Hammond Power Solutions Inc.
TSX : HPS.A

Hammond Power Solutions Inc.

July 27, 2017 17:15 ET

Hammond Power Solutions Inc. Announces a Strong Surge in Quarter 2, 2017 Financial Results

(Dollar amounts are in thousands unless otherwise specified)

ROBUST QUARTER

- 14% sales increase

- Margin growth

- Increased net earnings

- $0.25 EPS

GUELPH, ONTARIO--(Marketwired - July 27, 2017) - Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A) a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the Second Quarter of 2017.

SECOND QUARTER RESULTS

Sales for the quarter-ended July 1, 2017 were $78,874, an increase of $9,736 or 14.1% from Quarter 2, 2016 sales of $69,138. Year-to-date 2017 sales increased $13,376 or 9.7% and were $151,236 compared to $137,860 in 2016. Sales in the United States ("U.S.") increased by $5,913 or 15.1%, finishing at $45,080 for Quarter 2, 2017 compared to $39,167 in Quarter 2, 2016. Year-to-date U.S. sales were $87,751 in 2017 and $77,857 in 2016, an increase of $9,894 or 12.7%. Canadian sales were $19,726 for the quarter, a decrease of $2,770 or 12.3% from Quarter 2, 2016 sales of $22,496. Year-to-date Canadian sales were $36,665 in 2017 compared to $40,421 in 2016, a decrease of $3,756 or 9.3%. International sales for Quarter 2, 2017 finished at $14,068 versus $7,475 in Quarter 2, 2016, an increase of $6,593 or 88.2%. Year-to-date international sales were $26,820 in 2016 compared to $19,582 in 2016, an increase of $7,238 or 37.0%.

"I am pleased to report a continuing rebound in our global business with strong financial results in Quarter 2, 2017 with both sales and profits up significantly over the same period in 2016," Bill Hammond commented.

The Company increased bookings 1.1% over Quarter 2, 2016 due to stronger bookings in the direct channel in North America. Booking rates in the distributor channel decreased 5.2% over Quarter 2, 2016. On a direct channel basis, bookings were higher than Quarter 2, 2016 by 7.1%.

Gross margin rates for Quarter 2, 2017 were 25.0% comparable to Quarter 2, 2016 margin rate of 24.2%, an improvement of 0.8% of sales. Year-to-date, the gross margin rate was 24.7% in 2017 versus 24.3% in 2016, an improvement of 0.4%. The improvement in year-to-date margin rates can be attributed to a combination of restructuring cost reductions, pricing gains; product cost reductions, product and customer mix, geographic blend, efficiency increases as well as higher manufacturing throughput.

Total selling and distribution expenses were $8,627 in Quarter 2, 2017 or 10.9% of sales versus $7,901 in Quarter 2, 2016 or 11.4% of sales, an increase of $726 and a decrease 0.5% of sales.

Year-to-date selling and distribution expenses were $16,832 or 11.1% of sales in 2017 compared to $15,538 or 11.3% in 2016, an increase of $1,294 and a decrease of 0.2% of sales.

General and administrative expenses for Quarter 2, 2017 totaled $6,128 or 7.8% of sales, compared to Quarter 2, 2016 expenses of $6,283 or 9.1% of sales, a slight decrease of $155 or 1.3% of sales. Year-to-date general and administrative expenses were $12,366 or 8.2% of sales in 2016, compared to $12,694 or 9.2% of sales in 2016, a decrease of $328 or 1.0% of sales. Quarter 2, 2017 earnings from operations were $4,953, a significant increase of $2,393 or 93.5% from $2,560 for the same quarter last year. The year-to-date earnings from operations were $7,358 in 2017 compared to $5,237 in 2016, an increase of $2,121 or 40.5%.

Interest expense for Quarter 2, 2017 was $286, a decrease of $40 or 12.3% compared to the Quarter 2, 2016 expense of $326. Year-to-date interest cost was $602, an increase of $75 or 14.2% when compared to the 2016 year-to-date expense of $527.

The foreign exchange gain in Quarter 2, 2017 was $22. This gain relates 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 $19 in Quarter 2, 2016. The year-to-date foreign exchange loss for 2017 was $45, compared to $340 for the same period last year.

Net earnings for Quarter 2, 2017 finished at $2,842 compared to net earnings of $517 in Quarter 2, 2016, an increase of $2,325 or 449.7%. Year-to-date net earnings were $3,926 in 2017 compared to $1,401 in 2016, an increase of $2,525 or 180.2%. The improvement in the quarter and year-to-date earnings is a result of higher sales, gross margin mix, improved gross margin rate and decreased losses on investment in the joint venture, and a lower effective tax rate.

Basic earnings per share were $ 0.25 for Quarter 2, 2017, an increase of $0.20 from prior year value of $0.05. Year-to-date the basic earnings per share was $0.34 in 2017 and $0.12 in 2016.

Net cash provided by operating activities for Quarter 2, 2017 was $2,315 versus cash used in operating activities of $4,941 in Quarter 2, 2016, an improvement of $7,256. Year-to-date net cash used in operating activities was $5,307 compared to $8,321 in 2016, a decrease of $3,014.

The Company's overall operating debt balance net of cash was $20,416 in Quarter 2, 2017 compared to $27,404 in Quarter 2, 2016, a decrease in debt position of $6,988 primarily reflective of increased net income, decreased funding of the joint venture, lower tax payments, partially offset with higher working capital usage.

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 July 23, 2017.

Mr. Hammond concluded, "Going forward we anticipate our current positive momentum to continue as conditions improve in many markets, and our activities to grow our market share bear fruit in North America, Europe, and India. We remain mindful however of the potential macro effects of political volatility and economic uncertainty on segments of our business, as we keep pushing for further growth in our sales and profits."

FINANCIAL RESULTS

THREE MONTHS ENDED:
(dollars in thousands)
July 1, 2017 July 2, 2016 Change
Sales $ 78,874 $ 69,138 $ 9,736
Earnings from Operations $ 4,953 $ 2,560 $ 2,393
Exchange (Gain)Loss $ (22 ) $ 19 $ (41 )
Share of loss of investment in joint venture $ 255 $ 501 $ (246 )
Net Earnings $ 2,842 $ 517 $ 2,325
Earnings per share
Basic $ 0.25 $ 0.05 $ 0.20
Diluted $ 0.25 $ 0.05 $ 0.20
Cash provided by (used in) operations $ 2,315 $ (4,941 ) $ 7,256
SIX MONTHS ENDED:
(dollars in thousands)
July 1, 2017 July 2, 2016 Change
Sales $ 151,236 $ 137,860 $ 13,376
Restructuring Charges $ 816 $ - $ 816
Earnings from Operations $ 7,358 $ 5,237 $ 2,121
Exchange Loss $ 45 $ 340 $ (295 )
Share of loss of investment in joint venture $ 512 $ 1,029 $ (517 )
Net Earnings $ 3,926 $ 1,401 $ 2,525
Earnings per share
Basic $ 0.34 $ 0.12 $ 0.22
Diluted $ 0.34 $ 0.12 $ 0.22
Cash used in operations $ (5,307 ) $ (8,321 ) $ 3,014

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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