SIFCO Industries, Inc. (SIF) Annual Report (Form 10-K) for the fiscal year ended September 30, 2024
SIFCO Industries, Inc. filed its annual report for the fiscal year ended September 30, 2024. The company reported an aggregate market value of $19,683,297 of its common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold. As of December 3, 2024, the company had 6,170,051 shares of common stock outstanding. The report does not provide detailed financial information, but it does indicate that the company is a non-accelerated filer and a smaller reporting company, and that it is not a well-known seasoned issuer or a shell company.
Overview
SIFCO Industries, Inc. is a manufacturer of forged components for the aerospace, defense, and commercial space markets. In October 2024, the company sold its European operations in Italy to streamline its focus on its core aerospace forging business in the United States.
The company’s financial performance in fiscal year 2024 showed improvement over the prior year, with a 20.4% increase in net sales to $79.6 million. This was driven by higher demand in the commercial space market as well as increased deliveries across most of SIFCO’s end markets. Gross profit increased by $2.6 million to $6.0 million, and the gross margin percentage improved to 7.5% from 5.1% in the prior year.
However, the company still reported a net loss of $5.4 million in fiscal 2024, an improvement from the $8.7 million net loss in fiscal 2023. The losses were primarily due to higher interest expense and the impact of the cybersecurity incident in fiscal 2023, which resulted in production delays and increased costs.
Revenue and Profit Trends
SIFCO’s net sales increased by $13.5 million, or 20.4%, in fiscal 2024 compared to the prior year. This was driven by:
- Higher demand in the commercial space market, with sales increasing by $8.6 million
- Increased sales of fixed wing aircraft components, up $1.8 million
- Growth in rotorcraft sales, up $0.9 million
- Partially offset by a $0.3 million decline in energy components for power generation units
Commercial sales made up 52.4% of total net sales in fiscal 2024, up from 41.5% the prior year, as the company benefited from increased demand in the commercial aerospace and space markets. Military sales declined slightly to 47.6% of the total.
The increase in net sales, combined with improved gross margin performance, led to a $2.6 million increase in gross profit to $6.0 million. Gross margin improved to 7.5% of net sales in fiscal 2024 compared to 5.1% in fiscal 2023. This was primarily due to the higher sales volume and favorable product mix, partially offset by higher labor and manufacturing costs.
Selling, general and administrative (SG&A) expenses decreased by $1.2 million, or 9.3%, in fiscal 2024 compared to the prior year. This was mainly due to lower costs related to the prior year’s cybersecurity incident, partially offset by higher legal and other costs related to the evaluation of strategic alternatives.
Despite the improvements in gross profit and SG&A, SIFCO still reported a net loss of $5.4 million in fiscal 2024, an improvement from the $8.7 million net loss in fiscal 2023. The primary drivers of the continued losses were higher interest expense of $3.1 million and the impact of the cybersecurity incident in the prior year.
Strengths and Weaknesses
A key strength for SIFCO is its diversified customer base across the aerospace, defense, and commercial space markets. This helps mitigate risk and provides opportunities for growth in different end markets. The company’s focus on high-quality forged components for critical applications is also a competitive advantage.
However, SIFCO continues to face challenges in returning to consistent profitability. The cybersecurity incident in fiscal 2023 disrupted operations and resulted in significant one-time costs. While the company has recovered from this incident, it highlights the operational risks the business faces.
Additionally, SIFCO’s high debt levels and ongoing losses have put pressure on its liquidity and financial flexibility. The company’s debt-to-equity ratio was 0.79 as of September 30, 2024, indicating a highly leveraged capital structure. This limits the company’s ability to invest in growth initiatives or withstand future market downturns.
Outlook and Conclusion
The sale of SIFCO’s European operations is expected to provide some financial relief, as the company will use the proceeds to pay down a portion of its outstanding debt. This should improve the company’s liquidity position and allow management to focus on growth opportunities in its core U.S. aerospace forging business.
However, SIFCO still faces significant challenges in returning to consistent profitability. The company’s high debt levels, history of losses, and exposure to market and operational risks raise concerns about its long-term viability. While the recent improvements in sales and gross margin are encouraging, the company will need to demonstrate its ability to generate sustainable positive cash flows and earnings to reassure investors.
Overall, SIFCO’s financial performance in fiscal 2024 showed some signs of progress, but the company continues to face an uphill battle in stabilizing its business and restoring its financial health. Successful execution of its strategic initiatives and continued recovery from the cybersecurity incident will be critical to SIFCO’s future success.
