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Cubic Asserts Fundamentals Are Good

Defense and technology specialist Cubic Corp. reported a net loss of $39.3 million on revenue of $321.5 million in its second quarter, which ended March 31. The business reported its financial results on May 6.

Though the company and its customers are facing challenges at the moment, Chairman and CEO Bradley Feldmann asserted that “the long-term fundamentals of our businesses remain strong.”

In response to the COVID-19 pandemic, Cubic said it has been cutting costs. It also increased its borrowing capability.

Cubic did slightly worse than analysts expected. A consensus of five analysts polled by Yahoo Finance was that Cubic would turn in a net loss of 11 cents per share. The company turned in a loss of 12 cents in adjusted earnings per share. Shares of Cubic stock opened lower on May 7, the first full day after the news, but closed out the day up 4% from the previous day’s closing.

The business makes high-tech hardware, software and systems for military customers. A major part of Cubic’s business is transportation technology, including fare-collection technology, for local governments around the world.

Pledging Growth

Second quarter revenue was down 4.5% from $337.3 million in the same quarter one year ago. The business generated a net loss of $8.1 million in the year-ago quarter.

“Our number one priority at Cubic is the health and safety of our team members, customers, partners and communities. I want to thank our employees for their commitment to serve our customers during these unprecedented times,” Feldmann said in a statement distributed by the company.

“While we are experiencing short-term impacts and challenges, we have taken the necessary actions to navigate this environment and the long-term fundamentals of our businesses remain strong. Cubic is well-positioned to drive growth by solving our customers’ hardest challenges.”

The business withdrew its financial guidance for the year, citing the uncertainty of the economy during the COVID-19 pandemic.

Cubic sells to the Defense Department, foreign militaries and mass-transit agencies. The business said it expected customer delays in the months ahead.

Cost Reductions in Place

The company said it has embarked on a cost reduction and cash preservation program, which is expected to result in cumulative net savings of $30 million to $35 million through fiscal 2021.

Cubic said it imposed a hiring freeze, reduced discretionary expenses and cut overhead costs.

Executives took a cut in cash compensation, with Feldmann taking a 15% cut for the remainder of the fiscal year, and CFO Anshooman Aga taking a 7½ percent cut. Board members took a 15% cut.

The company amended its credit agreement, providing Cubic with a new $450 million unsecured term loan and increasing its existing unsecured revolving credit facility from $800 million to $850 million. “This transaction increases Cubic’s capacity by 30% to a total of $1.3 billion and improves its financial flexibility due to more flexible covenants, interest savings and an improved maturity profile,” Cubic said in a statement.

“Cubic expects to have sufficient liquidity to continue business operations during the evolving economic conditions surrounding the COVID-19 pandemic,” it said in a statement.

Feldmann also said Cubic was supporting both customers and communities impacted by COVID-19 by repurposing its capabilities to produce protective gear, ventilators and game-based training solutions.

Lowinger Steps In

In other news, Cubic appointed Jeffrey Lowinger to oversee its transportation business, announcing the news April 21. He succeeds Matt Cole, who left the company to pursue another management opportunity. Cole’s new employer is still confidential.

Prior to joining Cubic, Lowinger was the president of the eMobility segment for Eaton Corp., a new organic growth segment announced in March of 2018 to provide intelligent power electronics, power systems and advanced power distribution in addition to circuit protection products and solutions for the automotive and commercial vehicle industry.

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