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January 23, 2023

Kaman restructuring bets big on unmanned aerial vehicle technology

HBJ PHOTO | STEVE LASCHEVER Ian Walsh, CEO of aerospace and medical components manufacturer Kaman Corp.
HBJ PHOTO | STEVE LASCHEVER Ian Walsh is in his third year as CEO of aerospace and medical components manufacturer Kaman Corp., which is going through major changes in its business.

After steering his company through a pandemic, aerospace industry headwinds and a number of mergers and acquisitions, Kaman Corp. CEO Ian Walsh said the Bloomfield-based aerospace, defense and medical components manufacturer will continue its transformation in 2023.

Kaman Corp. struggled to meet many of its quarterly financial expectations in 2022, but Walsh said investments in new products and a major strategic shift — including moving away from its long-established joint fuze program and discontinuing production of its K-Max heavy-lift helicopter, to development of its unmanned aerial vehicle — will carry the company into the future.

The shifts will lead to an undisclosed number of job cuts, the closure of at least one manufacturing plant in Orlando, Florida, and consolidation of fuze production at its Middletown facility.

“With respect to workforce reductions, we do not take these decisions lightly,” Walsh said. “We remain focused on advancing our strategic priorities to maximize Kaman’s performance for the benefit of our customers and shareholders.”

Walsh, who just finished his second year as Kaman’s CEO, said the company’s top line is still on the mend following a few rough years amid the pandemic and other economic headwinds, including supply chain issues that have impacted manufacturers across myriad industries.

Kaman reported $490.8 million in revenue through the first three quarters of 2022, down from $533.8 million in the year-ago period. Profits during that same period were $8.7 million, or 31 cents per diluted share, down from $34.5 million, or $1.25 cents per share, in the the first three months of 2021.

But entering year three as CEO, Walsh said Kaman has the team and vision in place for “consistent, steady growth.”

“You’re going to see Kaman continue to get stronger operationally,” Walsh said in a recent interview. “I think great companies are able to really get their heads up and look down the road, see where they’re going, and know how fast they need to go to get there.”

The plan

Walsh joined Kaman as CEO in September 2020, after a military career and executive experience at other manufacturers such as Textron Inc. and more recently REV Group Inc.

At Textron, Walsh said he was known as a “fix-it guy” who was often given the tough tasks.

Kaman shareholders hope he has similar success in his relatively new role. When Walsh took the job in September 2020, a few months after the pandemic began, Kaman was selling at about $38 per share. As of mid-January, the company was trading around $22.80 per share.

At the start of his Kaman tenure, Walsh said he had to deal with a down economy and other headwinds, including a major slow down in the aerospace industry. The company had completed a sale of its distribution business and also acquired several other companies just prior to the pandemic.

“There was a lot of shifting and change that went on in that time,” Walsh said.

Walsh said he came into the job with a five-year transition plan. His first full year in 2021 consisted of putting his leadership team in place and beginning to overhaul the company’s structure.

Last year, Walsh said his focus was on assessing each of Kaman’s business units: engineered products, which makes aircraft bearings, springs and other components; precision products, which focuses on helicopter work, including its heavy-lift K-MAX manned helicopter and KARGO UAV unmanned aerial system; and a structures segment that makes metallic and composite aero structures for commercial, military and general aviation fixed- and rotary-wing aircrafts, and components for medical devices and instruments.

PHOTO | CONTRIBUTED
Kaman is developing the KARGO UAV (shown above), an unmanned aerial vehicle that can lift loads of up to 800 pounds.

Kaman serves customers ranging from commercial aerospace companies including Airbus, Boeing and Sikorsky, to government defense contracts.

Other changes include M&A activity.

In September, Kaman completed the purchase of Parker-Hannifin Corp.’s aircraft wheel and brake division, which had annual sales of about $70 million. Parker-Hannifin is an Ohio-based motion and control technology company that makes everything from fuel nozzles to air pressure regulators.

Kaman early last year also sold for $1.3 billion its Distribution Group subsidiary to Atlanta-based automotive and industrial replacement-parts distributor Genuine Parts Co.

Walsh said the company has also consolidated operations at its Jacksonville structures facility, which supplies metallic details, complex metallic aerostructures, and sub-assemblies for aircraft and ground vehicles. He said the company’s Vermont composites facility, which makes products for aerospace and medical uses, has had a “miraculous” turnaround over the past year and has improved its profitability.

A new focus

Kaman’s business is going through a major transition, led by the decline of its joint programmable fuze production for the now-ended Joint Air-to-Surface Standoff Missile program. The company several years ago — before Walsh was at Kaman — didn’t win the contract to make the next generation of fuzes.

Kaman recently announced it will consolidate fuze production at its Middletown facility and close its other fuze facility in Orlando by the end of 2024, which will create about $12 million to $15 million in annual cost savings.

Walsh said the fuze program generated almost one-third of the company’s annual profit.

It’s also shuttering production of its K-MAX helicopters, which haven’t been a huge revenue driver, Walsh said.

Kaman over the past 30 years has designed and produced 60 K-MAX helicopters, which are used for heavy-lift efforts in firefighting, forestry, construction and emergency response.

Walsh said the company has only sold three or four K-MAX units annually over the past several years, and the variation on order potential has been challenging to navigate.

“As our investors know, it’s not a very profitable helicopter — it’s hard to predict when we’re actually going to be able to sell one and the market is very narrow,” Walsh said.

Ending K-MAX production will lead to layoffs, but Kaman declined to provide specifics.

Kaman also declined to disclose its current Connecticut employee count, or potential local staffing impacts from the fuze production consolidation.

The company had 1,075 employees statewide and nearly 3,000 employees overall as of September 2022, according to Hartford Business Journal’s Book of Lists.

“The next question, though, is what’s next?” Walsh said. “The holy grail of any great publicly traded company is to be consistent and predictable, but when you’re dealing with variation it makes it very challenging.”

Part of the answer to what’s next could be the KARGO UAV, an unmanned aerial vehicle that can lift loads of up to 800 pounds.

Last year, the U.S. Marine Corps. contracted Kaman to build a scale prototype of the unmanned aerial vehicle that could be used to carry supplies hundreds of miles to troops, or for humanitarian efforts, among other uses.

Kaman has partnered with and invested $10 million in Pittsburgh-based autonomous aircraft technology maker Near Earth Autonomy on the software for the KARGO UAV.

“In a very short amount of time we’ve gone from concept, to half-scale model flying, to full-scale mock-up,” Walsh said. “We have a full-scale prototype that’s almost done and should be flying in January or February.”

Walsh said the KARGO UAV has potential across a plethora of U.S. military and commercial markets.

“Strategically, what we’ve done is get out of the older programs that were relatively unprofitable to win more profitable and complicated programs that have higher margins,” said Walsh, adding that the company will disclose more information about its 2023 transformation efforts in the first quarter of this year. “We really feel our strength and our future is going to be in the unmanned space.”

Larry Solow, managing director at investment firm CJS Securities who covers Kaman Corp. as an analyst, said he sees similar upside in the new technology.

“The unmanned helicopter has the potential to significantly expand the market for autonomous lifting and far outpace sales of the legacy K-MAX heavy-lift cargo helicopter,” which has accumulated more than $750 million in sales during its lifetime, Solow wrote in a recent research report.

Solow said his outlook for Kaman in 2023 assumes no additional joint programmable fuze sales as that program comes to a close. But new initiatives like a focus on the KARGO UAV should help mitigate that loss, he said.

“These new products are expected to gradually fill the hole left by the ongoing declines in the joint programmable fuze program,” Solow wrote.

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