Sun Hydraulics Third Quarter Sales and Earnings Consistent With Forecast at $49 Million and $0.34 per Share

Marketwired

SARASOTA, FL--(Marketwire - Nov 5, 2012) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the third quarter of 2012 as follows:

 
(Dollars in millions except net income per share)     
 
    September 29, 2012   October 1, 2011   Increase/
Decrease
 
               
Three Months Ended              
Net Sales   $ 48.8   $ 53.0   -8 %
Net Income   $ 8.8   $ 11.4   -23 %
Net Income per share:                  
  Basic   $ 0.34   $ 0.44   -23 %
  Diluted   $ 0.34   $ 0.44   -23 %
                   
Nine Months Ended                  
Net Sales   $ 161.1   $ 158.5   2 %
Net Income   $ 30.7   $ 31.6   -3 %
Net Income per share:                  
  Basic   $ 1.19   $ 1.23   -3 %
  Fully Diluted   $ 1.18   $ 1.23   -4 %
                     

"Third quarter sales were as expected," said Allen Carlson, Sun's CEO and president. "The sales decline was driven primarily by Asia/Pacific and Europe. While business was down in these regions, we continued to gain new customers to make up for slowing business with existing customers. North America was able to eke out a modest increase in the period. Earnings were within our forecast range, despite being negatively impacted by approximately $0.01 due to taxes."

Continuing, Carlson commented, "Our product development efforts are ongoing and new products continue to represent between 10 and 15% of sales. We have also been working to revamp and enhance our website and expect to launch the new version in early 2013. The new website will be faster, with added configuration mechanisms to make it easier for customers to define and procure solutions."

Carlson concluded by saying, "Our fourth quarter forecast reflects continued sluggishness in the macro economy. The PMI is bouncing around the 50 mark, plus or minus, and has yet to provide any clear trend indications either positive or negative. Despite global headwinds, 2012 will be a successful year for Sun. Our efforts remain focused on product and market development and providing differentiated solutions and services to our customers." 

Outlook

Fourth quarter 2012 revenues are expected to be approximately $41 million, down approximately 10% from the fourth quarter of 2011. Earnings per share are estimated to be $0.22 to $0.24 compared to $0.24 in the same period a year ago.

Management estimates year-end 2012 sales to be approximately $202 million, down approximately 1% from 2011 sales. Earnings per share for 2011 are estimated to be $1.40 to $1.42, compared to $1.46 in 2011.

For comparison purposes, 2011 results included a one-time $0.03 per share gain resulting from the acquisition of HCT.

Webcast

Sun Hydraulics Corporation will broadcast its 2012 third quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, November 6, 2012. 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 1-888-455-2296 and using 4600776 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 September 29, 2012, 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 31, 2011. 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  
    September 29, 2012     October 1, 2011  
    (unaudited)     (unaudited)  
                 
Net sales   $ 48,825     $ 53,041  
                 
Cost of sales     29,428       32,293  
                 
Gross profit     19,397       20,748  
                 
Selling, engineering and administrative expenses     6,202       5,249  
                 
Operating income     13,195       15,499  
                 
Interest income, net     (406 )     (241 )
Foreign currency transaction loss, net     2       50  
Miscellaneous (income) expense, net     6       (1,292 )
                 
Income before income taxes     13,593       16,982  
                 
Income tax provision     4,758       5,588  
                 
Net income   $ 8,835     $ 11,394  
                 
Basic net income per common share   $ 0.34     $ 0.44  
                 
Weighted average basic shares outstanding     25,989       25,652  
                 
Diluted net income per common share   $ 0.34     $ 0.44  
                 
Weighted average diluted shares outstanding     25,999       25,701  
                 
Dividends declared per share   $ 0.090     $ 0.090  
                 
   
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands except per share data)  
    Nine months ended  
    September 29, 2012     October 1, 2011  
    (unaudited)     (unaudited)  
                 
Net sales   $ 161,131     $ 158,514  
                 
Cost of sales     96,546       96,147  
                 
Gross profit     64,585       62,367  
                 
Selling, engineering and administrative expenses     19,662       17,570  
                 
Operating income     44,923       44,797  
                 
Interest income, net     (1,041 )     (590 )
Foreign currency transaction gain, net     (75 )     (36 )
Miscellaneous income, net     (158 )     (1,550 )
                 
Income before income taxes     46,197       46,973  
                 
Income tax provision     15,493       15,369  
                 
Net income   $ 30,704     $ 31,604  
                 
Basic net income per common share   $ 1.19     $ 1.23  
                 
Weighted average basic shares outstanding     25,904       25,613  
                 
Diluted net income per common share   $ 1.18     $ 1.23  
                 
Weighted average diluted shares outstanding     25,937       25,653  
                 
Dividends declared per share   $ 0.390     $ 0.313  
                 
   
SUN HYDRAULICS CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(in thousands)  
    September 29, 2012     December 31, 2011  
    (unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 50,742     $ 45,080  
  Restricted cash     49       46  
  Accounts receivable, net of allowance for doubtful accounts of $127 and $83     18,492       16,227  
  Inventories     12,976       12,829  
  Income taxes receivable     -       120  
  Deferred income taxes     260       260  
  Marketable securities     46,985       28,014  
  Other current assets     1,268       1,354  
    Total current assets     130,772       103,930  
                 
Property, plant and equipment, net     58,900       56,959  
Other assets     6,566       6,639  
                 
Total assets   $ 196,238     $ 167,528  
                 
Liabilities and Shareholders' Equity                
Current liabilities:                
  Accounts payable   $ 4,467     $ 4,402  
  Accrued expenses and other liabilities     6,781       7,466  
  Income taxes payable     1,047       -  
  Dividends payable     2,339       2,318  
    Total current liabilities     14,634       14,186  
                 
Deferred income taxes     6,921       6,917  
Other noncurrent liabilities     -       1,149  
                 
    Total liabilities     21,555       22,252  
                 
Shareholders' equity:                
  Common stock     26       26  
  Capital in excess of par value     56,426       48,944  
  Retained earnings     119,002       98,426  
  Accumulated other comprehensive loss     (771 )     (2,120 )
    Total shareholders' equity     174,683       145,276  
                 
Total liabilities and shareholders' equity   $ 196,238     $ 167,528  
                 
   
SUN HYDRAULICS CORPORATION  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
    Nine months ended  
    September 29, 2012     October 1, 2011  
    (unaudited)     (unaudited)  
Cash flows from operating activities:                
Net income   $ 30,704     $ 31,604  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     5,353       5,025  
Gain on investment in HCT     -       (1,244 )
(Gain) loss on disposal of assets     84       (27 )
Provision for deferred income taxes     4       -  
Allowance for doubtful accounts     44       16  
Stock-based compensation expense     1,639       1,218  
(Increase) decrease in:                
  Accounts receivable     (2,309 )     (2,927 )
  Inventories     (147 )     (823 )
  Income taxes receivable     120       866  
  Other current assets     86       (488 )
  Other assets     (92 )     (88 )
Increase (decrease) in:                
  Accounts payable     65       1,534  
  Accrued expenses and other liabilities     3,722       3,535  
  Income taxes payable     1,047       -  
  Other noncurrent liabilities     (219 )     (202 )
Net cash provided by operating activities     40,101       37,999  
                 
Cash flows from investing activities:                
Proceeds from sale of joint venture     -       1,451  
Acquisition of business, net of cash acquired     -       (1,776 )
Capital expenditures     (6,703 )     (6,778 )
Proceeds from dispositions     56       30  
Purchases of marketable securities     (25,774 )     (13,516 )
Proceeds from sale of marketable securities     6,821       6,497  
Net cash used in investing activities     (25,600 )     (14,092 )
                 
Cash flows from financing activities:                
Proceeds from exercise of stock options     -       61  
Proceeds from stock issued     506       408  
Dividends to shareholders     (10,107 )     (7,284 )
Net cash used in financing activities     (9,601 )     (6,815 )
                 
Effect of exchange rate changes on cash and cash equivalents     762       (707 )
                 
Net (decrease) increase in cash and cash equivalents     5,662       16,385  
                 
Cash and cash equivalents, beginning of period     45,080       33,206  
                 
Cash and cash equivalents, end of period   $ 50,742     $ 49,591  
                 
Supplemental disclosure of cash flow information:                
Cash paid:                
  Income taxes   $ 14,323     $ 14,503  
Supplemental disclosure of noncash transactions:                
  Common stock issued for shared distribution through accrued expenses and other liabilities   $ 4,407     $ 2,412  
  Common stock issued for deferred director's compensation through other noncurrent liabilities   $ 930     $ -  
                   
                           
    United           United          
    States   Korea   Germany   Kingdom   Elimination     Consolidated
Three Months                                      
Ended September 29, 2012                                      
Sales to unaffiliated customers   $ 34,302   $ 3,495   $ 6,267   $ 4,761   $ -     $ 48,825
Intercompany sales     7,331     -     31     443     (7,805 )     -
Operating income     11,069     185     1,296     912     (267 )     13,195
Depreciation     1,302     36     82     185     -       1,605
Capital expenditures     1,735     4     6     206     -       1,951
                                       
Three Months                                      
Ended October 1, 2011                                      
Sales to unaffiliated customers   $ 34,897   $ 5,081   $ 7,824   $ 5,239   $ -     $ 53,041
Intercompany sales     8,763     -     60     405     (9,228 )     -
Operating income     12,119     575     2,028     892     (115 )     15,499
Depreciation     1,294     28     85     235     -       1,642
Capital expenditures     4,121     89     7     68     -       4,285
                                       
Nine Months                                      
Ended September 29, 2012                                      
Sales to unaffiliated customers   $ 109,381   $ 14,401   $ 20,741   $ 16,608   $ -     $ 161,131
Intercompany sales     24,872     -     75     1,289     (26,236 )     -
Operating income     35,966     1,400     4,488     3,131     (62 )     44,923
Depreciation     3,933     93     242     622     -       4,890
Capital expenditures     5,949     24     38     692     -       6,703
                                       
Nine Months                                      
Ended October 1, 2011                                      
Sales to unaffiliated customers   $ 100,515   $ 16,778   $ 22,320   $ 18,901   $ -     $ 158,514
Intercompany sales     26,722     -     176     1,188     (28,086 )     -
Operating income     33,481     2,175     5,690     3,379     72       44,797
Depreciation     3,879     83     272     721     -       4,955
Capital expenditures     6,631     234     57     173     -       7,095
                                       
Contact:

Richard K. Arter
Investor Relations
941-362-1200

Tricia Fulton
Chief Financial Officer
941-362-1200

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