10-Q: Kewaunee Scientific Reports Increased Sales and Gross Profit Margin in Q3 2025 Following Nu Aire Acquisition

Kewaunee Scientific Corporation reports increased sales and gross profit margin for the third quarter of fiscal year 2025, driven by the acquisition of Nu Aire and improved manufacturing productivity.

Summary

• Kewaunee Scientific Corporation's net sales for the quarter ended January 31, 2025, increased to $67.167 million from $46.778 million in the same period last year.
• Domestic sales rose to $51.976 million, a 63.6% increase year-over-year, primarily due to higher manufacturing volumes and the acquisition of Nu Aire.
• International sales saw a slight increase to $15.191 million, up 1.2% from $15.004 million in the prior year.
• The company's order backlog was $221.6 million as of January 31, 2025, compared to $152.3 million the previous year.
• Gross profit margin improved to 27.4% of sales for both the three and nine months ended January 31, 2025, compared to 25.7% and 25.4% respectively in the prior year periods.
• Operating expenses increased to $16.129 million for the quarter and $35.560 million for the nine months ended January 31, 2025, primarily due to the Nu Aire acquisition and increased consulting fees.
• Net earnings attributable to Kewaunee Scientific Corporation were $1.354 million, or $0.45 per diluted share, for the quarter, and $6.555 million, or $2.20 per diluted share, for the nine months ended January 31, 2025.
• The company completed the acquisition of Nu Aire on November 1, 2024, for $53.0 million, funded through a combination of cash, seller notes, and a new credit facility with PNC Bank.
• The company's effective tax rate was (8.5)% and 13.1% for the three and nine months ended January 31, 2025, respectively.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While sales and gross profit margin increased, net earnings decreased, and operating expenses rose significantly due to the acquisition. The future outlook is optimistic, but there are risks and challenges to consider.

Positives

• Net sales increased significantly, driven by domestic growth and the Nu Aire acquisition.
• Gross profit margin improved, indicating enhanced manufacturing productivity and cost-containment measures.
• The order backlog increased substantially, suggesting strong future demand.
• The acquisition of Nu Aire expands the company's capabilities and market presence.
• The company is in compliance with all financial covenants under the PNC Loan Agreement.

Negatives

• International sales decreased for the nine-month period due to customer construction site delays in India.
• Operating expenses increased significantly due to the Nu Aire acquisition and related costs.
• Net earnings and earnings per share decreased compared to the prior year period.
• Interest expense increased due to higher levels of borrowings.

Risks

• The company's ability to predict future demand for its products remains limited.
• The company is dependent on customer required delivery schedules.
• The company is exposed to fluctuations in raw material costs, including steel, wood, and epoxy resin.
• The company's international operations are subject to risks, including foreign currency fluctuations.
• The company's earnings are impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace.

Future Outlook

The company anticipates that the acquisition of Nu Aire, combined with a strong management team, robust backlog, improved manufacturing capabilities, and favorable end-use markets, will position the company well for future growth.

Management Comments

• The acquisition of Nu Aire presents a unique opportunity for the Company to combine its robust capabilities with a recognized market leader whose product portfolio and well-developed channel strategy complement the Company's existing offerings.
• This acquisition expands the Company's capabilities, allowing the combined organization to better meet the diverse needs of end-users in laboratory furnishings.
• This move accelerates the Company's vision of becoming the market leader in the design and manufacturing of laboratory furniture and technical products essential for outfitting laboratories.

Industry Context

The acquisition of Nu Aire positions Kewaunee Scientific to better compete in the laboratory furniture and technical products market, allowing it to offer a more comprehensive range of products and services to its customers.

Comparison to Industry Standards

• Without specific competitor data, it's difficult to provide a precise comparison.
• However, the increased sales and gross profit margin suggest that Kewaunee Scientific is performing well compared to its own historical performance and potentially in line with industry trends.
• Companies like Thermo Fisher Scientific and Agilent Technologies are key players in the broader laboratory equipment market, and Kewaunee's acquisition of Nu Aire could help it gain market share in specific segments.

Stakeholder Impact

• Shareholders may experience mixed results due to increased sales but decreased net earnings.
• Employees may benefit from the company's growth and expansion through the Nu Aire acquisition.
• Customers will have access to a broader range of products and services.
• Suppliers may see increased demand due to higher manufacturing volumes.
• Creditors are impacted by the new debt arrangements related to the Nu Aire acquisition.

Next Steps

• The company will continue to focus on supporting its dealers and distribution channel partners domestically while continuing to provide turnkey solutions in the international markets it serves.
• The company will continue to integrate Nu Aire into its systems and control environment.

Key Dates