SOURCE: Sun Hydraulics Corporation

Sun Hydraulics Corporation

February 29, 2016 17:00 ET

Sun Hydraulics Reports 2015 Earnings, Announces Shared Distribution

SARASOTA, FL--(Marketwired - Feb 29, 2016) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the fourth quarter and year-ended 2015. Additionally, the Board of Directors announced a $2.8 million shared distribution.

               
(Dollars in millions except net income per share)              
    January 2, 2016   December 27, 2014   Increase/ (Decrease)  
Twelve Months Ended                  
Net sales   $ 200.7   $ 227.7   (12 )%
Net income   $ 33.1   $ 43.8   (24 )%
Net income per share:                  
  Basic   $ 1.24   $ 1.65   (25 )%
  Diluted   $ 1.24   $ 1.65   (25 )%
Three Months Ended                  
Net sales   $ 44.3   $ 54.8   (19 )%
Net income   $ 5.1   $ 10.3   (50 )%
Net income per share:                  
  Basic   $ 0.19   $ 0.39   (51 )%
  Diluted   $ 0.19   $ 0.39   (51 )%
                     

"The fourth quarter was in line with our expectations, resulting in sales of $200.7 million for the year," stated Allen Carlson, Sun's President and CEO. "While the 2015 financial results were sluggish coming off of a strong 2014, we feel we have weathered much of the storm with regard to contracting end markets and negative currency influences. Macro-economic indicators appear to be leveling out."

Carlson continued, "Year over year, 2015 sales to the Americas decreased 13%, with demand in Asia/Pacific and Europe each down 9% and 11%, respectively. Currency accounted for much of the decline in Europe, while weakening OEM demand in Asia/Pacific, specifically in the Korean construction market, is responsible for the decrease in that region. In the Americas, vulnerable end markets drove reduced demand."

"We continue to engage in various product and market expansion activities," declared Carlson. "Our development of electro-hydraulic cartridge valves is creating unique solutions for one of the fastest growing segments in our industry. Initiatives to add marketing resources to all regions are increasing Sun's global presence to further our brand and reach worldwide. Operationally, we remain dedicated to evolving processes to drive both quality and productivity."

"Our first quarter estimates indicate we may be nearing the bottom of this difficult cycle," concluded Carlson. "While global capital goods indicators aren't yet positive, our orders rates show promise. We remain agile and ready to capitalize on early-cycle opportunities with our efforts focused on satisfying customer demand, growing market share, and delivering strong financial results."

Shared Distribution

Recognizing both Sun's performance in a difficult year and the importance of the Company's employees and shareholders, the Board has again declared a shared distribution for 2015. The 2015 shared distribution totals approximately $2.8 million. It consists of a contribution to employees equal to 5% of wages, most of which will be paid into retirement plans in the form of Sun Hydraulics stock, and a $0.04 per share cash dividend to be paid to all shareholders. The shared distribution is in addition to the normal quarterly dividend and is payable on March 31, 2016, to shareholders of record as of March 15, 2016.

Outlook
First quarter 2016 revenues are expected to be approximately $50 million, down 8% from the first quarter of 2015. Earnings per share are estimated to be $0.31 to $0.33 compared to $0.39 in the same period a year ago. Currency is responsible for $1.6M of the decline in revenues and $0.04 of the decline in earnings per share in first quarter estimates.

Webcast
Sun Hydraulics Corporation will broadcast its 2015 fourth quarter and year-end financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, March 1, 2016. To listen to the webcast, go to the Investor Relations section of www.sunhydraulics.com.

Webcast Q&A
If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-888-378-0320 and using 3075784 as the access code. Questions also may be submitted to the Company via email by going to the Sun Hydraulics website, www.sunhydraulics.com, and clicking on Investor Relations on the top menu. Scroll down to the bottom of the page and click on contact email: investor@sunhydraulics.com, which will open an email window to type in your message. Sun leadership will then answer these and other questions during the Company's webcast. A copy of this earnings release is posted on the Investor Relations page of our website under "Press Releases."

Sun Hydraulics Corporation is a leading designer and manufacturer of high performance screw-in hydraulic cartridge valves and manifolds for worldwide industrial and mobile markets. For more information about Sun, please visit our website at www.sunhydraulics.com.

FORWARD-LOOKING INFORMATION

Certain oral statements made by management from time to time and certain statements contained herein that are not historical facts are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and, because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements, including those in Management's Discussion and Analysis of Financial Condition and Results of Operations are statements regarding the intent, belief or current expectations, estimates or projections of the Company, its Directors or its Officers about the Company and the industry in which it operates, and assumptions made by management, and include among other items, (i) the Company's strategies regarding growth, including its intention to develop new products; (ii) the Company's financing plans; (iii) trends affecting the Company's financial condition or results of operations; (iv) the Company's ability to continue to control costs and to meet its liquidity and other financing needs; (v) the declaration and payment of dividends; and (vi) the Company's ability to respond to changes in customer demand domestically and internationally, including as a result of standardization. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that the anticipated results will occur.

Important factors that could cause the actual results to differ materially from those in the forward-looking statements include, among other items, (i) the economic cyclicality of the capital goods industry in general and the hydraulic valve and manifold industry in particular, which directly affect customer orders, lead times and sales volume; (ii) conditions in the capital markets, including the interest rate environment and the availability of capital; (iii) changes in the competitive marketplace that could affect the Company's revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (iv) changes in technology or customer requirements, such as standardization of the cavity into which screw-in cartridge valves must fit, which could render the Company's products or technologies noncompetitive or obsolete; (v) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; and (vi) changes relating to the Company's international sales, including changes in regulatory requirements or tariffs, trade or currency restrictions, fluctuations in exchange rates, and tax and collection issues. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-Q for the quarter ended September 26, 2015, and under the heading "Business" and particularly under the subheading, "Business Risk Factors" in the Company's Form 10-K for the year ended January 2, 2016. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

   
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands except per share data)  
   
    Three months ended  
    January 2, 2016     December 27, 2014  
                 
Net sales   $ 44,289     $ 54,803  
Cost of sales     28,495       33,025  
Gross profit     15,794       21,778  
Selling, engineering and administrative expenses     8,123       7,445  
Operating income     7,671       14,333  
Interest (income) expense, net     (400 )     (666 )
Foreign currency transaction (gain) loss, net     (265 )     (509 )
Miscellaneous (income) expense, net     980       137  
Income before income taxes     7,356       15,371  
Income tax provision     2,253       5,044  
Net income   $ 5,103     $ 10,327  
Basic net income per common share   $ 0.19     $ 0.39  
Weighted average basic shares outstanding     26,757       26,548  
Diluted net income per common share   $ 0.19     $ 0.39  
Weighted average diluted shares outstanding     26,757       26,548  
Dividends declared per share   $ 0.090     $ 0.090  
                 
                 
                 
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands except per share data)  
   
    For the year ended  
    January 2, 2016     December 27, 2014  
                 
Net sales   $ 200,727     $ 227,673  
Cost of sales     123,634       133,781  
Gross profit     77,093       93,892  
Selling, engineering and administrative expenses     30,202       29,821  
Operating income     46,891       64,071  
Interest (income) expense, net     (1,422 )     (1,592 )
Foreign currency transaction (gain) loss, net     (1,104 )     (764 )
Miscellaneous (income) expense, net     187       685  
Income before income taxes     49,230       65,742  
Income tax provision     16,092       21,967  
Net income   $ 33,138     $ 43,775  
Basic net income per common share   $ 1.24     $ 1.65  
Weighted average basic shares outstanding     26,687       26,456  
Diluted net income per common share   $ 1.24     $ 1.65  
Weighted average diluted shares outstanding     26,687       26,456  
Dividends declared per share   $ 0.45     $ 1.45  
                 
                 
                 
SUN HYDRAULICS CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(in thousands)  
   
    January 2, 2016     December 27, 2014  
                 
Assets                
Current assets:                
  Cash and cash equivalents   $ 81,932     $ 56,843  
  Restricted cash     44       319  
  Accounts receivable, net of allowance for doubtful accounts of $184 and $172     13,531       17,501  
  Inventories     13,047       14,098  
  Income taxes receivable     123       -  
  Deferred income taxes     460       467  
  Short-term investments     44,174       43,353  
  Other current assets     3,707       2,966  
  Total current assets     157,018       135,547  
Property, plant and equipment, net     74,121       77,716  
Goodwill     4,988       5,141  
Other assets     5,413       4,360  
  Total assets   $ 241,540     $ 222,764  
Liabilities and shareholders' equity                
Current liabilities:                
  Accounts payable   $ 4,422     $ 4,873  
  Accrued expenses and other liabilities     4,849       7,908  
  Income taxes payable     -       559  
  Dividends payable     2,411       2,392  
  Total current liabilities     11,682       15,732  
Deferred income taxes     7,411       8,501  
Other noncurrent liabilities     260       272  
Total liabilities     19,353       24,505  
Commitments and contingencies     -       -  
Shareholders' equity:                
  Preferred stock, 2,000,000 shares authorized, par value $0.001, no shares outstanding     -       -  
  Common stock, 50,000,000 shares authorized, par value $0.001, 26,786,518 and 26,572,774 shares outstanding     27       27  
  Capital in excess of par value     82,265       73,499  
  Retained earnings     149,938       128,818  
  Accumulated other comprehensive income (loss)     (10,043 )     (4,085 )
  Total shareholders' equity     222,187       198,259  
  Total liabilities and shareholders' equity   $ 241,540     $ 222,764  
                   
                   
                   
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENT OF CASH FLOWS  
(in thousands)  
   
    Twelve months ended  
    January 2, 2016     December 27, 2014  
                 
Cash flows from operating activities:                
Net income   $ 33,138     $ 43,775  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     9,557       8,718  
(Gain) Loss on disposal of assets     (171 )     171  
Stock-based compensation expense     4,324       3,899  
Deferred director and phantom stock unit expense (income)     17       35  
Stock compensation income tax benefit     112       (137 )
Allowance for doubtful accounts     12       55  
Provision for slow moving inventory     (193 )     (37 )
Provision for deferred income taxes     (846 )     1,265  
(Increase) decrease in, net of acquisition:                
  Accounts receivable     3,958       (572 )
  Inventories     1,244       (208 )
  Income taxes receivable     (235 )     1,091  
  Other current assets     (741 )     (150 )
  Other assets     289       69  
Increase (decrease) in, net of acquisition:                
  Accounts payable     (451 )     243  
  Accrued expenses and other liabilities     476       4,118  
  Income taxes payable     (559 )     559  
  Other noncurrent liabilities     (29 )     (48 )
Net cash provided by operating activities     49,902       62,846  
Cash flows from investing activities:                
Investment in licensed technology     (1,425 )     (1,075 )
Capital expenditures     (6,106 )     (10,667 )
Proceeds from dispositions of equipment     1,645       37  
Purchases of short-term investments     (30,125 )     (51,236 )
Proceeds from sale of short-term investments     26,698       44,765  
Net cash used in investing activities     (9,313 )     (18,176 )
Cash flows from financing activities:                
Stock compensation income tax benefit     (112 )     137  
Proceeds from stock issued     1,019       846  
Dividends to shareholders     (11,999 )     (38,357 )
Change in restricted cash     275       15  
Net cash used in financing activities     (10,817 )     (37,359 )
Effect of exchange rate changes on cash and cash equivalents     (4,683 )     (5,380 )
Net increase (decrease) in cash and cash equivalents     25,089       1,931  
Cash and cash equivalents, beginning of period     56,843       54,912  
Cash and cash equivalents, end of period   $ 81,932     $ 56,843  
Supplemental disclosure of cash flow information:                
Cash paid:                
  Income taxes   $ 17,857     $ 19,693  
Supplemental disclosure of noncash transactions:                
Common stock issued for shared distribution through accrued expenses and other liabilities   $ 3,535     $ 3,226  
Unrealized gain (loss) on available for sale securities   $ (403 )   $ (671 )