Growth Continues for Sun Hydraulics; Expects Strong Fourth Quarter

SARASOTA, FL -- (Marketwired) -- 11/03/14 -- Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the third quarter of 2014 as follows:


                                     September 27,  September 28,
                                         2014           2013       Increase
         Three Months Ended
Net sales                           $         55.0 $         49.4        11%
Net income                          $          9.9 $          8.3        19%
Net income per share:
  Basic                             $         0.37 $         0.32        16%
  Diluted                           $         0.37 $         0.32        16%
         Nine Months Ended
Net sales                           $        172.9 $        156.2        11%
Net income                          $         33.4 $         29.6        13%
Net income per share:
  Basic                             $         1.27 $         1.13        12%
  Diluted                           $         1.27 $         1.13        12%


"Sun's third quarter results were strong compared to last year," said Allen Carlson, Sun's President and CEO. "Demand for our products was up in all major geographic end markets, with Europe up 15%, and North America and Asia/Pacific each up 10%. Earnings came in as expected and included ongoing investments in product development and marketing efforts."

"Investing in our business for sustainable, profitable growth is key to our operations," continued Carlson. "In 2014, these investments include physical capacity, product development, and marketing efforts in Asia. These investments benefit Sun and our stakeholders long-term, and help drive value for shareholders. In addition to investing in our business, our financial performance and ability to generate cash allowed us to return cash to shareholders through a $1.00 per share special dividend, paid last month. We did this while maintaining a balance sheet that affords us the ability to continue to invest in our business and take advantage of market opportunities for growth."

Concluding, Carlson commented, "The fourth quarter forecast indicates 2014 will be a great year for Sun. We expect double-digit growth, with solid earnings performance. We are pleased that our performance was recently recognized by Forbes, which once again named us to its list of the 50 Best Small Companies. Sun's focus remains on providing differentiated products and services to our customers, and delivering further value to stakeholders."

Outlook

Fourth quarter 2014 revenues are expected to be approximately $55 million, up 12% from the fourth quarter of 2013. Earnings per share are estimated to be $0.37 to $0.39 compared to $0.32 in the same period a year ago.

For the year, revenues are expected to be approximately $228 million, up 11% from the prior year. Earnings per share are estimated to be $1.64 to $1.66 compared to earnings per share of $1.45 in the prior year.

Webcast

Sun Hydraulics Corporation will broadcast its 2014 third quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, November 4, 2014. 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 1-888-455-2260 and using 6181783 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 27, 2014, 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 28, 2013. 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 27,   September 28,
                                                  2014            2013
                                               (unaudited)     (unaudited)
Net sales                                    $       55,011  $       49,369
Cost of sales                                        32,720          29,755
                                             --------------  --------------
Gross profit                                         22,291          19,614
Selling, engineering and administrative
 expenses                                             7,656           6,540
                                             --------------  --------------
Operating income                                     14,635          13,074
Interest (income) expense, net                         (331)           (272)
Foreign currency transaction (gain) loss,
 net                                                   (226)             82
Miscellaneous (income) expense, net                     191             470
                                             --------------  --------------
Income before income taxes                           15,001          12,794
Income tax provision                                  5,124           4,519
                                             --------------  --------------
Net income                                   $        9,877  $        8,275
                                             ==============  ==============
Basic net income per common share            $         0.37  $         0.32
Weighted average basic shares outstanding            26,455          26,247
Diluted net income per common share          $         0.37  $         0.32
Weighted average diluted shares outstanding          26,455          26,247
Dividends declared per share                 $        1.090  $        0.090



SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

                                                    Nine months ended
                                              September 27,   September 28,
                                                  2014            2013
                                               (unaudited)     (unaudited)
Net sales                                    $      172,870  $      156,218
Cost of sales                                       100,756          92,699
                                             --------------  --------------
Gross profit                                         72,114          63,519
Selling, engineering and administrative
 expenses                                            22,375          19,752
                                             --------------  --------------
Operating income                                     49,739          43,767
Interest income, net                                   (926)           (709)
Foreign currency transaction gain, net                 (256)            (68)
Miscellaneous (income) expense, net                     548              80
                                             --------------  --------------
Income before income taxes                           50,373          44,464
Income tax provision                                 16,924          14,824
                                             --------------  --------------
Net income                                   $       33,449  $       29,640
                                             ==============  ==============
Basic net income per common share            $         1.27  $         1.13
Weighted average basic shares outstanding            26,425          26,206
Diluted net income per common share          $         1.27  $         1.13
Weighted average diluted shares outstanding          26,425          26,206
Dividends declared per share                 $         1.36  $         0.36



SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

                                               September 27,   December 28,
                                                   2014            2013
                                                (unaudited)
Assets
Current assets:
  Cash and cash equivalents                   $       66,095  $       54,912
  Restricted cash                                        337             334
  Accounts receivable, net of allowance for
   doubtful accounts of $146 and $117                 19,805          16,984
  Inventories                                         13,649          13,853
  Income taxes receivable                                 --             954
  Deferred income taxes                                  476             474
  Short-term investments                              55,232          38,729
  Other current assets                                 4,001           2,816
                                              --------------  --------------
  Total current assets                               159,595         129,056
Property, plant and equipment, net                    76,577          75,731
Goodwill                                               5,242           5,221
Other assets                                           3,087           3,470
                                              --------------  --------------
  Total assets                                $      244,501  $      213,478
                                              ==============  ==============
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable                            $        5,919  $        4,630
  Accrued expenses and other liabilities               6,739           7,016
  Income taxes payable                                 2,329              --
  Dividends payable                                   28,848           2,372
                                              --------------  --------------
  Total current liabilities                           43,835          14,018
Deferred income taxes                                  7,572           7,747
Other noncurrent liabilities                             288             285
                                              --------------  --------------
  Total liabilities                                   51,695          22,050
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, 26,462,819 and
   26,352,692 shares outstanding                          26              26
  Capital in excess of par value                      71,984          65,391
  Retained earnings                                  120,883         123,420
  Accumulated other comprehensive income
   (loss)                                                (87)          2,591
                                              --------------  --------------
  Total shareholders' equity                         192,806         191,428
                                              --------------  --------------
  Total liabilities and shareholders' equity  $      244,501  $      213,478
                                              ==============  ==============



SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

                                                    Nine months ended
                                              September 27,   September 28,
                                                  2014            2013
                                               (unaudited)     (unaudited)
Cash flows from operating activities:
Net income                                   $       33,449  $       29,640
Adjustments to reconcile net income to net
 cash provided by operating activities:
Depreciation and amortization                         6,428           5,393
(Gain)Loss on disposal of assets                        155             324
Gain on investment in business                           --            (528)
Provision for deferred income taxes                      53             (23)
Allowance for doubtful accounts                          29               8
Stock-based compensation expense                      2,744           2,124
(Increase) decrease in, net of assets
 acquired:
  Accounts receivable                                (2,850)         (4,514)
  Inventories                                           204            (151)
  Income taxes receivable                               954             728
  Other current assets                               (1,185)           (525)
  Other assets                                          146             284
Increase (decrease) in, net of liabilities
 assumed:
  Accounts payable                                    1,289           1,115
  Accrued expenses and other liabilities              2,949           2,206
  Income taxes payable                                2,329             679
  Other noncurrent liabilities                            3              21
                                             --------------  --------------
Net cash provided by operating activities            46,697          36,781
Cash flows from investing activities:
Investment in business, net of cash acquired             --            (923)
Capital expenditures                                 (6,953)        (14,569)
Proceeds from dispositions of equipment                   6              70
Purchases of short-term investments                 (42,788)        (22,945)
Proceeds from sale of short-term investments         25,396          19,327
                                             --------------  --------------
Net cash used in investing activities               (24,339)        (19,040)
Cash flows from financing activities:
Proceeds from stock issued                              623             651
Dividends to shareholders                            (9,509)         (7,072)
Change in restricted cash                                (3)              1
                                             --------------  --------------
Net cash used in financing activities                (8,889)         (6,420)
Effect of exchange rate changes on cash and
 cash equivalents                                    (2,286)            691
                                             --------------  --------------
Net increase (decrease) in cash and cash
 equivalents                                         11,183          12,012
Cash and cash equivalents, beginning of
 period                                              54,912          34,478
                                             --------------  --------------
Cash and cash equivalents, end of period     $       66,095  $       46,490
                                             ==============  ==============
Supplemental disclosure of cash flow
 information:
Cash paid:
  Income taxes                               $       13,818  $       13,440
Supplemental disclosure of noncash
 transactions:
Common stock issued for shared distribution
 through accrued expenses and other
 liabilities                                 $        3,226  $        3,486
Common stock issued for deferred director's
 compensation through other noncurrent
 liabilities                                 $           --  $          294


Contact:
Dennis Tichio
Investor Relations
941-362-1200

Tricia Fulton
Chief Financial Officer
941-362-1200

Source: Sun Hydraulics Corporation