Servotronics Inc. (SVT) recently reported 2010 second quarter earnings and the market reacted favorably as the company turned in another solid quarter. The stock price jumped to $10, after trading around $9 for the prior month or two.

Second Quarter Results

Revenues for the 2nd quarter were $8.2M compared to $9.1M in the same period last year, a drop of approx. 10%.

The Consumer Products Group was the source of the decline, with sales dropping 23%, partially offset by a slight increase in revenues for the Advanced Technology Group.

Despite the top-line drop, quarterly net income was up significantly, increasing 10% to $778k compared to $710k in the prior year quarter. For the 6 month period ending June 30, 2010, net income was 68% higher, as the company continues to benefit from an outstanding first quarter.

FCF is $1.6M so far this year, more than doubling the cash flow generated in the same period last year.

Segment Analysis

The ATG division continues to chug along, as operating profit increased for the second consecutive quarter.

The company has also worked to improve the CPG’s product line, allowing margins to increase slightly despite the drop in sales.

Conclusion

With conservative estimates, the business is on track to generate over $3M in owner earnings for the year, close to the record set in 2008.

Management has performed well through the economic downturn – after a small hiccup at the end of 2009 – and the stock should benefit as the aerospace markets turn around (see my post on SIFCO as well).

I’m revising my conservative valuation downward slightly, to $12.50-$13.50, with an upward estimate closer to $15.

Disclosure

Long SVT