Kewaunee Scientific Corporation FY2025 10-K Review

Kewaunee Scientific Corporation (NASDAQ: KEQU) has released its Form 10-K for the fiscal year ended April 30, 2025 (FY25). This report covers: a business overview, a major acquisition, segment performance, detailed financial results, cash flow and balance sheet analysis, risk factors, and our investment score.

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1. Business Overview

Founded in 1906 and headquartered in Statesville, North Carolina, Kewaunee designs, manufactures, and installs laboratory, healthcare, and technical furniture and infrastructure. Its core products include:

• Steel and wood casework
• Fume hoods and biological safety cabinets
• Modular systems and workstations
• Bench solutions and epoxy resin work surfaces

Kewaunee’s customers span pharmaceutical, biotechnology, industrial research, educational institutions, healthcare facilities, government labs, and manufacturing plants. Product sales flow through direct purchase orders, dealers, a national distributor, and international subsidiaries in Singapore and India.

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2. Nu Aire Acquisition

On November 1, 2024, Kewaunee completed the acquisition of Nu Aire, Inc. for approximately $53 million in cash and subordinated seller notes. Nu Aire—a market leader in biological safety cabinets, CO₂ incubators, ultralow freezers, and related accessories—broadens Kewaunee’s product lines and distribution footprint, particularly in regions where Kewaunee had limited presence.

Strategic Rationale:

1. Complementary Portfolio: Nu Aire’s airflow and biosafety products integrate with Kewaunee’s laboratory casework.
2. Channel Expansion: Nu Aire’s established distributor networks accelerate global reach.
3. Cross-Selling: Combined offerings deliver turnkey laboratory solutions.

Nu Aire’s results since acquisition (Nov 1 – Apr 30) contributed $37.8 million in revenue and $0.6 million in net earnings to FY25.

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3. Segment Performance

Kewaunee reports two operating segments:

1. Domestic: U.S. operations and Nu Aire, Inc.
2. International: Subsidiaries in Singapore, India, and Saudi Arabia.

Domestic

• FY25 sales: $179.4 million, up 30.7% from $137.2 million. Nu Aire drove the gain.
• Segment earnings before tax: $19.9 million.

International

• FY25 sales: $61.1 million, down 8.2% from $66.5 million due to project delays in India.
• Segment earnings before tax: $4.7 million.

Intersegment relations are minor, and corporate costs (executive management, finance, legal) are allocated across both segments.

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4. Revenue & Backlog

• Total Net Sales: $240.5 million (+18% YoY).
• Gross Margin: 28.6% (+310 bps YoY).
• Order Backlog: $214.6 million vs. $155.6 million last year. 93% is expected to ship in FY26.

Demand drivers include new laboratory construction, pharmaceutical R&D expansion, and post-pandemic lab upgrades.

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5. Profit & Loss Highlights

Cost of Products Sold: $171.6 million, reflecting higher material costs (steel, wood, epoxy) and productivity improvements.

Operating Expenses: $51.1 million (21.2% of sales), up from 16.6% in FY24, due to:

• Nu Aire integration and transaction costs
• Increased consulting (SOX 404 readiness, ERP planning)
• SG&A wage inflation

Pension Expense: $0 million vs. a $4.2 million charge in FY24 (plan annuitization).

Other Income (Net): $0.2 million, down from $0.8 million (lower interest earned on foreign cash).

Interest Expense: $3.2 million vs. $1.8 million, driven by higher borrowings (term loan for acquisition).

Tax Rate: 21.7% vs. a 45.3% benefit in FY24 (nonrecurring pension settlement benefit).

Net Income: $11.6 million; net attributable to shareholders: $11.4 million.

Earnings per Share: $3.83 diluted vs. $6.38 diluted last year.

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6. Cash Flow & Balance Sheet

Cash Flow

• Operating: +$14.8 million (vs. +$19.6 million FY24).
• Investing: –$28.7 million (Nu Aire acquisition), –$2.2 million capex.
• Financing: +$7.4 million (term loan $15 million, revolver paydown, share repurchase $1.6 million).

Liquidity

• Cash & Equivalents: $14.9 million.
• Restricted Cash: $2.2 million (performance guarantees).
• Revolver Availability: $20 million capacity undrawn.

Capital Structure

• Term Loan: $13.8 million (matures Nov 2029).
• Seller Notes: $23.9 million, 8% PIK interest, due Nov 2027.
• Debt Covenants: Senior leverage ≤2.5× EBITDA; fixed charge coverage ≥1.2× (in compliance).

Assets & Equity

• Total Assets: $194.7 million (FY24: $134.8 million).
• Stockholders’ Equity: $64.5 million (FY24: $54.8 million).

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7. Risk Factors

Key risks outlined in Item 1A include:

1. Customer Concentration: Two dealers + distributor = ~41% of sales.
2. Integration Risk: Nu Aire acquisition execution and synergies.
3. Supply Chain: Commodity swings, single-source components.
4. International Exposure: Currency, geopolitical tensions, local regulations.
5. Interest Rates: Floating debt cost.
6. Cyber & IT: System failures, data security.

Risk management programs and robust corporate governance seek to mitigate these.

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8. Outlook & Strategy

Kewaunee aims to:

• Leverage the Nu Aire platform for cross-selling and expanded distribution.
• Convert strong backlog to revenue while managing lead-time risks.
• Pursue operational efficiencies in manufacturing and procurement.
• Expand in emerging markets through international subsidiaries.

FY26 capex is planned at $7 million, targeting automation and productivity gains.

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9. Investment Score: 6.5 / 10

Strengths:

• Diversified product suite, leading market share in laboratory casework.
• High backlog with strong near-term visibility.
• Acquisition of Nu Aire enhances product offerings.
• Improved gross margins (+310 bps).
• Strong debt covenants and revolver capacity.

Challenges:

• Net profit decline (EPS down 40%).
• Integration and synergy realization risks.
• Customer concentration and competitive public bidding.
• Incremental debt and interest costs.
• Exposure to cost inflation in raw materials.

On balance, we assign a 6.5/10 score, reflecting moderate growth prospects balanced by integration execution and margin pressures.

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10. Conclusion

Kewaunee’s FY25 results highlight solid top-line growth, margin recovery, and strategic expansion through the Nu Aire acquisition. The order backlog and product portfolio diversification form a strong foundation, though investors should monitor integration progress, interest costs, and customer concentration. For those seeking exposure to the specialized laboratory infrastructure market, Kewaunee presents moderate upside in exchange for execution and capital-structure risks.

Investors can read the full review and detailed 10-K analysis at BLOGPOSTURL

Net earnings FY25: $11,583,000 (EPS diluted $3.83)