EXHIBIT 99.1
Sun Hydraulics 2008 2nd Quarter Earnings Release
SARASOTA, FLA, August 5, 2008 - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the second quarter 2008 as follows:
| (Dollars in millions except net income per share) | June 28, 2008 |
June 30, 2007 |
Increase | ||||||
| Three Months Ended |
|||||||||
| Net Sales |
$ | 51.6 | $ | 43.4 | 19 | % | |||
| Net Income |
$ | 8.9 | $ | 6.0 | 48 | % | |||
| Net Income per share: |
|||||||||
| Basic |
$ | 0.54 | $ | 0.36 | 50 | % | |||
| Diluted |
$ | 0.54 | $ | 0.36 | 50 | % | |||
| Six Months Ended |
|||||||||
| Net Sales |
$ | 100.6 | $ | 84.3 | 19 | % | |||
| Net Income |
$ | 16.6 | $ | 11.8 | 41 | % | |||
| Net Income per share: |
|||||||||
| Basic |
$ | 1.00 | $ | 0.72 | 39 | % | |||
| Fully Diluted |
$ | 1.00 | $ | 0.71 | 41 | % | |||
“European and Asian sales were both up over 20% in the second quarter and contributed more than 60% to Sun’s total growth for the period,” reported Allen Carlson, Sun CEO and president. “The North American rebound we commented on early in the year continued to gain strength last quarter and domestic sales were up 13.5% compared to last year.”
“Profitability continued to benefit from the gross margin leverage resulting from the incremental sales volume,” added Carlson. “We are, however, beginning to experience rising material input costs, as well as increasing utility and freight costs. Effective October 1, 2008, Sun will implement an across the board price increase that is expected to have a net effect of approximately 3%.”
“Sales for the first half of 2008 were up 19%. Demand for Sun products has outpaced the industry for several years and remains strong. We have established the fundamentals that will allow us to continue to grow, gain market share, and outpace the industry,” affirmed Carlson.
Outlook
“Sun’s products are used in diversified equipment markets around the globe,” stated Carlson. “Many of these markets, such as mining and energy, remain strong and demand is high. In other more obvious markets, such as equipment used in residential and commercial construction, we have begun to see some softening.”
“The diversity of our end markets, both geographically and the segments we participate in, is pivotal to maintaining our growth,” concluded Carlson.
2008 third quarter sales are estimated to be approximately $45 million, a 9% increase over last year. Third quarter earnings per share are estimated to be between $0.35 and $0.37 per share, compared to $0.32 per share last year. EPS estimates for the third quarter include a charge of $775K for U.S. income taxes due on the repatriation of $6 million from Sun Germany in July 2008.
Webcast
Sun Hydraulics Corporation will broadcast its 2008 second quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, August 6, 2008. To listen to the webcast, go to http://investor.sunhydraulics.com/medialist.cfm.
Webcast Q&A
If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-877-407-8033. 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.
- 2 -
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 29, 2007, and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s Form 10-Q for the quarter ended June 28, 2008. 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.
- 3 -
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
| Three months ended | ||||||||
| June 28, 2008 | June 30, 2007 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net sales |
$ | 51,563 | $ | 43,422 | ||||
| Cost of sales |
32,488 | 29,125 | ||||||
| Gross profit |
19,075 | 14,297 | ||||||
| Selling, engineering and administrative expenses |
5,792 | 5,438 | ||||||
| Operating income |
13,283 | 8,859 | ||||||
| Interest income, net |
(155 | ) | (89 | ) | ||||
| Foreign currency transaction loss, net |
65 | 27 | ||||||
| Miscellaneous (income)/expense, net |
32 | (124 | ) | |||||
| Income before income taxes |
13,341 | 9,045 | ||||||
| Income tax provision |
4,433 | 3,093 | ||||||
| Net income |
$ | 8,908 | $ | 5,952 | ||||
| Basic net income per common share |
$ | 0.54 | $ | 0.36 | ||||
| Weighted average basic shares outstanding |
16,592 | 16,425 | ||||||
| Diluted net income per common share |
$ | 0.54 | $ | 0.36 | ||||
| Weighted average diluted shares outstanding |
16,623 | 16,494 | ||||||
| Dividends declared per share |
$ | 0.180 | $ | 0.090 | ||||
- 4 -
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
| Six months ended | ||||||||
| June 28, 2008 | June 30, 2007 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net sales |
$ | 100,571 | $ | 84,275 | ||||
| Cost of sales |
64,402 | 56,096 | ||||||
| Gross profit |
36,169 | 28,179 | ||||||
| Selling, engineering and administrative expenses |
11,746 | 10,653 | ||||||
| Operating income |
24,423 | 17,526 | ||||||
| Interest income, net |
(268 | ) | (162 | ) | ||||
| Foreign currency transaction loss, net |
101 | 1 | ||||||
| Miscellaneous income, net |
(218 | ) | (206 | ) | ||||
| Income before income taxes |
24,808 | 17,893 | ||||||
| Income tax provision |
8,208 | 6,135 | ||||||
| Net income |
$ | 16,600 | $ | 11,758 | ||||
| Basic net income per common share |
$ | 1.00 | $ | 0.72 | ||||
| Weighted average basic shares outstanding |
16,577 | 16,401 | ||||||
| Diluted net income per common share |
$ | 1.00 | $ | 0.71 | ||||
| Weighted average diluted shares outstanding |
16,610 | 16,478 | ||||||
| Dividends declared per share |
$ | 0.270 | $ | 0.157 | ||||
- 5 -
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
| June 28, 2008 (unaudited) |
December 29, 2007 | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 27,962 | $ | 19,191 | ||
| Restricted cash |
153 | 146 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $176 and $215 |
22,302 | 17,029 | ||||
| Inventories |
12,203 | 11,421 | ||||
| Deferred income taxes |
301 | 301 | ||||
| Other current assets |
1,125 | 1,210 | ||||
| Total current assets |
64,046 | 49,298 | ||||
| Property, plant and equipment, net |
60,346 | 56,999 | ||||
| Other assets |
4,467 | 4,483 | ||||
| Total assets |
$ | 128,859 | $ | 110,780 | ||
| Liabilities and Shareholders’ Equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 7,069 | $ | 5,668 | ||
| Accrued expenses and other liabilities |
4,796 | 4,857 | ||||
| Long-term debt due within one year |
330 | 417 | ||||
| Dividends payable |
1,495 | 1,484 | ||||
| Income taxes payable |
2,338 | 674 | ||||
| Total current liabilities |
16,028 | 13,100 | ||||
| Long-term debt due after one year |
196 | 284 | ||||
| Deferred income taxes |
5,106 | 5,108 | ||||
| Other noncurrent liabilities |
563 | 406 | ||||
| Total liabilities |
21,893 | 18,898 | ||||
| Shareholders’ equity: |
||||||
| Common stock |
17 | 16 | ||||
| Capital in excess of par value |
37,340 | 34,390 | ||||
| Retained earnings |
63,959 | 51,844 | ||||
| Accumulated other comprehensive income |
5,650 | 5,632 | ||||
| Total shareholders’ equity |
106,966 | 91,882 | ||||
| Total liabilities and shareholders’ equity |
$ | 128,859 | $ | 110,780 | ||
- 6 -
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
| Six months ended | ||||||||
| June 28, 2008 | June 30, 2007 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 16,600 | $ | 11,758 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
3,521 | 3,047 | ||||||
| (Gain)/Loss on disposal of assets |
115 | (61 | ) | |||||
| Provision for deferred income taxes |
(2 | ) | 84 | |||||
| Allowance for doubtful accounts |
(39 | ) | (38 | ) | ||||
| Stock-based compensation expense |
434 | 331 | ||||||
| Stock options income tax benefit |
(15 | ) | (286 | ) | ||||
| (Increase) decrease in: |
||||||||
| Accounts receivable |
(5,234 | ) | (3,831 | ) | ||||
| Inventories |
(782 | ) | (754 | ) | ||||
| Other current assets |
85 | (1,473 | ) | |||||
| Other assets |
3 | (205 | ) | |||||
| Increase in: |
||||||||
| Accounts payable |
1,401 | 959 | ||||||
| Accrued expenses and other liabilities |
2,194 | 1,311 | ||||||
| Income taxes payable |
1,679 | 1,207 | ||||||
| Other noncurrent liabilities |
157 | 401 | ||||||
| Net cash provided by operating activities |
20,117 | 12,450 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(6,862 | ) | (6,885 | ) | ||||
| Proceeds from dispositions of equipment |
99 | 76 | ||||||
| Net cash used in investing activities |
(6,763 | ) | (6,809 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repayment of debt |
(225 | ) | (210 | ) | ||||
| Proceeds from exercise of stock options |
84 | 256 | ||||||
| Proceeds from stock issued |
162 | 123 | ||||||
| Dividends to shareholders |
(4,474 | ) | (2,181 | ) | ||||
| Stock options income tax benefit |
15 | 286 | ||||||
| Net cash used in financing activities |
(4,438 | ) | (1,726 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
(138 | ) | 310 | |||||
| Net increase in cash and cash equivalents |
8,778 | 4,225 | ||||||
| Cash and cash equivalents, beginning of period |
19,337 | 9,497 | ||||||
| Cash and cash equivalents, end of period |
$ | 28,115 | $ | 13,722 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid: |
||||||||
| Interest |
$ | 19 | $ | 24 | ||||
| Income taxes |
$ | 6,546 | $ | 5,349 | ||||
| Supplemental disclosure of noncash transactions: |
||||||||
| Common stock issued to ESOP through accrued expenses and other liabilities |
$ | 2,255 | $ | 1,386 | ||||
- 7 -
| United States |
Korea | Germany | United Kingdom |
Elimination | Consolidated | ||||||||||||||
| Three Months Ended June 28, 2008 |
|||||||||||||||||||
| Sales to unaffiliated customers |
$ | 31,705 | $ | 5,465 | $ | 7,859 | $ | 6,534 | $ | — | $ | 51,563 | |||||||
| Intercompany sales |
8,677 | — | 65 | 615 | (9,357 | ) | — | ||||||||||||
| Operating income |
9,391 | 425 | 2,314 | 1,078 | 75 | 13,283 | |||||||||||||
| Depreciation |
1,265 | 42 | 151 | 336 | — | 1,794 | |||||||||||||
| Capital expenditures |
4,180 | 1 | 117 | 164 | — | 4,462 | |||||||||||||
| Three Months Ended June 30, 2007 |
|||||||||||||||||||
| Sales to unaffiliated customers |
$ | 25,836 | $ | 5,695 | $ | 6,107 | $ | 5,784 | $ | — | $ | 43,422 | |||||||
| Intercompany sales |
7,995 | — | 20 | 650 | (8,665 | ) | — | ||||||||||||
| Operating income |
6,153 | 636 | 1,377 | 686 | 7 | 8,859 | |||||||||||||
| Depreciation |
1,098 | 43 | 136 | 264 | — | 1,541 | |||||||||||||
| Capital expenditures |
2,976 | 152 | 21 | 533 | — | 3,682 | |||||||||||||
| Six Months Ended June 28, 2008 |
|||||||||||||||||||
| Sales to unaffiliated customers |
$ | 60,024 | $ | 11,819 | $ | 15,821 | $ | 12,907 | $ | — | $ | 100,571 | |||||||
| Intercompany sales |
17,804 | — | 143 | 1,204 | (19,151 | ) | — | ||||||||||||
| Operating income |
16,575 | 1,074 | 4,728 | 2,108 | (62 | ) | 24,423 | ||||||||||||
| Depreciation |
2,457 | 88 | 296 | 666 | — | 3,507 | |||||||||||||
| Capital expenditures |
6,412 | 17 | 149 | 284 | — | 6,862 | |||||||||||||
| Six Months Ended June 30, 2007 |
|||||||||||||||||||
| Sales to unaffiliated customers |
$ | 49,604 | $ | 10,652 | $ | 12,698 | $ | 11,321 | $ | — | $ | 84,275 | |||||||
| Intercompany sales |
16,163 | — | 50 | 1,534 | (17,747 | ) | — | ||||||||||||
| Operating income |
11,896 | 1,146 | 3,021 | 1,521 | (58 | ) | 17,526 | ||||||||||||
| Depreciation |
2,160 | 82 | 272 | 520 | — | 3,034 | |||||||||||||
| Capital expenditures |
5,718 | 209 | 47 | 911 | — | 6,885 | |||||||||||||
| Contact: | ||||
| Richard K. Arter | Investor Relations | 941-362-1200 | ||
| Tricia L. Fulton | Chief Financial Officer | 941-362-1200 | ||
- 8 -