Hammond Power Solutions Inc.
TSX : HPS.A

Hammond Power Solutions Inc.

October 23, 2014 17:39 ET

Hammond Power Solutions Inc. Announces Quarter 3, 2014 Financial Results

GUELPH, ONTARIO--(Marketwired - Oct. 23, 2014) - Hammond Power Solutions Inc. (TSX:HPS.A) -

HIGHLIGHTS

  • Increased Quarterly and Year-to-date Sales
  • Upward Trending Booking Rates
  • Rise in Cash Provided by Operating Activities
  • Quarterly Dividend Paid

(Dollar amounts are in thousands unless otherwise specified)

Hammond Power Solutions Inc. ("HPS"), a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the third quarter of 2014.

THIRD QUARTER RESULTS

Sales for the quarter-ended September 27, 2014 were $61,558, an increase of $4,165 or 7.3% from Quarter 3, 2013 sales of $57,393. Year-to-date sales were $183,227 in 2014 and $180,137 in 2013, an increase of $3,090 or 1.7%. U.S. sales grew $3,529 or 11.0% and were $35,608 for Quarter 3, 2014 compared to $32,079 in Quarter 3, 2013 and momentum continued as U.S. sales increased $672 or 1.9% from Quarter 2, 2014 sales of $34,936. Year-to-date U.S. sales were $104,291 in 2014 compared to $103,280 in 2013, an increase of $1,011 or 1.0%. Canadian sales were $18,318 for the quarter, a decline of $1,485 or 7.5% from Quarter 3, 2013 sales of $19,803 and remain stable from Quarter 2, 2014 sales of $18,635. Year-to-date Canadian sales were $54,883 in 2014 compared to $59,685 in 2013, a decrease of $4,802 or 8.0%. North American sales have been negatively impacted by the continuing economic softness, particularly the power and mining project markets and institutional construction projects. International sales continued to expand in Quarter 3, 2014 finishing at $7,632 versus $5,511 in Quarter 3, 2013, an increase of $2,121 or 38.5%. On a year-to-date basis, international sales is gaining traction, increasing $6,881 or 40.1% over 2013 sales of $17,172 compared to 2014 sales of $24,053.

The Company increased bookings 7.9% over Quarter 3, 2013 and 14.4% year to date due to increased U.S. distributor and International OEM booking rates.

Bill Hammond commented, "Future sales growth will be achieved through the combination of our market expansion initiatives, our solid position in the distributor channel and new product development."

Gross margin rates for Quarter 3, 2014 were 22.2% compared to Quarter 3, 2013 which finished at 24.7%. Year-to-date the margin rate was 22.9% in 2014, which has decreased slightly from the 2013 rate of 24.2%. The Company continues to protect its gross margin rates despite a less favourable product mix, market pricing pressures and lower than anticipated manufacturing throughput.

Total selling and distribution expenses were $7,014 in Quarter 3, 2014 or 11.4% of sales versus $6,536 in Quarter 3, 2013 or 11.4% of sales, an increase of $478 or 7.3%. Year-to-date selling and distribution expenses were $21,045 or 11.5% of sales in 2014, compared to $19,695 or 10.9% in 2013, an increase of $1,350 or 6.9%.

The general and administrative expenses for Quarter 3, 2014 totaled $5,710 or 9.3% of sales, consistent with Quarter 3, 2013 expenses of $5,704 or 9.9% of sales. Year-to-date general and administrative expenses were $16,914 or 9.2% of sales in 2014, compared to $17,015 or 9.4% of sales in 2013, a decrease of $101 or 0.6%.

Quarter 3, 2014 earnings from operations was $915, a decrease of $1,006 or 52.4% from $1,921 for the same quarter last year. The year-to-date earnings from operations were $3,988 in 2014 compared to $6,879 in 2013, a decrease of $2,891 or 42.0%. The lower operating income is a result of a decline in gross margin rates and an increase in selling and distribution expenses.

The interest expense for Quarter 3, 2014 finished at $251, an increase of $8 or 3.3% compared to Quarter 3, 2013 expense of $243. Year-to-date interest cost was $767, an increase of $62 or 8.8% when compared to the 2013 year-to-date expense of $705. Interest expense is generated as a result of higher operating debt levels attributed to higher working capital utilization.

The foreign exchange loss in Quarter 3, 2014 was $303, relating primarily to the transactional exchange pertaining to the Company's U.S. dollar trade accounts payable in Canada, compared to a foreign exchange loss of $183 in Quarter 3, 2013. For the first nine months of 2014, the Company realized a foreign exchange loss of $240 compared to a foreign exchange loss of $297 for the same period in 2013.

Net earnings for Quarter 3, 2014 decreased by $532 or 67.2% and finished at $260 compared to net earnings of $792 in Quarter 3, 2013. Year-to-date net earnings were $1,716 in 2014 and $3,209 in 2013, a decrease of $1,493 or 46.5%. The quarter and year-to-date results have been impacted by lower gross margin rates and reduced gross margin dollar contribution and higher selling and distribution expenses.

Net cash provided by operating activities for Quarter 3, 2014 was $11,415 versus $3,021 in Quarter 3, 2013, an increase of $8,394 as a result of a decrease in income tax payments, lower net income and a decrease in working capital. Year-to-date cash generated by operating activities was $13,662 in 2014 and $3,439 in 2013, a difference of $10,223.

The Company's overall debt, net of cash was $14,976 in Quarter 3, 2014 compared to a net debt position of $15,431 in Quarter 3, 2013, a decrease in debt position of $455 due to the change in non-cash working capital. The cash balance at September 27, 2014 was $15,508, an increase of $7,783 from the balance of $7,725 for the same period in 2013.

The Company continued with its regular quarterly dividend program, paying six cents ($0.06) per Class A Subordinate Voting Share of HPS and six cents ($0.06) per Class B Common Share of HPS on September 25, 2014.

Mr. Hammond concluded, "2014 has indeed been a challenging year. We have recently made a number of adjustments to our cost structures as well as areas of focus to improve our short term sales and profits in this slow and competitive environment. We are also benefiting from our geographical and channel diversification which will broaden our growth opportunities both in North America and abroad today and in the future."

FINANCIAL RESULTS

THREE MONTHS ENDED:
(dollars in thousands)
September 27, 2014 September 28, 2013 Change
Sales $ 61,558 $ 57,393 $ 4,165
Earnings from Operations $ 915 $ 1,921 $ (1,006)
Exchange Loss $ 303 $ 183 $ 120
Net Earnings $ 260 $ 792 $ (532)
Earnings per share
Basic $ 0.02 $ 0.07 $ (0.05)
Diluted $ 0.02 $ 0.07 $ (0.05)
Cash provided by operations $ 11,415 $ 3,021 $ 8,394
NINE MONTHS ENDED:
(dollars in thousands)
September 27, 2014 September 28, 2013 Change
Sales $ 183,227 $ 180,137 $ 3,090
Earnings from Operations $ 3,988 $ 6,879 $ (2,891)
Exchange Loss $ 240 $ 297 $ (57)
Net Earnings $ 1,716 $ 3,209 $ (1,493)
Earnings per share
Basic $ 0.14 $ 0.27 $ (0.13)
Diluted $ 0.14 $ 0.27 $ (0.13)
Cash provided by operations $ 13,662 $ 3,439 $ 10,223

TELECONFERENCE

Hammond Power Solutions Inc. will hold a conference call on Friday, October 24, 2014 at 10:00 a.m. EST, to discuss the Company's financial results for the third quarter 2014.

Listeners may attend the conference by dialing:

1-416-340-8530 / 1-800-769-8320 / 1-800-2787-2090
Instant Replay
Dial in numbers 905-694-9451 or 1-800-408-3053
Pass code 1072113
End date November 7, 2014

Caution Regarding Forward-Looking Information

This press release contains forward-looking statements that involve a number of risks and uncertainties, including statements that relate to among other things, HPS' strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "expect", "intend", "estimate", "anticipate", "believe", "plan", "objective" and "continue" and words and expressions of similar import. Although HPS believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to currency rates); changes in laws and regulations; legal and regulatory proceedings; and the ability to execute strategic plans. HPS does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT HAMMOND POWER SOLUTIONS INC.

Hammond Power Solutions Inc. (TSX:HPS.A) is a North American leader for the design and manufacture of dry-type custom electrical engineered magnetics, electrical dry-type and cast resin transformers. Leading edge engineering capabilities, high quality products, and responsive service to customers' needs have all served to establish HPS as a technical and innovative leader in the electrical and electronic industries.

HPS has operations in Canada, the United States, Mexico, India and Italy.

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