EXHIBIT 99.1
Sun Hydraulics Reports 13th Consecutive Quarter of Double Digit Sales Growth, 11th Consecutive Quarter of Double Digit Growth in Earnings
SARASOTA, FL, Aug 08, 2006 (MARKET WIRE via COMTEX News Network) — Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the second quarter of 2006 as follows:
(Dollars in millions except net income per share)
July 1, 2006 | July 2, 2005 | Increase | |||||||
Three Months Ended | |||||||||
Net Sales | $ | 36.9 | $ | 31.0 | 19 | % | |||
Net Income | $ | 4.3 | $ | 3.5 | 23 | % | |||
Net Income per share: | |||||||||
Basic | $ | 0.39 | $ | 0.33 | 18 | % | |||
Diluted | $ | 0.39 | $ | 0.32 | 22 | % | |||
Six Months Ended | |||||||||
Net Sales | $ | 71.1 | $ | 60.1 | 18 | % | |||
Net Income | $ | 8.5 | $ | 7.0 | 21 | % | |||
Net Income per share: | |||||||||
Basic | $ | 0.78 | $ | 0.65 | 20 | % | |||
Fully Diluted | $ | 0.77 | $ | 0.65 | 18 | % | |||
“We continued to see strong demand across all segments in the second quarter,” said Allen Carlson, Sun Hydraulics’ President and CEO. “Sun has reported double digit growth in sales and earnings going back to 2003 and we expect more of the same for the third quarter as orders heading into the quarter remain strong and steady.”
“Sales and orders were strong in the second quarter, although earnings were constrained due to additional material and fixed cost increases,” Carlson continued. “Productivity gains have offset much of the previous years’ cost increases. However, this year the additional costs have outpaced productivity gains. Consequently, in July, we implemented a mid-year price increase to stem further margin erosion and improve future earnings.”
“We are continually looking at better, more efficient ways to make our products,” Carlson explained. “To achieve this, we have accelerated capital investments that will further improve capacity and productivity.”
Concluding, Carlson said, “We expect strong sales, further productivity improvements and nearly a full quarter of the price increase to result in improved earnings next quarter.”
Stock Buyback
In June, 2006, the Board of Directors announced a stock buyback of up to $2.5 million. The stock buyback was completed in July 2006, with the entire $2.5 million being repurchased.
Recognition
During the quarter, Sun was included in Business Week’s “Top 100 Hot Growth Companies of 2006” (ranked #61) and also included in Fortune magazine’s “2006 Small Business 100” list (ranked #14). In addition, as of July 1, 2006, Sun qualified for and was included in the new NASDAQ Global Select Market, by meeting the highest initial listing standard established by NASDAQ when it became a stock exchange.
Outlook
2006 third quarter sales are estimated to be approximately $36 million, a 25% increase over the same period last year. Third quarter earnings per share are estimated to be between $0.38 and $0.40 per share, compared to $0.27 per share last year, approximately a 44% increase in earnings.
Webcast
Sun Hydraulics Corporation will broadcast its second quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, August 9, 2006. 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 this earnings release, 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. 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 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
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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 31, 2005 and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s Form 10-Q for the quarter ended April 1, 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 | ||||||||
| July 1, 2006 | July 2, 2005 | |||||||
| (unaudited) | (unaudited) | |||||||
Net sales | $ | 36,928 | $ | 31,014 | ||||
Cost of sales | 25,689 | 20,928 | ||||||
Gross profit | 11,239 | 10,086 | ||||||
Selling, engineering and administrative expenses | 4,690 | 4,524 | ||||||
Operating income | 6,549 | 5,562 | ||||||
Interest expense | 66 | 147 | ||||||
Foreign currency transaction loss/(gain) | 72 | (145 | ) | |||||
Miscellaneous income, net | (90 | ) | (23 | ) | ||||
Income before income taxes | 6,501 | 5,583 | ||||||
Income tax provision | 2,187 | 2,047 | ||||||
Net income | $ | 4,314 | $ | 3,536 | ||||
Basic net income per common share | $ | 0.39 | $ | 0.33 | ||||
Weighted average basic shares outstanding | 10,932 | 10,873 | ||||||
Diluted net income per common share | $ | 0.39 | $ | 0.32 | ||||
Weighted average diluted shares outstanding | 10,995 | 10,975 | ||||||
Dividends declared per share | $ | 0.100 | $ | 0.050 | ||||
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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
| Six months ended | ||||||||
| July 1, 2006 | July 2, 2005 | |||||||
| (unaudited) | (unaudited) | |||||||
Net sales | $ | 71,114 | $ | 60,093 | ||||
Cost of sales | 48,895 | 40,254 | ||||||
Gross profit | 22,219 | 19,839 | ||||||
Selling, engineering and administrative expenses | 9,360 | 8,743 | ||||||
Operating income | 12,859 | 11,096 | ||||||
Interest expense | 136 | 283 | ||||||
Foreign currency transaction loss/(gain) | 31 | (257 | ) | |||||
Miscellaneous income, net | (62 | ) | (32 | ) | ||||
Income before income taxes | 12,754 | 11,102 | ||||||
Income tax provision | 4,260 | 4,100 | ||||||
Net income | $ | 8,494 | $ | 7,002 | ||||
Basic net income per share | $ | 0.78 | $ | 0.65 | ||||
Basic weighted average shares outstanding | 10,932 | 10,750 | ||||||
Diluted net income per share | $ | 0.77 | $ | 0.65 | ||||
Diluted weighted average share outstanding | 10,998 | 10,847 | ||||||
Dividends declared per share | $ | 0.200 | $ | 0.125 | ||||
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SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
| July 1, 2006 | December 31, 2005 | |||||||
| (unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 7,456 | $ | 5,417 | ||||
Restricted cash | 55 | 413 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $116 and $110 | 15,074 | 10,975 | ||||||
Inventories | 9,138 | 7,870 | ||||||
Income taxes receivable | — | 236 | ||||||
Deferred income taxes | 782 | 782 | ||||||
Other current assets | 711 | 864 | ||||||
Total current assets | 33,216 | 26,557 | ||||||
Property, plant and equipment, net | 48,009 | 45,181 | ||||||
Other assets | 1,865 | 1,823 | ||||||
Total assets | $ | 83,090 | $ | 73,561 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,830 | $ | 4,822 | ||||
Accrued expenses and other liabilities | 3,503 | 3,857 | ||||||
Long-term debt due within one year | 413 | 398 | ||||||
Dividends payable | 1,084 | 1,089 | ||||||
Income taxes payable | 479 | — | ||||||
Total current liabilities | 10,309 | 10,166 | ||||||
Long-term debt due after one year | 4,332 | 1,986 | ||||||
Deferred income taxes | 4,701 | 4,688 | ||||||
Other liabilities | 272 | 281 | ||||||
Total liabilities | 19,614 | 17,121 | ||||||
Shareholders’ equity: | ||||||||
Common stock | 11 | 11 | ||||||
Capital in excess of par value | 31,006 | 32,466 | ||||||
Unearned compensation related to outstanding restricted stock | — | (741 | ) | |||||
Retained earnings | 29,721 | 23,406 | ||||||
Accumulated other comprehensive income | 3,312 | 1,647 | ||||||
Treasury stock | (574 | ) | (349 | ) | ||||
Total shareholders’ equity | 63,476 | 56,440 | ||||||
Total liabilities and shareholders’ equity | $ | 83,090 | $ | 73,561 | ||||
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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
| Six months ended | ||||||||
| July 1, 2006 | July 2, 2005 | |||||||
| (unaudited) | (unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 8,494 | $ | 7,002 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,932 | 2,779 | ||||||
Loss on disposal of assets | 62 | 7 | ||||||
Provision for deferred income taxes | 13 | (2 | ) | |||||
Allowance for doubtful accounts | 6 | (7 | ) | |||||
Stock-based compensation expense | 309 | 165 | ||||||
Stock options income tax benefit | (42 | ) | — | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | (4,105 | ) | (2,872 | ) | ||||
Inventories | (1,268 | ) | (747 | ) | ||||
Income taxes receivable | 236 | — | ||||||
Other current assets | 153 | (390 | ) | |||||
Other assets, net | (56 | ) | 108 | |||||
Increase (decrease) in: | ||||||||
Accounts payable | 8 | 1,306 | ||||||
Accrued expenses and other liabilities | 829 | 962 | ||||||
Income taxes payable | 521 | 108 | ||||||
Other liabilities | (9 | ) | (10 | ) | ||||
Net cash provided by operating activities | 8,083 | 8,409 | ||||||
Cash flows used in investing activities: | ||||||||
Investment in WhiteOak | — | (400 | ) | |||||
Capital expenditures | (4,816 | ) | (3,638 | ) | ||||
Proceeds from dispositions of equipment | 20 | 1 | ||||||
Net cash used in investing activities | (4,796 | ) | (4,037 | ) | ||||
Cash flows used in financing activities: | ||||||||
Proceeds from debt | 5,000 | — | ||||||
Repayment of debt | (2,639 | ) | (703 | ) | ||||
Proceeds from exercise of stock options | 73 | 2,273 | ||||||
Proceeds from stock issued | 114 | 69 | ||||||
Payments for purchase of treasury stock | (2,665 | ) | (27 | ) | ||||
Dividends to shareholders | (2,183 | ) | (1,065 | ) | ||||
Stock options income tax benefit | 42 | — | ||||||
Net cash (used in) provided by financing activities | (2,258 | ) | 547 | |||||
Effect of exchange rate changes on cash and cash equivalents | 652 | (205 | ) | |||||
Net increase in cash and cash equivalents | 1,681 | 4,714 | ||||||
Cash and cash equivalents, beginning of period | 5,830 | 9,762 | ||||||
Cash and cash equivalents, end of period | $ | 7,511 | $ | 14,476 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid: | ||||||||
Interest | $ | 136 | $ | 283 | ||||
Income taxes | $ | 3,532 | $ | 4,605 | ||||
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| United States | Korea | Germany | United Kingdom | Elimination | Consolidated | ||||||||||||||
Three Months Ended July 1, 2006 | |||||||||||||||||||
Sales to unaffiliated customers | $ | 23,332 | $ | 4,072 | $ | 5,193 | $ | 4,331 | $ | — | $ | 36,928 | |||||||
Intercompany sales | 6,615 | — | 26 | 666 | (7,307 | ) | — | ||||||||||||
Operating income | 4,271 | 596 | 1,175 | 583 | (76 | ) | 6,549 | ||||||||||||
Depreciation | 1,088 | 38 | 122 | 241 | — | 1,489 | |||||||||||||
Capital expenditures | 2,534 | 18 | 49 | 251 | — | 2,852 | |||||||||||||
Three Months Ended July 2, 2005 | |||||||||||||||||||
Sales to unaffiliated customers | $ | 19,557 | $ | 3,251 | $ | 4,097 | $ | 4,109 | $ | — | $ | 31,014 | |||||||
Intercompany sales | 5,573 | — | 20 | 745 | (6,338 | ) | — | ||||||||||||
Operating income | 3,862 | 467 | 915 | 334 | (16 | ) | 5,562 | ||||||||||||
Depreciation | 985 | 38 | 110 | 256 | — | 1,389 | |||||||||||||
Capital expenditures | 1,457 | 2 | 33 | 608 | — | 2,100 | |||||||||||||
Six Months Ended July 1, 2006 | |||||||||||||||||||
Sales to unaffiliated customers | $ | 44,193 | $ | 8,162 | $ | 9,770 | $ | 8,989 | $ | — | $ | 71,114 | |||||||
Intercompany sales | 13,292 | — | 62 | 1,452 | (14,806 | ) | — | ||||||||||||
Operating income | 8,328 | 1,202 | 2,116 | 1,322 | (109 | ) | 12,859 | ||||||||||||
Depreciation | 2,119 | 75 | 241 | 484 | — | 2,919 | |||||||||||||
Capital expenditures | 4,406 | 21 | 62 | 327 | — | 4,816 | |||||||||||||
Six Months Ended July 2, 2005 | |||||||||||||||||||
Sales to unaffiliated customers | $ | 37,703 | $ | 5,917 | $ | 8,179 | $ | 8,294 | $ | — | $ | 60,093 | |||||||
Intercompany sales | 11,435 | — | 42 | 1,348 | (12,825 | ) | — | ||||||||||||
Operating income | 7,734 | 798 | 2,089 | 652 | (177 | ) | 11,096 | ||||||||||||
Depreciation | 1,962 | 75 | 219 | 523 | — | 2,779 | |||||||||||||
Capital expenditures | 2,832 | 7 | 94 | 705 | — | 3,638 | |||||||||||||
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