EXHIBIT 99.1

Sun Hydraulics First Quarter Sales Increase 20%, EPS up 39%

SARASOTA, FLA, May 8, 2007 – Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the first quarter of 2007 as follows:

 

(Dollars in millions except net income per share)  

Three Months Ended

   March 31,
2007
   April 1,
2006
   Increase  

Net Sales

   $ 40.9    $ 34.2    20 %

Net Income

   $ 5.8    $ 4.2    38 %

Net Income per share:

        

Basic

   $ 0.53    $ 0.38    39 %

Diluted

   $ 0.53    $ 0.38    39 %

“The brisk conditions we experienced across all geographic areas in the first quarter have continued through April,” reported Allen Carlson, Sun’s President and CEO. “While all business segments grew significantly, European and Asian sales were especially strong. We are confident that our international efforts are succeeding. Last month, we introduced several new electro-hydraulic products at the Hannover Fair in Germany, which were well received,” affirmed Carlson.

“We were extremely pleased with our earnings on this level of sales especially after experiencing margin erosion over several quarters last year. Our gross profit improved this quarter and led to incremental bottom-line increases,” stated Carlson.

“As we have stated throughout this capital goods cycle, we believe that Sun continues to gain market share as we outgrow the industry. Our growth, we believe, continues to be fueled by attending to basics: having the right products for the marketplace, providing detailed product information on demand, and delivering products when and where the customer wants,” Carlson concluded.


Outlook

2007 second quarter sales are estimated to be approximately $41 million and earnings per share are estimated to be in the range of $0.52 to $0.54. This would represent an increase of approximately 11% in sales and 36% in earnings per share over last year.

Webcast

Sun Hydraulics Corporation will broadcast its first quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, May 9, 2007. To listen to the webcast, go to http://investor.sunhydraulics.com/medialist.cfm. A copy of this earnings release is posted on the Investor Relations page of our website under “Press Releases.”

Webcast Q&A

Questions may be submitted to the Company via email after reviewing the earnings release by going to the Sun Hydraulics website, www.sunhydraulics.com, and clicking on Investor Relations. Scroll down to the bottom of the page and click on contact email: investor@sunhydraulics.com. Sun management will answer these and other questions during the Company’s webcast. If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-877-407-8033.

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

 

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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 headings Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s Form 10-K for the year ended December 30, 2006. 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.

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

 

     Three months ended  
     March 31, 2007     April 1, 2006  
     (unaudited)     (unaudited)  

Net sales

   $ 40,854     $ 34,185  

Cost of sales

     26,971       23,204  
                

Gross profit

     13,883       10,981  

Selling, engineering and administrative expenses

     5,216       4,671  
                

Operating income

     8,667       6,310  

Interest expense

     1       70  

Foreign currency transaction gain

     (26 )     (41 )

Miscellaneous (income)/expense, net

     (157 )     28  
                

Income before income taxes

     8,849       6,253  

Income tax provision

     3,043       2,073  
                

Net income

   $ 5,806     $ 4,180  
                

Basic net income per common share

   $ 0.53     $ 0.38  

Weighted average basic shares outstanding

     10,918       10,932  

Diluted net income per common share

   $ 0.53     $ 0.38  

Weighted average diluted shares outstanding

     10,974       11,001  

Dividends declared per share

   $ 0.100     $ 0.100  

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     March 31, 2007    December 30,2006
     (unaudited)     

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 12,562    $ 9,379

Restricted cash

     59      118

Accounts receivable, net of allowance for doubtful accounts of $110 and $140

     17,182      13,917

Inventories

     11,768      10,386

Deferred income taxes

     219      219

Other current assets

     1,350      986
             

Total current assets

     43,140      35,005

Property, plant and equipment, net

     51,995      50,355

Other assets

     1,880      1,825
             

Total assets

   $ 97,015    $ 87,185
             

Liabilities and Shareholders’ Equity

     

Current liabilities:

     

Accounts payable

   $ 6,245    $ 4,812

Accrued expenses and other liabilities

     3,286      4,059

Long-term debt due within one year

     430      426

Dividends payable

     1,093      1,085

Income taxes payable

     3,324      608
             

Total current liabilities

     14,378      10,990

Long-term debt due after one year

     489      646

Deferred income taxes

     4,527      4,451

Other noncurrent liabilities

     335      298
             

Total liabilities

     19,729      16,385

Shareholders’ equity:

     

Common stock

     11      11

Capital in excess of par value

     32,642      30,962

Retained earnings

     39,995      35,284

Accumulated other comprehensive income

     4,638      4,543
             

Total shareholders’ equity

     77,286      70,800
             

Total liabilities and shareholders’ equity

   $ 97,015    $ 87,185
             

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

     Three months ended  
     March 31,
2007
    April 1,
2006
 
     (unaudited)     (unaudited)  

Cash flows from operating activities:

    

Net income

   $ 5,806     $ 4,180  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,500       1,437  

(Gain)/Loss on disposal of assets

     (20 )     26  

Provision for deferred income taxes

     76       (1 )

Allowance for doubtful accounts

     (30 )     (12 )

Stock-based compensation expense

     150       152  

Stock options income tax benefit

     (31 )     (31 )

(Increase) decrease in:

    

Accounts receivable

     (3,235 )     (2,642 )

Inventories

     (1,382 )     (722 )

Income taxes receivable

     —         236  

Other current assets

     (364 )     (201 )

Other assets

     (62 )     (16 )

Increase (decrease) in:

    

Accounts payable

     1,433       (1,185 )

Accrued expenses and other liabilities

     613       760  

Income taxes payable

     2,747       1,393  

Other noncurrent liabilities

     37       (4 )
                

Net cash provided by operating activities

     7,238       3,370  

Cash flows from investing activities:

    

Capital expenditures

     (3,203 )     (1,965 )

Proceeds from dispositions of equipment

     31       2  
                

Net cash used in investing activities

     (3,172 )     (1,963 )

Cash flows from financing activities:

    

Proceeds from debt

     —         1,500  

Repayment of debt

     (153 )     (145 )

Proceeds from exercise of stock options

     54       49  

Proceeds from stock issued

     59       50  

Payments for purchase of treasury stock

     —         (244 )

Dividends to shareholders

     (1,087 )     (1,089 )

Stock options income tax benefit

     31       31  
                

Net cash (used in) provided by financing activities

     (1,096 )     152  

Effect of exchange rate changes on cash and cash equivalents

     154       4  
                

Net increase in cash and cash equivalents

     3,124       1,563  

Cash and cash equivalents, beginning of period

     9,497       5,830  
                

Cash and cash equivalents, end of period

   $ 12,621     $ 7,393  
                

Supplemental disclosure of cash flow information:

    

Cash paid:

    

Interest

   $ 1     $ 70  

Income taxes

   $ 470     $ 476  

Supplemental disclosure of noncash transactions:

    

Common stock issued to ESOP through accrued expenses and other liabilities

   $ 1,386     $ 1,180  

 

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United

States

  

Korea

  

Germany

  

United

Kingdom

  

Elimination

   

Consolidated

                

Three Months

Ended March 31, 2007

                              

Sales to unaffiliated customers

   $ 23,769    $ 4,957    $ 6,591    $ 5,537    $ —       $ 40,854

Intercompany sales

     8,169      —        30      883      (9,082 )     —  

Operating income

     5,743      510      1,644      835      (65 )     8,667

Depreciation

     1,061      40      136      256      —         1,493

Capital expenditures

     2,742      57      26      378      —         3,203

Three Months

Ended April 1, 2006

                              

Sales to unaffiliated customers

   $ 20,861    $ 4,090    $ 4,577    $ 4,657    $ —       $ 34,185

Intercompany sales

     6,677      —        36      786      (7,499 )     —  

Operating income

     4,058      607      940      739      (34 )     6,310

Depreciation

     1,031      37      119      243      —         1,430

Capital expenditures

     1,873      3      13      76      —         1,965

 

Contact:             
Richard K. Arter      Investor Relations      941-362-1200   
Tricia L. Fulton      Chief Financial Officer      941-362-1200   

 

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