SOURCE: Sun Hydraulics Corporation

Sun Hydraulics Corporation

August 03, 2015 17:00 ET

Sun Hydraulics Reports 2015 Second Quarter Results

SARASOTA, FL--(Marketwired - Aug 3, 2015) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the second quarter of 2015 as follows:

             
  June 27, 2015   June 28, 2014   Increase/(Decrease)  
Three Months Ended                
Net sales $ 54.0     $ 61.1     (12 )%
Net income $ 9.2     $ 12.2     (25 )%
Net income per share:                
  Basic $ 0.35     $ 0.46     (24 )%
  Diluted $ 0.35     $ 0.46     (24 )%
Six Months Ended                
Net sales $ 108.4     $ 117.9     (8 )%
Net income $ 19.6     $ 23.6     (17 )%
Net income per share:                
  Basic $ 0.74     $ 0.89     (17 )%
  Diluted $ 0.74     $ 0.89     (17 )%
                       

"Second quarter sales were consistent with our expectations," said Allen Carlson, Sun's President and CEO. "The global business climate continues to be difficult. Unfavorable fluctuations in demand and currency rates impacted Q2 performance in all geographic markets. Second quarter demand in the Americas was down 14%. European sales were down 13%, 6% of which related to currency. Asian sales decreased by 2%. Despite the slowing growth of the Chinese economy, demand in China increased by 9% as a result of our marketing focus over the last couple years. As expected, the strengthening U.S. Dollar continued to negatively impact sales in Q2 by an estimated $1.8M and reduced EPS by $0.05 over last year."

"While this continues to be a challenging economic environment, we are focused on things we can control," stated Carlson. "We are investing for the long term in both operational excellence and marketing efforts around the world. Operationally, we are harnessing advancements in manufacturing technology and automating processes for better efficiency. Globally, we have added marketing resources over the last three months which include field application engineers in Europe and Asia, as well as a business development function to work across the organization. QuickDesign, our tool which enables users to quickly configure a custom integrated package through our website, is gaining significant traction. There's been a sizable increase in the quantity of design requests with actual sales following suit. Through these and other resources, we continue to create competitive opportunities in the marketplace."

Continuing, Carlson remarked, "Product development efforts remain in the forefront. Our latest endeavor, initially announced as a technology collaboration back in November (11/10/2014 Press Release), has been developed by Sun into a commercially viable product line that integrates digital control into Sun's electrically-actuated cartridge valves. Sun will be the first to bring Digital Logic Valve (DLV) technology to the fluid power market. These valves are lighter and smaller than a comparative electrically-actuated valve and operate faster while consuming significantly less energy. Preliminary prototyping phases are complete and we are currently beta testing. We look forward to the next generation of applications that will benefit from this technology."

"Our efforts remain firmly focused on the future," concluded Carlson. "We will continue to exceed customer expectations, grow our global presence, and deliver strong financial results. As further opportunities present themselves, we'll be ready."

Outlook

Third quarter 2015 revenues are expected to be approximately $50 million, down 8% from the third quarter of 2014. Earnings per share are estimated to be $0.32 to $0.34 compared to $0.37 in the same period a year ago. Currency is responsible for $1.9M of the decline in revenues and $0.04 of the decline in earnings per share in the Q3 estimates. Q3 EPS estimates also include a one-time gain of approximately $0.04 related to the sale of a building used in our South Korean operation. The building was vacated and held for sale in Q4 2014 when the Korean operations were consolidated into a new facility.

Webcast

Sun Hydraulics Corporation will broadcast its 2015 second quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, August 4, 2015. 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 1-888-539-3612 and using 5379553 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 management 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 June 27, 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 December 27, 2014. 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  
  June 27, 2015     June 28, 2014  
  (unaudited)     (unaudited)  
Net sales $ 54,016     $ 61,050  
Cost of sales   32,612       35,294  
Gross profit   21,404       25,756  
Selling, engineering and administrative expenses   7,329       7,379  
Operating income   14,075       18,377  
Interest income, net   (344 )     (284 )
Foreign currency transaction gain, net   260       (37 )
Miscellaneous (income) expense, net   185       274  
Income before income taxes   13,974       18,424  
Income tax provision   4,726       6,238  
Net income $ 9,248     $ 12,186  
Basic net income per common share $ 0.35     $ 0.46  
Weighted average basic shares outstanding   26,684       26,444  
Diluted net income per common share $ 0.35     $ 0.46  
Weighted average diluted shares outstanding   26,684       26,444  
Dividends declared per share $ 0.090     $ 0.090  
               
               
               
  Six months ended  
  June 27, 2015     June 28, 2014  
  (unaudited)     (unaudited)  
Net sales $ 108,402     $ 117,859  
Cost of sales   65,603       68,036  
Gross profit   42,799       49,823  
Selling, engineering and administrative expenses   14,615       14,720  
Operating income   28,184       35,103  
Interest income, net   (661 )     (596 )
Foreign currency transaction gain, net   (699 )     (30 )
Miscellaneous (income) expense, net   212       358  
Income before income taxes   29,332       35,371  
Income tax provision   9,707       11,800  
Net income $ 19,625     $ 23,571  
Basic net income per common share $ 0.74     $ 0.89  
Weighted average basic shares outstanding   26,645       26,409  
Diluted net income per common share $ 0.74     $ 0.89  
Weighted average diluted shares outstanding   26,645       26,409  
Dividends declared per share $ 0.270     $ 0.270  
               
               
               
SUN HYDRAULICS CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(in thousands)  
   
  June 27, 2015     December 27, 2014  
  (unaudited)        
Assets              
Current assets:              
    Cash and cash equivalents $ 71,667     $ 56,843  
    Restricted cash   316       319  
    Accounts receivable, net of allowance for doubtful accounts of $143 and $172   19,522       17,501  
    Inventories   12,430       14,098  
    Deferred income taxes   464       467  
    Short-term investments   43,749       43,353  
    Other current assets   3,003       2,966  
    Total current assets   151,151       135,547  
Property, plant and equipment, net   76,478       77,716  
Goodwill   5,040       5,141  
Other assets   4,675       4,360  
    Total assets $ 237,344     $ 222,764  
Liabilities and shareholders' equity              
Current liabilities:              
    Accounts payable $ 5,638     $ 4,873  
    Accrued expenses and other liabilities   5,423       7,908  
    Income taxes payable   886       559  
    Dividends payable   2,402       2,392  
    Total current liabilities   14,349       15,732  
Deferred income taxes   8,509       8,501  
Other noncurrent liabilities   269       272  
    Total liabilities   23,127       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, 26,688,080 and 26,572,774 shares outstanding   27       27  
    Capital in excess of par value   79,543       73,499  
    Retained earnings   141,239       128,818  
    Accumulated other comprehensive income (loss)   (6,592 )     (4,085 )
    Total shareholders' equity   214,217       198,259  
    Total liabilities and shareholders' equity $ 237,344     $ 222,764  
                 
                 
                 
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENT OF CASH FLOWS  
(in thousands)  
   
  Six months ended  
  June 27, 2015     June 28, 2014  
  (unaudited)     (unaudited)  
Cash flows from operating activities:              
Net income $ 19,625     $ 23,571  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization   4,572       4,212  
(Gain)Loss on disposal of assets   94       134  
Provision for deferred income taxes   98       50  
Allowance for doubtful accounts   (29 )     --  
Stock-based compensation expense   1,959       1,853  
(Increase) decrease in, net of assets acquired:              
    Accounts receivable   (1,992 )     (5,682 )
    Inventories   1,668       (856 )
    Income taxes receivable   --       954  
    Other current assets   (37 )     (1,601 )
    Other assets   373       (99 )
Increase (decrease) in, net of liabilities assumed:              
    Accounts payable   765       1,346  
    Accrued expenses and other liabilities   1,050       2,752  
    Income taxes payable   327       21  
    Other noncurrent liabilities   (3 )     17  
Net cash provided by operating activities   28,470       26,672  
Cash flows from investing activities:              
Investment in licensed technology   (575 )     --  
Capital expenditures   (3,079 )     (5,057 )
Purchases of short-term investments   (12,025 )     (18,990 )
Proceeds from sale of short-term investments   10,611       19,149  
Net cash used in investing activities   (5,068 )     (4,898 )
Cash flows from financing activities:              
Proceeds from stock issued   550       409  
Dividends to shareholders   (7,194 )     (7,129 )
Change in restricted cash   3       (20 )
Net cash used in financing activities   (6,641 )     (6,740 )
Effect of exchange rate changes on cash and cash equivalents   (1,937 )     2,193  
Net increase (decrease) in cash and cash equivalents   14,824       17,227  
Cash and cash equivalents, beginning of period   56,843       54,912  
Cash and cash equivalents, end of period $ 71,667     $ 72,139  
Supplemental disclosure of cash flow information:              
Cash paid:              
    Income taxes $ 9,369     $ 10,775  
Supplemental disclosure of noncash transactions:              
Common stock issued for shared distribution through accrued expenses and other liabilities $ 3,535     $ 3,226