government and energy applications. Not surprisingly, the potential deal has faced pushback given its national importance, and the Foreign Investment Office of France issued a negative opinion on March 31.
Still, the Jefferies team noted the deal may not automatically be doomed. “Although there could be some political opposition, there also appears to be some support given Teledyne’s current exposure in France that includes an e2v subsidiary in Grenoble, France, and Oldham Simtronics, which provides gas detection out of Arras, France,” the analysts said. Teledyne bought e2v in March 2017.