Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's Safe Harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent SEC filings and public announcements for a detailed list of risk factors.

In addition, I'd like to remind you today that today's discussion will include references to the non-GAAP measures of EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, which is EBITDA excluding restructuring purchase accounting, acquisition related expenses and one-time items, EBITDA margin, and adjusted EBITDA margin. We will also refer to other non-GAAP measures including adjusted net income, adjusted income from operations, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's performance.

On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer and Treasurer, Ademir Sarcevic.

With that, I'll turn it over to David.

David Dunbar - President and Chief Executive Officer

Thank you, Gary. Good morning and welcome to our Fourth Quarter Fiscal 2020 Conference Call.

Before I discuss this quarter's results and our outlook, I want to thank our employees around the world. I'm very proud of their efforts in this challenging environment and the dedication, creativity and resilience they've demonstrated.

On today's call, I will first provide commentary on the fiscal fourth quarter 2020 results and the trends we are currently seeing. I will then discuss several of the key themes and accomplishments in the quarter. From there, I will discuss the segment performance and trends. Ademir will follow with a discussion of our consolidated results and financial position in greater detail. Finally, I will conclude with some comments on our outlook and key takeaways from our results and initiatives.

Now if everyone can turn to Slide 3, key messages. Overall fiscal fourth quarter results were in line with our expectations despite the very challenging operating environment as our teams displayed a high degree of global collaboration and coordination while maintaining a safe and healthy environment. Importantly, since the end of April, our end markets sequentially have exhibited a gradual increase in the level of customer activity that has continued into our first quarter. Most notably at our Engraving, Electronics and Scientific segments.

We also continue to make substantial progress further positioning Standex around more profitable platforms with favorable growth prospects and compelling customer value propositions. At the beginning of the quarter, we completed the divestiture of our Refrigerated Solutions Group. This transaction is accretive to our consolidated operating margin profile by approximately 200 points. The transaction also continued the process to begin with our divestiture of the Cooking business in early 2019. In July, we announced the acquisition of Renco Electronics. Renco is a leading US-based custom magnetics manufacturer. We believe this is a great strategic fit deepening our significant engineering and technical expertise, as well as providing a highly complementary customer base. In addition, Renco will be accretive to our earnings to fiscal 2021 and additive to consolidated free cash flow.

Today, we are also announcing the realignment of our reporting segments reflected in our fiscal fourth quarter results. Besides Engraving, Electronics and Engineering Technologies, our reporting segments will now include Scientific and Specialty Solutions. A standalone Scientific segment will allow us to communicate more effectively the highly attractive profile of this business and its long-term outlook. We acquired this business at the end of 2016, and since then, it has experienced significant growth, focusing on the manufacturer of laboratory refrigerators and freezers, as well as cryogenic equipment for the scientific, biomedical and pharmaceutical markets. In fiscal 2020, the Scientific segment reported $57 million in revenue and in excess of 20% operating margin. The Specialty Solutions segment, we are introducing today as a reporting segment, will include the Hydraulics, Pumps and Merchandising businesses. We will now be reporting these businesses in line with the way they are managed, under one common Group President.

Besides the portfolio repositioning, we continue to successfully execute cost actions, and have a healthy funnel of operational excellence initiatives to implement as we enter fiscal 2021, which will strengthen our market leadership and cost positions. During the quarter, we realized $4.2 million from productivity and expense actions, and expect $7 million in annual savings in fiscal 2021. Further adding to these efforts, we are building on our current foundation with support of our new VP of Operations hired this past February.

A recurring theme and priority in how we manage Standex is to maintain a strong balance sheet and significant liquidity position supported by consistent free cash flow generation and disciplined capital allocation. We generated free cash flow of $19.5 million in the fourth quarter of 2020 and repaid $13 million in debt. The company ended the quarter with approximately $200 million in available liquidity and a net debt to adjusted EBITDA ratio under 1. Also, Standex repatriated approximately $19 million in the quarter and $39 million in fiscal 2020 from foreign subsidiaries, ahead of our prior forecast of $35 million. Our significant financial flexibility positions us well as we execute on an active pipeline of organic and inorganic opportunities as in the case of Renco, which we paid for out of cash on hand without incurring additional debt.

In sum, as I reflect on fiscal 2020, despite the challenges associated with COVID-19, we continued to build the corporation around larger more profitable platforms in high-value markets with strong competitive advantage and customer focus. We also have a healthy pipeline of internal projects and inorganic growth opportunities that can generate attractive returns. Underpinning these actions is a strong balance sheet and significant financial flexibility. As a result, Standex is well positioned to exit the current environment as a stronger company.

Please turn to Slide 4, as I will begin to discuss our segment financial performance in greater detail, beginning with Electronics. The Electronics segment revenue decreased approximately $5 million or 10% year-over-year as we experienced weakness in both North American and European markets, associated with the economic impact of COVID-19 pandemic. This weakness was partially mitigated by a modest recovery in Asian end markets. Operating income decreased approximately $2.8 million or 32.3% year-over-year in the quarter. Besides lower volume, operating income was impacted by higher raw material input costs, as well as partial plant facility shutdowns in India and Mexico, which have since reopened. These items were partially offset by cost savings and productivity initiatives.

In addition, the funnel of new business opportunities continues to be active, and is at a very healthy $40 million as we work with our customers on their new product designs. As an example of a new product, we collaborated on a custom magnetic sensor for smart grid monitoring. Standex's process controls and design capabilities were key to this application. This product enables remote wireless underground monitoring of electric power quality. As is typical, this product had a multi-year sales cycle and will have an approximately 10-year product life cycle.

Our fiscal first quarter 2021 Electronics segment outlook is for a meaningful sequential increase in revenue due to positive trends in our magnetic product line, as well as revenue contribution from the recently closed Renco acquisition. We also expect a sequential improvement in operating margin reflecting continued cost and productivity initiatives, as well as limited sequential impact from reed switch raw material input costs. Our Electronics business has dramatically transformed in recent years growing from a $40 million largely North American business into an integrated global player. We have recently organized the business into two separate P&Ls, one for the magnetics business, the other for switches and sensors. This will allow greater focus to each of these product lines to grow organically. We will also continue to expand this business with attractive bolt-on acquisitions, expanding into new markets and adjacent technologies.

Please turn to Slide 5, for a discussion of the Engraving segment. At the Engraving segment, revenue decreased approximately $6.5 million or 17% year-over-year, primarily due to delays in the receipt of tools from customers as we indicated in our fiscal third quarter conference call. We are seeing this work shift into the first fiscal quarter of 2021. Importantly, over the longer term, auto OEMs continue to hold on to their new program roll-out schedules. Engraving operating income declined $2.7 million or 51% year-over-year, reflecting volume declines associated with the economic impact of COVID-19 mitigated partially by productivity and expense savings in the quarter. Laneway remained healthy with a 9% year-to-date increase to $43 million, driven by soft trim tools, laser engraving and tool finishing.

We've been very active collaborating with designers on new electric vehicles in all regions of the world. The example here shows how we leveraged our global presence and comprehensive service offering including architecture design services, chemical and laser texturizing, soft trim tools and tool finishing services to bring out this new model. Our fiscal first quarter 2021 outlook is for a meaningful sequential increase in Engraving revenue and operating margin in fiscal quarter - first quarter 2021. The expected revenue increase reflects both customer orders that have shifted from fiscal fourth quarter 2020 to first quarter '21, as well as an overall increase in the level of customer activity. The expected margin increase is associated with higher volumes sequentially, combined with cost efficiency and productivity initiatives in North America and Europe. In addition, we are beginning to leverage our global SAP platform at Engraving for enhanced productivity. We have spent the last 2.5 years moving all Engraving sites with [Phonetic] common [Phonetic] ERP. Now, we are rolling out standard reports and operating procedures to help our regional managers better plan and manage their capacity over time and productivity.

Please turn to Slide 6, the Scientific segment. Now we turn to our newest segment. We will begin to break out the Scientific business as a standalone segment. When we acquired Horizon Scientific in October 2016 and combined it with our own Scientific Refrigeration business, we had a business with $34 million of sales. Sales grew to $57 million in fiscal year '20 even with the fourth quarter deceleration from the COVID-induced slowdown. In that time, we have seen the management team continue to do what they do best, identify emerging market opportunities, and quickly develop and bring to market a solution.

The end market for Scientific Refrigeration is dynamic, shaped by frequent regulatory changes, as well as constant evolution and distribution strategy for medications and vaccines. We have been able to strengthen this business with our growth discipline process tools and accelerated investment in R&D. This is a business we expect to continue to grow organically and we are also actively exploring bolt-on acquisitions to expand its reach. Scientific revenue decreased approximately $2.6 million or 17% year-over-year with operating income declining approximately $900,000 or 24.8% year-over-year.

The Scientific segment was impacted by a market shift toward consumable protective equipment due to the COVID-19 pandemic and less near-term emphasis on capital equipment expenditures by its customer base. However, in fiscal first quarter '21, we expect to see meaningful sequential revenue and margin increase as customer ordering patterns return to a more historical mix. In addition, for the coming flu season, healthcare facilities plant to move even more flu vaccinations into other delivery points such as pharmacies, so they can focus on COVID treatments. This is driving demand for our products from our national pharmacy chain customers where we are well established. Scientific's prospects include other promising opportunities as well. Our scientific unit manufacturer's cabinet is well suited for the storage needs of COVID-19 vaccines and treatments now in the approval process. We are actively evaluating and pursuing the opportunity this presents.

Turning to the Engineering Technologies segment on Slide 7. Engineering Technologies revenue decreased $7.3 million or 21.7% year-over-year in the fiscal fourth quarter 2020, reflecting lower aviation-related sales offset partially by increased sales in the space end market. Operating income margin increased from 13.6% in fiscal fourth quarter 2019 to 15.8% in the fourth quarter of 2020 despite the sales headwinds due to favorable product mix, cost actions and manufacturing efficiencies. We also continued to innovate, collaborating with customers on next generation missile nose cones using our proprietary spin forming process.

In fiscal first quarter 2021, we expect to see significant sequential revenue and significant operating margin decrease. The decline is primarily due to the economic impact of COVID-19 on the commercial aviation market, especially our engine parts business. Space end market sales will see a decline sequentially in the fiscal first quarter of '21 due to the timing of projects. The segment's defense end markets are expected to increase year-over-year throughout fiscal 2021. We will continue to work to further align Engineering Technologies's cost structure with the current demand environment in aviation.

Now let's move on to Slide 8, the Specialty Solutions segment, which includes the Hydraulics, Merchandising and Pumps businesses. Specialty Solutions revenue decreased approximately $8 million or 25% year-over-year in the fourth quarter of fiscal '20. The revenue decrease was primarily associated with the economic impact of COVID-19 on several end markets including the food service equipment and hospitality industries at the Pumps and Merchandising businesses, and the dump market at Hydraulics. Segment operating income decreased $2.3 million or 39% year-over-year, reflecting lower volume, partially mitigated by cost actions including headcount reductions and temporary plant slowdowns.

We expect fiscal first quarter '21 revenue and operating income to be similar to fiscal fourth quarter 2020. Using the Standex growth discipline process, we are introducing a new product for schools the Federal milk merchandiser, which provides several benefits, flexibility to merchandise a wide assortment of products, as well as accessible to young students. It reduces labor as there is no need to remove milk every night and it includes an innovative condenser cleaning alarm using Standex Electronics to alert users to efficiency losses.

I will now turn the call over to Ademir, who will discuss our quarterly results in greater detail.

Ademir Sarcevic - Vice President, Chief Financial Officer and Treasurer

Thank you, David, and good morning, everyone.

First, I will provide a few key takeaways from our fiscal fourth quarter 2020 results. Our results were in line with the overall expectations we had entering the quarter. As expected, the majority of our end markets were impacted by the COVID-19 pandemic, and as a result, we reported a year-on-year decrease in adjusted EPS. Second, as David mentioned, we continued to maintain a very strong financial position as evidenced by our significant liquidity, low leverage ratios and consistent free cash flow generation. This was complemented by our ongoing cash repatriation program, which came in ahead of our prior estimate for the year. We plan to continue to execute on our repatriation efforts in fiscal '21. In addition, our interest expense declined year-on-year, reflecting the swap of variable debt to a lower rate fixed rate debt, which was completed in our fiscal third quarter.

We also delivered on our cost-saving initiatives in the quarter. We realized $4.2 million in savings in the fourth quarter and expect $7 million in annualized savings from these efforts in fiscal '21. Finally, our capital allocation remained balanced and disciplined. We have announced earlier in the quarter, our acquisition of Renco Electronics, which was financed from our cash on hand. Additionally, during the quarter, we repaid debt, repurchased shares and declared our 224th consecutive dividend.

Now let's turn to Slide 9, fiscal fourth quarter 2020 income statement summary. On a consolidated basis, total revenue declined 17.4% year-on-year. This reflects organic weakness associated with the economic impact of COVID-19 pandemic. Acquisitions had a nominal contribution of 0.1% to overall growth in the quarter, while FX was a headwind with a negative impact of 1.1%. Gross margin decreased 200 basis points year-on-year to 33.7%, primarily reflecting the volume decline, partially offset by productivity and expense actions. Our adjusted operating margin was 8.7%, compared to 12.6% a year ago. Interest expense decreased primarily due to a lower interest rate as a result of the variable to fixed rate swap we implemented in our fiscal third quarter. In addition, the tax rate of 26.7%, represented a 210 basis point increase year-on-year due to the mix of US and non-US earnings. Adjusted earnings were $0.65 in the fourth - fiscal fourth quarter of 2020 compared to $1.10 in the fiscal fourth quarter of 2019.

Please turn to Slide 10, fiscal fourth quarter 2020 free cash flow. We reported free cash flow of $19.5 million compared to $27.8 million in the fourth quarter of 2019. This decrease reflects the lower level of net income year-on-year, partially offset by a reduction in capital expenditures from $15.6 million in fourth quarter of 2019 to $5.7 million in fourth quarter of 2020 as we focused our spending on maintenance, safety and the company's highest priority growth initiatives.

Next, please turn to Slide 11, a summary of Standex capitalization structure and liquidity statistics, which remained strong. Standex had a net debt of $80.3 million at the end of the fourth quarter compared to $102.8 million at the end of the third quarter of 2020. This decrease primarily reflects the repayment of approximately $13 million of debt in the quarter, along with an increase in our cash balance due to operating cash flow generation in the quarter. The company's net debt to adjusted EBITDA leverage ratio was 0.8% with a net debt to total capital ratio of 14.8% and interest coverage ratio of approximately nine times. We also had approximately $200 million of available liquidity at the end of the fourth quarter. We repatriated $19 million of cash in the fourth quarter of 2020 and $39 million in fiscal 2020 compared to our prior $35 million expectation. We plan to repatriate an additional $35 million in fiscal '21.

During the fourth quarter, we also repurchased approximately 30,000 shares for $1.4 million. We have repurchased now approximately 172,000 shares since the end of fiscal 2019. There is approximately $43 million remaining under the Board's current repurchase authorization. In addition, in July, we declared our 224th consecutive dividend of $0.22 per share, a 10% year-on-year increase. Subsequent to the end of the fourth quarter, we announced the acquisition of Renco Electronics for approximately $28 million, which we financed with cash on hand. Renco will be accretive, both on an EPS and free cash flow in the first year of ownership. In fiscal 2021, we expect capital expenditures to be between $28 million to $30 million compared to $19 million in fiscal '20 as capital spending returns to more normalized levels with continued emphasis on safety, maintenance and growth investments.

On Slide 12, we have presented a reconciliation between what the reporting segments would have looked like for fourth quarter 2020 under our prior reporting structure and under the new structure with Scientific and Specialty Solutions as standalone segments. In the appendix on Page 17, we have also presented all four quarters of fiscal '20 under the new reporting segment structure.

I will now turn the call over to David for closing comments.

David Dunbar - President and Chief Executive Officer

Thank you, Ademir.

If everyone can please turn to Slide 13, I'll provide some thoughts on our fiscal first quarter 2021 outlook and key takeaways from today's call. In fiscal first quarter '21, we expect revenues to be flat to slightly above fiscal fourth quarter '20 and operating margins to improve sequentially. This outlook assumes the following. Electronics and Engraving segments are expected to have meaningful sequential revenue increases due to an increased level of customer activity and associated volume, as well as a contribution from the recently-closed Renco acquisition at the Electronics segment.

We also expect a meaningful sequential revenue increase in the Scientific segment as customers resume capital equipment orders. We also expect to benefit from a continued increase in the level of flu vaccinations delivered through pharmacies. These increases will be balanced with a significant sequential decline in Engineering Technologies due to the economic impact of COVID-19 on the commercial aviation market and the timing of orders in the space end market. Specialty Solutions revenue is expected to be sequentially similar to fiscal fourth quarter 2020.

From a strategic perspective, we remain active in our business portfolio in the quarter, divesting Refrigerated Solutions, acquiring Renco Electronics, and today, establishing Scientific and Specialty Solutions as standalone segments, all with the intention of building our higher-margin growth businesses into more significant platforms. Capturing cost structure efficiencies will remain a priority, with $7 million in cost savings in fiscal 2021, expected from the actions we have already announced. These efforts are being supported by a significant funnel of operational excellence actions in fiscal 2021.

Our financial position remains solid, supported by our strong balance sheet, significant liquidity, consistent free cash flow generation and continued repatriation of cash. This significant financial flexibility will allow us to pursue a healthy pipeline of organic and inorganic growth opportunities.

Operator, I will now open the line for questions.

Question & Answers

Operator

[Operator Instructions]

The first question today comes from Chris Moore of CJS Securities. Please go ahead.

Christopher Moore - CJS Securities, Inc. - Analyst

Hey, good morning, guys.

David Dunbar - President and Chief Executive Officer

Good morning, Chris.

Christopher Moore - CJS Securities, Inc. - Analyst

Good morning. So maybe we could start with the areas where you - the sequential revenue increases, Electronics, obviously, partly impacted by Renco, Engraving and Scientific. Just trying to get a little better feel for if - how much of this is kind of COVID catch up and how much is kind of - obviously, not giving guidance for Q2, but kind of, what's one-time and what might be things are getting back on track?

David Dunbar - President and Chief Executive Officer

Our view is - April was really the bottom for the markets we serve, and we see those markets kind of gradually climbing out of that trough. So we think there's a secular and long-term trend to grow out of that. And it's obviously growing a bit more slowly than a decline. So we think there's an undercurrent of growth in all those segments. There was some dramatic catch up in Asia in Electronics in the fourth quarter. We think that's kind of caught up, and now that's just - there's back to kind of normal growth. Virtually the same thing in North America, which is more or less caught up. Auto really took a dip in fourth quarter, then started to wake up again in June, and now auto production is ramping up again in the centers that we supply to it.

Our Engraving business, quite a bit of catch-up because in the first two months of Q4, tools were held up and tool shops weren't being shipped into our service centers. Those started to be released in June. Employees of our OEMs could come and complete the markups. So, our shops are very busy right now with that catch-up, along with the regularly-planned work to support the upcoming starts of production. So there is a bit of a surge from some catch-up, but there is an underlying growth.

Christopher Moore - CJS Securities, Inc. - Analyst

Got it. That's helpful. Maybe you talk about Electronics a little bit. You mentioned that you're splitting it into two separate P&Ls. And maybe you could just - a little more detail there and kind of what's driving that, and how that helps you moving forward?

David Dunbar - President and Chief Executive Officer

Yeah. Well, the Electronics business has grown quite a bit. Just 10 years ago, it was a $40 million business. We acquired a European business, it became $80 million. We acquired OKI, we get in the mid-100s. We acquired Agile, Northlake and now Renco. Even with COVID, it's north of $200 million, $250 million - in mid-200s. And it's become a more complex business. And when we looked at it, we realized the same people were supporting all these new product lines, all the new acquisitions, and there's a fundamental difference between the high reliability magnetics business and the switches and sensor business. They have different customers, different products, different underlying technologies, different competitors, different supply chains. So we thought creating two structures, focus on those businesses will provide better focus so they can each grow, they can invest appropriately and focus on their technologies on being the best in those product categories.

Christopher Moore - CJS Securities, Inc. - Analyst

Got it. Obviously, you did the Renco acquisition. Is one of those areas, switch and sensors versus high reliability, more likely on the M&A side? Are you looking in both, or it's one piece of that [Phonetic]?

David Dunbar - President and Chief Executive Officer

Well, there have been more opportunities in our funnel in the magnetic side. It is a more fragmented market. There's a higher number of smaller players out there. But there are opportunities in the sensor business. We have taken a run at a few, they didn't work out. They tend to be a little higher-priced with higher multiples. But we still see good opportunities to expand into adjacencies with some sensor acquisitions. So don't be surprised if in the future we were to come out with a sensor acquisition.

Christopher Moore - CJS Securities, Inc. - Analyst

Got it. And on the Scientific M&A side, you talked about potential bolt-on acquisitions. Is that kind of new markets, new technology that would kind of expand what you're doing, or…?

David Dunbar - President and Chief Executive Officer

Well, for the moment with Scientific, as we look at acquisitions, we want to look at acquisitions where we can take maximum advantage of the strengths that our Scientific business has, which is great relationships with the channel, great understanding of the changing dynamic of the market-based on regulatory changes and distribution changes from medication to vaccines. So that leads us to look at all the related equipment that is often purchased in conjunction with the cabinets that we sell. And if you look in the facilities where our products are, you'll also see things like incubators, centrifuges, biosafety containment hoods. There's a core set of lab equipment that you find. And these products are sold through similar channels. There are a number of focused companies, some privately held that participate in these categories. So that would be the kind of the first place we'd look, we see that as a pretty clean bolt-on strategy.

But I would also say that we've ramped up R&D and organic growth initiatives in Scientific. We have a number of new products in development that we will be launching/releasing in the course of this fiscal year. The business [Phonetic] had [Phonetic] a very small development group before we've ramped that up. We brought in a leader for that business who's experienced in managing larger engineering organizations with a stage-gate process and a formal new product development funnel. We're spending about 3% of sales on R&D now in scientifics. We're quite excited about the organic growth and then have enough confidence in the market and that management team to be looking at related equipment acquisitions.

Christopher Moore - CJS Securities, Inc. - Analyst

Got it. Very helpful. Thanks, David. I'll jump back in line.

David Dunbar - President and Chief Executive Officer

Thank you, Chris.

Operator

The next question today comes from Chris Howe of Barrington Research. Please go ahead.

Christopher Howe - Barrington Research Associates - Analyst

Good morning, David and Ademir.

David Dunbar - President and Chief Executive Officer

Good morning, Chris.

Christopher Howe - Barrington Research Associates - Analyst

Good morning. Just following up on that last question about the M&A opportunities within Scientific. When we look at the historical mix moving into Q1, you mentioned some of the related equipment opportunities from incubators to hoods. Has this funnel already started to build? Scientific has been under the wing for some time now. And how would you describe where you are in building that funnel for M&A opportunities? And more specifically, your healthy margins in this segment. How do those margins compare to potential accretive private opportunities?

David Dunbar - President and Chief Executive Officer

Let's start first with the funnel. We started in earnest to build the funnel at least a year ago, maybe longer, 1.5 years ago. So there are a dozen or more opportunities we've been working. And some of these things take years to come together. We approach the owners, get to know them, they get to know us. But we've got several irons in the fire, and this is a multi-year process as we see it. And the profitability of the business is - there is a spectrum. Some - we look at, we think their margins are maybe lower than that it could be or ought to be. Others have similar margins to the business that we have. So we think based on the characteristics of the market, that 20%, low 20% operating margin is certainly a reasonable expectation for our business. And based on what we've seen, it's probably representative of the market.

Christopher Howe - Barrington Research Associates - Analyst

Excellent. That's very helpful. I definitely am in favor of this - the realignment of the segments, but without putting too much focus on the Scientific, I wanted to actually talk about Specialty Solutions. You mentioned some of the weakness that's experiencing in end markets, a prediction on a normal environment is anyone's guess. With April being the trough, can you talk about how this could potentially be an upside surprise in the future once these end markets come back, snap back and people are moving about in a normal way? Is there a potential opportunity here that may be neglected?

David Dunbar - President and Chief Executive Officer

There certainly is an opportunity for snap-back depending on how quickly people start going out again, the restaurants become more active. So in the Specialty Solutions business, the Federal business, the Display Merchandising business and the Procon pump business are the two that serve that food service equipment end market. The Procon pump business is highly levered or exposed through carbonated beverage decks and espresso machines. These are the two largest product lines. We expect more strength in espresso machines earlier than in carbonated beverage decks. But we're starting to see that ramp slowly. So there is activity out there. People are investing in that equipment.

The Federal merchandising business, they serve more end markets. We showed the picture of this milk merchandiser. This is a new product we developed, using our growth discipline processes into a segment where the last - the last new product that was introduced is probably when you were a kid getting milk in elementary schools. It's an end market that has been underserved. We brought some innovative features with this product and schools are reopening. Some schools are reopening. They're ordering these milk merchandisers. We're seeing strength in the convenience store segment. Traditional restaurants are beginning to rethink the way they serve food to customers. We're getting more inquiries for restaurants that want to establish grab-and-go islands in their restaurants, so customers can pick up food that's been already prepackaged and set. So that's another potential upside there as the business model of food delivery continues to evolve.

The third business in there, Hydraulics exposed to garbage and waste vehicles is a very steady end market and continues to be healthy. The dump truck and dump trailer market would be strongly influenced by an infrastructure bill if we were to see one in America. So that would be - that would be an upside impetus there in that business.

These three businesses are fundamentally good businesses. They deliver good margins. They have good differentiated positions in their end markets. They're carrying their weights with good return on assets and good margins. Of course, they've been hit by this recent downturn in their markets. But these are not problem businesses by any means.

Christopher Howe - Barrington Research Associates - Analyst

Great. And one last question, if I may. Related to the aviation, you mentioned the decline in sales here. But despite the decline, operating margin still remains healthy and showed improvement and this improvement is expected to continue into Q1. Perhaps some additional color on the margin opportunity, maybe further down the line as we get through this slow recovery and what this could mean incrementally?

David Dunbar - President and Chief Executive Officer

Yeah. Well, first of all, the lead times in that industry are long enough that Q4 virtually had no impact in its sales and margins from the slowdown in aviation. But we did call out, we expect a significant decline in the quarter and the related deleverage would flow through to the profitability in the quarter. We have all along conveyed that this business, as we've repositioned it in the last few years to focus on space and aviation, was heading towards a plus 15% EBIT rate, which - and it has delivered in several quarters in the last year. So it was getting there.

With this reduction in build rates in aviation in both - and I should say, Airbus and Boeing, I mean - that has pushed that out. So this business is headed for a tough few quarters, and we just have to watch very closely the build rates when they begin to ramp up again, because that volume will be critical to deliver 15% EBIT long term in the business.

Christopher Howe - Barrington Research Associates - Analyst

Thank you for taking my questions. I'll hop back in.

David Dunbar - President and Chief Executive Officer

Yeah. Thank you, Chris.

Operator

The next question comes from Chris McGinnis of Sidoti & Company. Please go ahead.

Chris McGinnis - Sidoti & Company - Analyst

Good morning, and thanks for taking the questions.

David Dunbar - President and Chief Executive Officer

Good morning, Chris.

Chris McGinnis - Sidoti & Company - Analyst

I think just to dive into engineering [Indecipherable]. How much of that is now - when you look at the portfolio, how much of that is aero versus the other parts, the space? And can you just maybe dive into that? And you talked about the need for volume to come back to get that margin profile up. How do you think about that business in this environment as you are starting to dispose some asset - disposal of some assets? You think about that playing in the portfolio longer term?

David Dunbar - President and Chief Executive Officer

Let me - while you were asking the second part of your question, I was reaching for documents. So I might have to ask you, you may have to repeat that. On the first, the split of the business, last year, the sales were roughly 40% aviation, about 30%, 35% space, 12% oil & gas, and about the same amount of defense with a little bit of medical in there. Space, we expect to be a steady business this year, the defense business will grow, the energy business, we expect it to be relatively flat in the year, and aviation is where we're seeing the decline. So you see those percentages move in the coming year.

Chris McGinnis - Sidoti & Company - Analyst

Sure. Okay. And I guess, yeah, the second part was just, you've rationalized your portfolio products over the last couple of years, obviously. Just your thoughts if this is a long-term kind of draw out with the bounce-back in volumes for aviation. How is that playing, your thought around this segment itself?

David Dunbar - President and Chief Executive Officer

The - you've seen the plans. We have a differentiated process. Our spin forming capability is highly differentiated and brings great advantages to the production of certain parts, like the domes in - for the space industry. That is a solid industry. We have a solid position there. That plant is very busy now and will be, we expect for the coming years. The lipskin business for - largely for Airbus, is also a very solid business. It's down now, but we're differentiated that business makes good margins, great quality reputation, great service levels for the customers. The remaining bit of our aviation exposure is with engine parts, and that's a more competitive end market. That plant uses hydroforming process as opposed to spin forming process. And that's the plant that where you're seeing the highest deleverage and the greatest challenge.

So we will - we are in negotiations with customers now about the possibility of moving more volume our way where there are two sources. We are actively bidding new parts. All of our plants, including the engine parts plant, have great reputations with the customers. We've been qualified as the highest tier supplier based on our quality and our delivery performance. So long term - long term, there's a great opportunity for these plants. But for several quarters and probably through the year, it's going to be slow-going, simply based on the end market demand.

Chris McGinnis - Sidoti & Company - Analyst

No, I appreciate that. That's some good color. In thinking about the breakout of Scientific now, does that mean it's one of the new platforms? And I think historically, you've referenced trying to target $300 million on platform. Is that a possibility here? Or is it more of just highlighting is, obviously, we're in the middle of COVID. So the number - the revenue growth isn't there, but obviously, that should bounce back over time. But just that longer-term opportunity for that platform. Thanks.

David Dunbar - President and Chief Executive Officer

Yeah. Well, there are rules that we have to follow about what businesses we report, how we break them out, which businesses are called out separately, which are combined into groups. And when we divested the refrigeration group, it was - it didn't really make sense to refer to a group as food service anymore. So as we stepped back and looked at it, we thought the Scientific business has grown to be larger than the Hydraulics business, it's more profitable and it has a stronger growth trajectory. So in terms of helping investors understand what's going on at Standex, that seems like a logical move to break that out. And the Specialty Solutions businesses, those three - what a lot of people don't understand is those three have actually been managed by the same president for almost two years. So that's a reflection of how we're organized internally.

As for the expectations for the business and this $300 million target, we do want our best businesses to grow and we've certainly got Electronics well on their way to $300 million and $300 million plus. We're - Engraving has come a long way in the last few years. But all of our businesses now are high quality businesses. They have good positions in their markets. They deliver good margins. We will invest to grow them, but they're carrying their weight even at their current size. And a good example is on the Specialty Solutions page, we showed the example of that milk merchandiser. We've invested some energy to explore the adjacent markets in that business. Brought a new market - a new product to market, which is good margins, it's helping them penetrate that milk merchandiser segment.

So that $300 number - $300 million number is maybe less important than it was a few years ago when we really had to focus on building a few large platforms we could build a corporation around, but all the businesses that we're managing now are solid well-performing businesses, strong in their markets.

Chris McGinnis - Sidoti & Company - Analyst

Great. Just thinking about COVID, we're obviously, I think, through the worst part, hopefully of this. Can you just maybe talk about maybe some opportunities that presented itself over the last few months? Is there a change in focus on anything? Or is there a spot where there maybe some more opportunity, kind of given kind of disruption that's taken place across multiple industries, for you? Maybe talk a little bit about that? Thanks.

David Dunbar - President and Chief Executive Officer

Yeah. Actually, there are several categories of opportunities we see now that we've - maybe either didn't have before or didn't have the same awareness of. The first is, all of our companies are relatively small niche players, we're big fish in small ponds. And we compete with smaller players. We know now some of the competitors of our businesses have struggled a lot more than we have. And so we believe that we are picking up more inquiries for new applications and new business opportunities that will result in another incremental move in our market position and our stronger relationships with customers. So I think that's come out of COVID.

The second thing is, all the businesses, it was an all-hands on deck situation in March and April. Everybody looked at the cost structure, looked at their organizations, took decisive action to take some costs out, but also maintained the investment in engineering, customer-facing organizations, and this is right after Jim Hooven, our VP of Ops, started. So that really paved the way for Jim to get engaged in a very deep way with the businesses to focus on driving operational excellence. So internally, we think there's an acceleration there.

Now maybe right in line with what you're thinking. If you think our Scientific business, two opportunities are really being driven by COVID for Scientific. One is there is an acceleration of investment to provide more standard flu season vaccines through pharmacies. We're seeing those orders right now. That started in June and July. And the initial thought was COVID vaccines would first be distributed through your medical facilities, clinics, hospitals, etc. So they wanted to get that flu vaccine out in pharmacies. And there was a view that patients were not going to want to go into hospitals, into their clinics just because the concern about picking up COVID. So we're seeing a ramp there.

The second opportunity, obviously, is the COVID vaccine once approved - vaccines, once they are approved, will need to be distributed and stored. And these vaccines are stored at either just above freezing or below freezing, in the kinds of cabinets we manufacture. We believe we're well positioned for this opportunity. In fact, we just had a meeting with that management team yesterday, and we authorized the ramp-up purchase of some inventory so that we can be ready as that opportunity comes. We're talking with the pharmacies. We're talking with the distributors and the channels into those markets. So quite excited about that, but it is a very dynamic and evolving situation. But clearly, a new opportunity that's come out of COVID.

Chris McGinnis - Sidoti & Company - Analyst

Thanks. And then just one last question. Just - we're almost at the end of August. Obviously, you gave some guidance around - or at least some commentary around demand trends. I guess, just thinking, as you've seen throughout the last quarter and one year in now, on a monthly basis, can you just talk maybe about the cadence you've seen? Has it continued to improve on most of those orders maybe except outside of engineering?

David Dunbar - President and Chief Executive Officer

Yeah. As I said before, the trough was April, and the business has been coming back since then. May was stronger than April, June was stronger than May, July was stronger, August is stronger. We have weekly calls with our businesses and the sales leaders. And I'd say, in general, every week, things have gotten a little bit stronger. So we continue to see that momentum.

Chris McGinnis - Sidoti & Company - Analyst

Great. Thanks very much for [Indecipherable] good luck in Q1.

David Dunbar - President and Chief Executive Officer

Thank you, Chris.

Operator

[Operator Instructions]

Showing no further questions, this does conclude our question-and-answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.

David Dunbar - President and Chief Executive Officer

All right. I'd like to thank everyone today for their interest in Standex and allowing us the opportunity to discuss our fourth quarter results and progress. And again, I want to thank our employees and shareholders for their continued support. We're confident in our ability to further execute and progress on our strategic priorities as we enter the new fiscal year. And we look forward to speaking with you again on the first quarter of fiscal '21 in the fall. Thank you.

Operator

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STANDEX INTERNATIONAL CORP

Q4 2020

Earnings Transcript

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