Hammond Power Solutions Inc.

Hammond Power Solutions Inc.

October 31, 2012 16:52 ET

Hammond Power Solutions Inc. Reports Quarter 3, 2012 Financial Results

Robust Year-Over-Year Growth

Highlights From the Quarter

(Dollar amounts are in thousands unless otherwise specified)

- Revenue growth

- Gross margin growth

- Net earnings growth

GUELPH, ONTARIO--(Marketwire - Oct. 31, 2012) - Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A), a leading manufacturer of dry type, cast coil and oil filled transformers and related magnetics, today announced its financial results for the third quarter of 2012.

"Sales increased by 15% compared to the same quarter in 2011, while gross margin dollars grew 18% during that same period. This was accomplished during a time of growing uncertainty in the U.S. and global economies which makes us especially proud of our continuing strong performance," commented Bill Hammond, Chairman & Chief Executive Officer of Hammond Power Solutions Inc.


Sales for the quarter-ended September 29, 2012 were $63,703 up $8,214 or 14.8% from the comparative quarter last year, and were higher by $34,247 or 21.3% year-to-date, finishing at $194,843 compared to $160,596 last year. HPS sales increased in both Canada and the U.S. electrical markets, which also benefitted from a weaker Canadian dollar. As a result of higher Original Equipment Manufacturers ("OEM") order booking and sales activity, sales in the United States stated in U.S. dollars ("USD") were $36,608 in Quarter 3, 2012 an increase of $2,277 or 6.6% from Quarter 3, 2011. Year-to-date sales in the U.S. stated in USD were $110,914, an increase of $13,936 or 14.4%, when compared to $96,978 last year-to-date.

Bill Hammond stated, "Canadian sales are up 21% year-to-date as a result of a stronger project market and increased market share through our distributor channel. Sales in the United States are up 14% compared to a year ago driven by continuing strong OEM activity as well as expanding market share through our growing industrial and commercial distributor network."

Our strategic sales initiatives produced bookings growth resulting in an increase of 4.1% over Quarter 2, 2012. Bookings in Quarter 3, 2012 trended higher in both North America and internationally contributing to an increase in backlog.

The Company was very effective at growing it margin rates this Quarter. Gross margin rates Quarter 3, 2012 finished at 24.5% versus 23.9% in Quarter 3, 2011, an increase of 0.6% of sales. On a year-to-date basis, gross margin rates were 24.2% compared to 23.9% in 2011, up 0.3% of sales. The Company's gross margin rates were impacted by negative selling price pressures, but did benefit from product mix and the favourable impact that a weaker Canadian dollar has on U.S. resale margins.

"We are most pleased with the improvement in our North American margins compared to a year ago, particularly at a time of continuing cost pressures in a highly competitive market place," Bill Hammond further commented.

Total selling and distribution expenses were $6,337 in Quarter 3, 2012 versus $5,667 in Quarter 3, 2011 - an increase of $670 or 11.8%. Year-to-date, selling and distribution costs were $19,121 versus $16,560 in 2011, an increase of $2,561 or 15.5%. Due to sales increases, variable selling expenses in Quarter 3, 2012 were impacted by higher freight and commission expense and increased salaries associated with strategic hires to support the sales strategies of the Company.

The general and administrative expenses for Quarter 3, 2012 totaled $5,067 - an increase of $143 or 2.9% when compared to Quarter 3, 2011 costs of $4,924. Almost all of this increase was attributed to additional general and administrative costs relating to its new Indian operation. Year-to-date, general and administrative costs are higher by $1,056 or 7.3%, totaling $15,491 when compared to $14,435 for 2011. On a year-to-date basis, the company has seen increases in stock option expense, costs related to the company's ongoing acquisition activities, investment in its information systems and general and administrative costs relating to its new Indian operation.

Quarter 3, 2012 earnings from operations, increased by $1,551 or 58.2% from the same quarter last year, finishing at $4,215 in the quarter, as compared to $2,664 in Quarter 3, 2011. Earnings from operations were $12,635 versus $7,310 for the same period of 2011, an increase of $5,325 or 72%. Higher sales, the realization of selling price increases, the positive effects of growing manufacturing throughput and cost reductions contributed to these gains.

The interest expense for Quarter 3, 2011 finished at $249 compared to $77 in Quarter 3, 2011 an increase of $172. Year-to-date interest cost was $549, an increase of $365 when compared to the year-to-date 2011 expense of $184.

The foreign exchange gain in Quarter 3, 2012 was $314. This relates primarily to the transactional exchange gain pertaining to the Company's U.S. dollar trade accounts payable in Canada, compared to a foreign exchange loss of $227 in Quarter 3, 2011. The year-to-date exchange gain is $382 in 2012 compared to a foreign exchange loss of $709 for the same period of 2011.

Net earnings for Quarter 3, 2012, increased by $2,381, finishing at $2,552 compared to net earnings of $171 in Quarter 3, 2011. On a year-to-date basis net earnings finished at $7,881, an increase of $5,457 when compared to year-to-date 2011 net earnings of $2,424. Net earnings were positively impacted by the 14.8% growth in sales and increased gross margin rates.

Net cash provided by operating activities for Quarter 3, 2012 was $3,736 versus cash provided of $4,923 in Quarter 3, 2011 a decrease of $1,160 as a result of an increase in non-cash working capital and higher income tax payments. Year-to-date cash generated from operations was $10,909 compared to 2011 cash used of $4,029, a change of $14,938. This is as a result of higher profits and lower working capital requirements to support the operations.

Change in non-cash operating working capital resulted in an increase in usage of cash of $2,761 compared to the same quarter last year. For the first nine months of 2012, the change in non-cash working capital was a net usage of cash of $2,132 as compared to a net usage of cash from the change in non-cash working capital of $12,555 in the first nine months of 2011, a decrease in cash usage of $10,423.

The Company's overall debt, net of cash was $9,255 in Quarter 3, 2012 compared to a net debt position of $3,344 in Quarter 3, 2011, a reduction in cash position of $5,911. This debt position change was a result of the purchase of PETE plus the assumed debt and the change in non-cash working capital.

Mr. Hammond concluded, "We are carefully watching what may happen over the next 15 months however, we are not as pessimistic as many companies given our geographical, market and channel diversification . We will continue to manage Hammond Power Solutions in a cautious and conservative manner to not only weather any economic storms that might develop, but to also be in a strong financial position to take advantage of the growth opportunities that we believe will surface."

(dollars in thousands)
September 28,
October 1,
Sales $ 63,703 $ 55,489 $ 8,214
Earnings from Operations $ 4,215 $ 2,664 $ 1,551
Exchange Loss/(Gain) $ (314 ) $ 227 $ (541 )
Net Earnings $ 2,552 $ 171 $ 2,381
Earnings per share
Basic 0.21 0.01 0.20
Diluted 0.21 0.01 0.20
Cash Provided by Operations $ 3,763 $ 4,923 $ (1,160 )
(dollars in thousands)
September 28,
October 1,
Sales $ 194,843 $ 160,596 $ 34,247
Earnings from Operations $ 12,635 $ 7,310 $ 5,325
Exchange Loss/(Gain) $ (382 ) $ 709 $ (1,091 )
Net Earnings $ 7,881 $ 2,424 $ 5,457
Earnings per share
Basic 0.67 0.21 0.46
Diluted 0.67 0.21 0.46
Cash (Used in) Provided by Operations $ 10,909 $ (4,029 ) $ 14,938



Hammond Power Solutions Inc. will hold a conference call on Thursday, November 1, 2012 at 10:00 a.m. EST, to discuss the Company's financial results for the Third Quarter 2012.

Listeners may attend the conference by dialing:

1-416-340-2216 or 1-866-226-1792

Instant replay Access Information:

Local access: 905-694-9451
Toll Free access: 800-408-3053
Pass code: 1338265

Caution Regarding Forward-Looking Information

This press release contains "forward-looking information" within the meaning of applicable securities laws. The forward-looking information contained in this press release is subject to known and unknown risks, uncertainties and other factors that are not within the control of HPS. Generally, this forward-looking information can be identified by the use of forward-looking terminology such as "outlook", "anticipate", "project", "target", "believe", "estimate", "expect", "intend", "should", "scheduled", "will", "plan" and similar expressions. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause HPS's actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information and developed based on assumptions about such risks, uncertainties and other factors set out herein.

A discussion of factors that may affect HPS' actual results, performance, achievements or financial position is contained in the filings by HPS with the Canadian securities regulatory authorities, including HPS' Annual Information Form. This list is not exhaustive of the factors that may affect our forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. HPS disclaims any intent or obligations to update or revise publicly any forward-looking statements whether as a result of new information, estimates or options, future events or results or otherwise, unless required to do so by law.

About Hammond Power Solutions Inc.

Hammond Power Solutions Inc. ("HPS" or the "Company") is the North American leader for the design of custom electrical engineered magnetic as well as the leading manufacturer of standard electrical dry type transformers. Advanced engineering capabilities, high quality products and fast responsive service to customers' needs has established the Company as a technical and innovative leader in the electrical and electronic industries. The Company has manufacturing facilities in Canada, the United States, Mexico, Italy and India.

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