SCHAUMBURG, IL -- Just two years after it faced possible trading suspension because of noncompliance with certain New York Stock Exchange equity minimums, Sparton's roadmap calls for the company to reach $500 million in sales by 2015, almost three times the revenue from fiscal 2010.

That's a far cry from a company that was listing so badly that, in September 2008, the NYSE notified Sparton that its 30 trading-day average market capitalization and total stockholders’ equity both fell below the exchange's $75 million minimum threshold.

In response, Sparton brought in new management, closed or sold several outdated operations, changed its procurement practices, and ended contracts with larger but less-profitable customers (Honeywell, for one).

Although revenue dropped almost $50 million in the fiscal year ended June 30, Sparton managed to swing to its first profit since 2006. Moreover, it retired debt, and established greater footing in the higher-margin medical business. The latter was accomplished through the purchase of Delphi's medical manufacturing unit, a move that added a substantial sales and rep channel previously absent from the company's arsenal. The ex Delphi unit is expected to bring in $32 million in additional annual revenue in the latest fiscal year, management said.

Moreover, as CEO Cary Wood, who came on board in November 2008, said on a conference call last Friday, "EMS, while seemingly counterintuitive, can bring growth opportunities at a different margin level than what we have experienced in the past, but is probably more short-term opportunistic than some of the other two.

He said the combination of Sparton's defense contracts, new opportunities in medical, and potential growth in EMS, coupled with a continued economic rebound could give Sparton "a trajectory toward $500 million" by the end of its fiscal year 2015.

Wood said his forecast includes organic growth of 5% to 10%, coupled with "some level of reasonable acquisition targets." The company reported revenue of $174 million in fiscal 2010, down 24% from a high of $230 million in fiscal 2008.

"It’s not lost on us that it’s very ambitious," Wood said, "but as we look out into, say, fiscal year 2015, we believe that if things would fall as we have kind of laid them out, it certainly is achievable."

Once primarily a provider of EMS services, Sparton's standing in that arena has slipped in recent years. However, under Wood, the EMS unit has reduced its inventory levels (from $60 million to $30 million), preferring to focus on inventory turns rather than pricing (and the inherent risk of inventory carrying costs). Still, it does not appear Wood is assuming the legacy business will always be a part of Sparton's portfolio. Margins must improve, he said, for management to consider the unit as optimistically as its medical and defense segments.

"We have put it on a very time-specific horizon by which we wanted a double digit or start to consider other alternatives, and those alternatives could include the divestiture of that business for sure, but I think that there are other internal things that we can consider. [W]e are fairly confident revising our guidance going into 2011, [EMS] will perform differently and better.

He believes the EMS side can return to 5% to 8% gross margins during the next fiscal year, but feels the business "must get into a double-digit performance arena."

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