Hammond Power Solutions Inc.
TSX : HPS.A

Hammond Power Solutions Inc.

July 23, 2015 17:15 ET

Hammond Power Solutions Inc.: Quarter 2, 2015 Financial Results

Increased Sales, Bookings, Margin Rates and Earnings

GUELPH, ONTARIO--(Marketwired - July 23, 2015) -

(Dollar amounts are in thousands unless otherwise specified)

Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A) a leading manufacturer of dry-type, cast resin transformers and related magnetics, today announced its financial results for the second quarter of 2015.

SECOND QUARTER RESULTS

Sales for the quarter-ended June 27, 2015 were $65,384, an increase of $3,668 or 5.9% from Quarter 2, 2014 sales of $61,716 and an increase of $2,247 or 3.6% from Quarter 1, 2015 sales of $63,137. Year-to-date 2015 sales increased $6,852 or 5.6% and were $128,521 compared to $121,669 in 2014. U.S. sales increased by $2,373 or 6.8%, finishing at $37,309 for Quarter 2, 2015 compared to $34,936 in Quarter 2, 2014. Year-to-date U.S. sales were $76,432 in 2015 and $68,683 in 2014, an increase of $7,749 or 11.3%. Canadian sales were $19,166 for the quarter, an increase of $531 or 2.8% from Quarter 2, 2014 sales of $18,635. Year-to-date Canadian sales were $35,844 in 2015 compared to $36,565 in 2014, a slight decrease of $721 or 2.0%. International sales for Quarter 2, 2015 finished at $8,909 versus $8,145 in Quarter 2, 2014 an increase of $764 or 8.6%. Year-to-date international sales were comparable at $16,245 in 2015 and $16,421 in 2014, a change of $176 or 1.1%. The Company continues to increase both its sales through distributor conversions, custom transformer capabilities as well increasing market share.

The Company increased bookings 9.5% over Quarter 2, 2014 due to stronger bookings in both the distributor and direct channels in the North American and International markets. Booking rates in the distributor channel increased 5.9% over Quarter 2, 2014. On a direct channel basis, bookings exceeded Quarter 2, 2014 by 13.0%. On a year-to-date basis overall Company bookings have increased 12.1% over the same period as last fiscal year. The distributor channel bookings increased by 8.5% and the direct channel bookings increased by 15.4%. Backlog increased 13.3% over Quarter 2, 2014 and finished lower by 3.4% when compared to Quarter 1, 2015.

Bill Hammond, Chief Executive Officer commented, "We are realizing sales and bookings rate increase which bodes well for the latter half of 2015."

Gross margin rates for Quarter 2, 2015 were 24.1% compared to Quarter 2, 2014 margin rates of 23.3% an improvement of 0.8% of sales. Year-to-date, the margin rate was 23.2% in 2015, which is comparable to the 2014 rate of 23.3%. The Company's gross margin rates are impacted by customer and market mix, geographic blend and lower factory capacity utilization.

Total selling and distribution expenses were $7,076 in Quarter 2, 2015 or 10.8% of sales versus $6,973 in Quarter 2, 2014 or 11.3% of sales, an increase of $103 or 1.5%. Year-to-date selling and distribution expenses were $13,822 or 10.8% of sales in 2015 compared to $14,031 or 11.5% in 2014, a reduction of $209 or 1.5%.

The general and administrative expenses for Quarter 2, 2015 totaled $6,045 or 9.3% of sales, compared to Quarter 2, 2014 expenses of $5,658 or 9.2% of sales, an increase of $387 or 6.8%. Year-to-date general and administrative expenses were $11,867 or 9.2% of sales in 2015, compared to $11,204 or 9.2% of sales in 2014, an increase of $663 or 5.6%.

Quarter 2, 2015 earnings from operations were $2,623, an increase of $853 or 48.2% from $1,770 for the same quarter last year. The improvement in the quarter is a result of higher sales and an increase in the gross margin rate. The year-to-date earnings from operations were $4,069 in 2015 compared to $3,073 in 2014, an improvement of $996 or 32.4%.

Interest expense for Quarter 2, 2015 finished at $264, comparable to the Quarter 2, 2014 expense of $259. Year-to-date interest cost was $380, a decrease of $136 when compared to the 2014 year-to-date expense of $516. Interest expense fluctuations are impacted by changes in the level of the operating lines of credit and the vacillation of changes in working capital needs.

The foreign exchange loss in Quarter 2, 2015 was $476 compared to a loss of $34 in Quarter 2, 2014. These losses relate primarily to the transactional exchange pertaining to the Company's U.S. dollar trade accounts payable in Canada.

Net earnings for Quarter 2, 2015 increased by $160 or 17.1% and finished at $1,096 compared to net earnings of $936 in Quarter 2, 2014. This growth in the quarter earnings is a result of higher sales and improved gross margin rates which offset the increased foreign exchange loss this quarter compared to Quarter 2, 2014. Year-to-date net earnings were $1,877 in 2015 and $1,456 in 2014 and increase of $421 or 28.9%

Net cash provided by operating activities for Quarter 2, 2015 was $460 versus cash provided by operating activities of $3,892 in Quarter 2, 2014, a decrease of $3,432 as a result of an increase in working capital. Year-to-date cash generated by operating activities was $881 in 2015 and $2,247 in 2014, a difference of $1,366, a result of a larger change in working capital. During the quarter, non-cash working capital used cash of $2,545 compared to generating cash of $1,233 for the same quarter last year. The year-to-date change in non-cash working capital was a usage of cash of $5,424 in 2015 compared to $3,453 in 2014.

The Company's overall operating debt balance net of cash was $17,949 in Quarter 2, 2015 compared to $18,599 in Quarter 2, 2014, a decrease in debt position of $650 primarily reflecting cash generated by operations during the year.

In Quarter 1, 2015, the Company announced that it had completed the formation of a new joint venture company, Corefficient S. de R.L. de C.V. ("Corefficient"). Corefficient will design, manufacture and market energy efficient electrical cores, a major component used in the manufacture of dry type and liquid filled transformers. Corefficient will be based out of Monterrey, Mexico, where a state of the art manufacturing facility is currently under construction and will be fully operational by the fourth quarter of 2015. The start-up process for the joint venture, Corefficient, is well underway and proceeding on schedule.

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 June 25, 2015.

Mr. Hammond concluded, "We will see sales growth in the second half of the year which is supported by our growing bookings and backlog. We are confident that our financial strength, core competencies and long term strategies will accelerate our growth and financial performance as markets start to improve."

FINANCIAL RESULTS
THREE MONTHS ENDED:
(dollars in thousands)
June 27, 2015 June 28, 2014 Change
Sales $ 65,384 $ 61,716 $ 3,668
Earnings from Operations $ 2,623 $ 1,770 $ 853
Exchange Loss $ 476 $ 34 $ 442
Net Earnings $ 1,096 $ 936 $ 160
Earnings per share
Basic $ 0.09 $ 0.08 $ 0.01
Diluted $ 0.09 $ 0.08 $ 0.01
Cash provided by operations $ 460 $ 3,892 $ (3,432)
SIX MONTHS ENDED:
(dollars in thousands)
June 27, 2015 June 28, 2014 Change
Sales $ 128,521 $ 121,669 $ 6,852
Earnings from Operations $ 4,069 $ 3,073 $ 996
Exchange Loss (Gain) $ 186 $ (63) $ 249
Net Earnings $ 1,877 $ 1,456 $ 421
Earnings per share
Basic $ 0.16 $ 0.12 $ 0.04
Diluted $ 0.16 $ 0.12 $ 0.04
Cash provided by operations $ 881 $ 2,247 $ (1,366)

TELECONFERENCE

Hammond Power Solutions Inc. will hold a conference call on Friday, July 24, 2015 at 10:00 a.m. EST, to discuss the Company's financial results for the second quarter 2015.

Listeners may attend the conference by dialing:

1-416-340-8530 / 1-800-769-8320
Instant Replay
Dial in numbers 905-694-9451 or 1-800-408-3053
Pass code 2571630
End date July 31, 2015

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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