AEROSPACE: TransTechnology Profits Rise
TransTechnology Corp.’s four-year war of attrition to take control of a defense contractor, Lundy Electronics & Systems of Glen Head, N.Y., finally appears to be paying off.
Last week, TransTechnology, the Sherman Oaks-based aerospace and defense firm, reported its best quarter ever. For the third quarter ended Dec. 31, net income was up 173% from the same quarter a year earlier to a record $3.5 million or 69 cents a share, on a 109% increase in sales to $54.7 million.
Company officials and analysts say the improvement is because of Lundy, which TransTechnology finally conquered last March after a four-year effort.
TransTechnology chairman Arch C. Scurlock also said TransTechnology’s long-plagued Space Ordnance Systems (SOS) unit, which has two plants in the Santa Clarita Valley, turned a profit last quarter for the first time in more than two years.
“Everything’s been clicking on all cylinders,” Scurlock said in a telephone interview from his Arlington, Va., office. “Most big shareholders hold their breath after a deal like this. They’re breathing easy now.”
To Double Annual Sales
The acquisition is expected to nearly double TransTechnology’s annual sales from the $113 million it reported for its last fiscal year ended March 31. TransTechnology’s products include explosives and military helicopter hoists, while Lundy is known for computer graphics and automation systems for banks.
Scurlock said the main reason he wanted Lundy is because of its Pompano Beach, Fla., chaff-making unit. Chaff, or aluminum-coated glass fibers that warplanes release to confuse enemy radar, makes a natural fit with TransTechnology’s flares that are shot from planes to divert heat-seeking missiles.
By marketing the products together, TransTechnology is able to compete more effectively against firms that sell both products, said John N. Simon, an analyst at Seidler Amdec Securities in Los Angeles.
For the nine months ended Dec. 31, TransTechnology’s net income was up 83% from the year-earlier to $6 million, or $1.24 per share. During the period, sales were $146.2 million, 112% above the previous year.
“The results were way ahead of everybody’s expectations,” said John B. Hoffmann, manager of equity research for Smith Barney, Harris Upham & Co. in New York. “We’re very bullish on them.”
Although Scurlock would not break down the company’s net income by division, he said the newly formed flare-making and chaff operation was the profit leader.
SOS, TransTechnology’s predecessor company, turned a profit this past quarter after losing $5 million last year, Scurlock said. The unit makes flares, pilot ejection systems and a variety of explosive devices. “It’s been the weakest part of the company and we hope that’s going to change,” Scurlock said.
Hazardous Waste Violations
SOS has had other problems besides losing money. In March, 1984, the unit was raided by state and county environmental officials who said the company was improperly storing hazardous waste and disposing of chemically tainted waste water by spraying it through sprinklers.
SOS’s former president, Joseph R. Cabaret, ended up serving a 10-day jail sentence last year after pleading no contest to hazardous-waste violations. He is now vice president for planning at Trans-Technology’s corporate headquarters.
Cabaret was replaced last April by Salvatore J. Mira, a former executive vice president with Gates Learjet in Tucson, Ariz. Mira says the storage problems are over, and that the unit’s disposal policies have been revamped.
Bonnie Teaford, a waste-management engineer for the state Department of Health Services, said that although SOS has removed the barrels of hazardous chemicals it was storing, the company still must clean up residual soil and ground-water contamination.
In addition to returning SOS to profitability, TransTechnology improved its performance by cutting overhead. It laid off 40 people at Lundy’s Glen Head headquarters last May and June. Another 75 jobs were cut at a Lundy unit in Portland, Ore.
Kept Rejecting Offers
Scurlock first tried to buy just Lundy’s chaff division in late 1981. But when Lundy repeatedly spurned the offers, claiming TransTechnology was not offering enough money, TransTechnology started buying up Lundy’s stock.
The final agreement last March called for TransTechnology to pay $14.50 for the 2.55 million shares, or the 75% of Lundy stock that it did not already own.
Prospects for TransTechnology look good, analysts say. For starters, even if earnings from operations remain flat over the next year, Hoffmann said, the company can expect its effective tax rate to drop from 48% to 40% as a result of changes in the tax laws.
With such an outlook in mind, the company’s stock, which closed Monday at $28 on the American Stock Exchange, up from a 1986 low of $15.25 in January, is being recommended as a buy by stock pickers Hoffmann, Simon and the Value Line survey.
