Stephen Oswald, the chief executive of Ducommun Inc. in Santa Ana, said his company, which makes highly complex manufacturing products for customers in the aerospace, defense and industrial markets, will get back on the growth track in 2021 after it was hit by the slowdown in commercial aerospace sector this year and the continued grounding of the Boeing 737 MAX.
Oswald says the company’s defense business remains strong while he expects “a modest rebound” in the commercial aerospace area as a coronavirus vaccine is rolled out next year.
“Ducommun has announced that 2021 will be a return to growth for the full year,” Oswald told the Business Journal on Nov. 16.
“Both defense and some rebound in commercial aerospace are forecasted.”
Ducommun (NYSE: DCO), lays claim to being California’s oldest company with roots dating back to 1849, and counts a market capitalization approaching $570 million.
Wall Street likes Oswald’s optimistic forecast. It’s seen its shares increase more than 40% since late October, though the company’s stock remained down by approximately 5% from year-ago levels as of Nov. 23.
Boeing Issues
Ducommun specializes in two areas—electronic systems and structural systems. It makes products and components for commercial aircraft platforms, mission-critical defense and space programs, and sophisticated industrial applications.
Products under its umbrella range from rotor blade assemblies for military helicopters, to fuselage skins for planes, to printed circuit boards, and even ammunition handling systems.
The company reported 40% growth in its defense business in the third quarter year-over-year, along with strong performance for its electronics systems segment.
Gains from those area helped offset some of the impact from the commercial aerospace difficulties, it said.
The company faced “significant headwind from the pandemic in commercial aerospace along with the continued grounding of the 737 Max,” according to Oswald, whose company has made a variety of structural systems for the 737 platform since its inception.
The Boeing 737 Max was grounded in March 2019 after two crashes of the jetliner killed 346 people.
Federal Aviation Administration chief Steve Dickson on Nov. 18 signed an order that paves the way for the 737 MAX to return to commercial service. The company reported that net income for the 2020 third quarter ended Sept. 26 was $6.5 million, down from $8.3 million for the third quarter of 2019, while net revenue slid to $150.4 million from $181.1 million during the same time frame.
Fast-Grower
The recent drop in sales reverses several years of gains for the Santa Ana company.
Ducommun ranked No. 5 on last week’s Business Journal’s list of fastest-growing local public companies over a two-year period, among those with $500 million or more in revenue.
The ranking was based on the company’s approximately $689 million in revenue for the 12 months ended June 27, just as the full force of the pandemic was hitting the U.S. economy. It posted two-year growth of 17.5% over that two-year period.
Defense Work Strong
“In regards to the Q4 outlook, our significant backlog in defense with the many growth programs mentioned earlier, will provide the same strong revenue,” Oswald told financial analysts on Oct. 28. “We estimate that revenue will again be led by defense, but the business overall, as mentioned in the Q2 call will be down year-over-year by 14% to 18% due to commercial aerospace.”
Oswald said next year “will be a return to growth for the company.”
“Ducommun has successfully built out its defense business in the past few years and we see continued momentum,” Oswald told the Business Journal. “We also anticipate commercial aerospace build rates to also improve, especially in 2022 and 2023.”
The defense segment reflects a “diverse array of demand for nearly all aspects of the company’s product portfolio,” according to Oswald, adding that the military and space “backlog remains at record levels.”
One key issue for the aerospace and defense industry is whether there will be consolidation as a result of the pandemic.
Oswald’s view: “We will have to see as it is difficult to predict right now until we know more about the timing of the vaccine and commercial aerospace recovery.”
