Insights

Why Haynes International Stock Rallied Over 18% at the Open Today

What happened

Shares of Haynes International (NASDAQ: HAYN), a maker of high-performance alloys, rose dramatically at the open of trading on Friday, gaining just shy of 19% in the first hour or so of the day. Although that gain had cooled by roughly 11a.m. ET, the shares were still higher by a solid 13% or so. The big news was the company’s fiscal third-quarter 2022 earnings update, which hit the market after the close on July 28. The reading was good across the board.

So what

On the top line, Haynes’ sales increased 11.2% sequentially versus the fiscal second quarter and a huge 47.7% compared to the fiscal third quarter of 2021. Sales in the aerospace market were particularly notable, up 15.2% sequentially and 79.6% year over year. Management noted that aerospace sales are now at roughly 95% of their pre-pandemic levels in 2019. Earnings of $1.24 per share were up 85% year over year.

The company’s profitability was aided by high utilization rates at its factories, which have a notable amount of fixed costs. Thus, once sales exceed those costs, the money flows disproportionately into earnings because the business’ variable costs aren’t as material as its fixed costs.

This is important because management also highlighted that the backlog was at record levels and up 20% sequentially from the fiscal second quarter (it was up 124% year over year). That suggests that high utilization rates will continue as will high revenue and earnings.

Now what

The news was clearly very good at Haynes in the fiscal third quarter, but it gets even better. The company managed to beat Wall Street consensus on both the top and bottom lines, with earnings blasting past analyst expectations of $0.75 per share. Investors tend to like it when companies post not only strong results, but also results that happen to beat expectations.

It isn’t surprising that the stock rose solidly this morning since it seems likely, given the strong backlog of work to be completed, that the good news here could continue for at least another quarter or two.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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