Sun Hydraulics Corporation Reports 40% Increase in Second Quarter Sales


SARASOTA, Fla., Aug 2, 2004 /PRNewswire-FirstCall via COMTEX/ -- Sun Hydraulics Corporation (Nasdaq: SNHY) reported financial results for the second quarter 2004 as follows:

    (Dollars in millions except net income per share)

                                     June 26,        June 28,
                                       2004            2003      Increase

        Three Months Ended
    Net Sales                         $26.5           $18.9           40%
    Net Income                         $2.6            $0.8          225%
    Net Income per share:
       Basic                          $0.38           $0.13          202%
       Fully Diluted                  $0.38           $0.12          207%

        Six Months Ended
    Net Sales                         $47.9           $35.3           36%
    Net Income                         $3.9            $1.1          255%
    Net Income per share:
       Basic                          $0.58           $0.17          252%
       Fully Diluted                  $0.58           $0.16          258%

    Sales increases by business segment were as follows:

                    2nd Quarter    Year-to-date

    United States        52%            41%
    United Kingdom       4%             14%
    Germany              47%            40%
    Korea                27%            37%

Sun Hydraulics President Allen Carlson commented, "The 40% increase in shipments was particularly satisfying because we also maintained our high level of 'on time' shipments to the customers' delivery schedules. I believe this level of operational performance is helping us increase our market share and will continue to do so."

Gross profit increased 52% compared to the same quarter last year. Gross profit as a percentage of net sales increased to 32% from 29% last year. The increase in gross profit as a percentage of sales was due to the favorable effects of increased sales volume, exchange rates and productivity increases. These were partially offset by the funding to start an Employee Stock Ownership compensation plan.

In June, the Company's Board of Directors approved the establishment of an Employee Stock Ownership Plan (ESOP) as the discretionary match portion of its 401(k) retirement plan. The Board also approved the initial funding of the ESOP with approximately five hundred thousand dollars of Company stock. This compensation cost was recorded in the United States operations in the second quarter. Excluding this charge, net income as a percentage of net sales would have increased from 10% to 11% and gross profit would have increased from 32% to 33%.

Carlson concluded, "I believe the ESOP will create an even stronger link between the company's performance, its shareholders and our employees. I am also pleased that we were able to fund the ESOP this year and recognize the fine performance and perseverance of our employees who saw salary and wage reductions during the difficult years of the U.S. manufacturing recession."

Outlook

The Company's order trend has historically tracked closely to the United States Purchasing Managers Index (PMI). The index at the end of June 2004 continued to indicate economic expansion.

Net sales for the third quarter are projected to increase approximately 30% over the third quarter last year and be in the $23 million range. Net income per share on those sales should yield between $0.22 and $0.25.

Webcast

Sun Hydraulics Corporation will broadcast its second quarter financial results conference call live over the Internet at 2:30 P.M. E.T. today, August 2, 2004. To listen, 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. 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 1-800-289-0485.

Questions can be submitted by going to the Sun Hydraulics website, http://www.sunhydraulics.com, and clicking on Investor Relations on the left hand 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 Hydraulics will answer as many legitimate questions pertaining to the second quarter earnings release as possible during the webcast time.

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 http://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 June 26, 2004, 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 27, 2003. 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 Balance Sheets
    (in thousands, except share data)
                                            June 26, 2004  December 27, 2003
                                             (unaudited)
    Assets
    Current assets:
        Cash and cash equivalents                   $5,758            $4,794
        Restricted cash                                438               425
        Accounts receivable, net of
         allowance for doubtful accounts
         of $198 and  $187                           9,670             6,215
        Inventories                                  6,713             6,621
        Other current assets                           609               524
        Total current assets                        23,188            18,579

    Property, plant and equipment, net              42,428            42,829
    Other assets                                     1,558             1,624

        Total assets                               $67,174           $63,032

    Liabilities and Shareholders' Equity
    Current liabilities:
        Accounts payable                            $2,653            $2,440
        Accrued expenses and other
         liabilities                                 3,789             2,217
        Long-term debt due within one
         year                                          994               937
        Dividends payable                              345               270
        Taxes payable                                1,116                51
        Total current liabilities                    8,897             5,915

    Long-term debt due after one year               13,791            17,270
    Deferred income taxes                            4,369             4,456
    Other noncurrent liabilities                       303               328
        Total liabilities                           27,360            27,969

    Shareholders' equity:
        Preferred stock, 2,000,000 shares
         authorized, par value $0.001
           no shares outstanding                        --                --
        Common stock, 20,000,000 shares
         authorized, par value $0.001
           6,861,852 shares outstanding,
            June 26, 2004
           6,757,941 shares outstanding,
            December 27, 2003                            7                 7
        Capital in excess of par value              27,141            26,478
        Unearned compensation related to
           outstanding restricted stock               (471)             (601)
        Retained earnings                           10,855             7,522
        Accumulated other comprehensive
         income                                      1,796             1,657
        Treasury stock                                 486                 0
        Total shareholders' equity                  39,814            35,063

        Total liabilities and
         shareholders' equity                      $67,174           $63,032


    Sun Hydraulics Corporation
    Consolidated Statements of Operations
    (in thousands, except per share data)

                                                     Three months ended
                                             June 26, 2004     June 28, 2003
                                              (unaudited)       (unaudited)

    Net sales                                      $26,522           $18,912

    Cost of sales                                   18,136            13,383

    Gross profit                                     8,386             5,529

    Selling, engineering and
     administrative expenses                         4,196             4,267

    Operating income                                 4,190             1,262

    Interest expense                                   134               138
    Foreign currency transaction
     (gain)/loss                                       (31)             (127)
    Miscellaneous (income)/expense, net                (30)              (29)

    Income before income taxes                       4,117             1,280

    Income tax provision                             1,526               464

    Net income                                      $2,591              $816

    Basic net income per common share                $0.38             $0.13

    Weighted average basic shares
     outstanding                                     6,780             6,451

    Diluted net income per common share              $0.38             $0.12

    Weighted average diluted shares
     outstanding                                     6,832             6,598



    Sun Hydraulics Corporation
    Consolidated Statements of Operations
    (in thousands, except per share data)

                                                        Six months ended
                                               June 26, 2004     June 28, 2003
                                                 (unaudited)       (unaudited)

    Net sales                                      $47,912           $35,337

    Cost of sales                                   33,221            25,730

    Gross profit                                    14,691             9,607

    Selling, engineering and
     administrative expenses                         8,260             7,887

    Operating income                                 6,431             1,720

    Interest expense                                   282               279
    Foreign currency transaction
     (gain)/loss                                       (33)             (189)
    Miscellaneous (income)/expense, net                (17)              (22)

    Income before income taxes                       6,199             1,652

    Income tax provision                             2,250               582

    Net income                                      $3,949            $1,070

    Basic net income per common share                $0.58             $0.17

    Weighted average basic shares
     outstanding                                     6,769             6,450

    Diluted net income per common share              $0.58             $0.16

    Weighted average diluted shares
     outstanding                                     6,795             6,596



    Sun Hydraulics Corporation
    Consolidated Statements of Cash Flows          Six Months ended
    (in thousands)                            June 26, 2004     June 28, 2003

  	 	  
    
            
                                                       (unaudited)       (unaudited)

    Cash flows from operating activities:
    Net income                                      $3,949            $1,070
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
    Depreciation                                     2,687             2,646
    Loss on disposal of assets                          43               367
    Provision for deferred income taxes                (87)               (4)
    Allowance for doubtful accounts                     11                15
    Amortization of compensation expense               130                66
    (Increase) decrease in:
        Accounts receivable                         (3,466)           (2,507)
        Inventories                                    (92)             (277)
        Taxes receivable                                --                --
        Other current assets                           (85)               97
        Other assets                                    66              (272)
    Increase (decrease) in:
        Accounts payable                               213               584
        Accrued expenses and other
         liabilities                                 1,572               683
        Dividends payable                               75                --
        Taxes payable                                1,065               472
        Other liabilities                              (25)              (25)
    Net cash provided by operating
     activities                                      6,056             2,915

    Cash flows from investing activities:
    Capital expenditures                            (2,479)           (1,370)
    Proceeds from dispositions of
     equipment                                          19                10
    Net cash used in investing activities           (2,460)           (1,360)

    Cash flows from financing activities:
    Proceeds from debt                                  --                --
    Repayment of debt                               (3,422)             (489)
    Proceeds from stock issuance                     1,149                37
    Dividends to shareholders                         (615)             (516)
    Net cash used in financing activities           (2,888)             (968)

    Effect of exchange rate changes on
     cash and cash equivalents                         269              (545)

    Net increase in cash and cash
     equivalents                                       977                42

    Cash and cash equivalents, beginning
     of period                                       5,219             3,958

    Cash and cash equivalents, end of
     period                                          6,196             4,000

    Supplemental disclosure of cash flow
     information:
    Cash paid/(received):
        Interest                                      $282              $279
        Income taxes                                $1,272              $114




                             United                  United   Elimin- Consol-
                             States   Korea  Germany Kingdom  ation   idated

    Three Months
    Ended June 26, 2004
    Sales to unaffiliated
     customers               $16,972  $2,548  $3,473  $3,529   $  --  $26,522
    Intercompany sales         4,195      --      21     480  (4,696)      --
    Operating income/
     (loss)                    2,949     310     696     238      (3)   4,190
    Depreciation                 955      33     110     263      --    1,361
    Capital expenditures       1,239       3      36     232      --    1,510

    Three Months
    Ended June 28, 2003
    Sales to unaffiliated
     customers               $11,152  $2,012  $2,368  $3,380  $   --  $18,912
    Intercompany sales         3,920      --      17     367  (4,304)      --
    Operating income           1,166     226     238    (337)    (31)   1,262
    Depreciation                 926      29     100     275      --    1,330
    Capital expenditures         605       4      63     160      --      832

    Six Months
    Ended June 26, 2004
    Sales to unaffiliated
     customers               $29,889  $4,844  $6,470  $6,709  $   --  $47,912
    Intercompany sales         7,918      --      33     835  (8,786)      --
    Operating income/
     (loss)                    4,440     574   1,222     204      (8)   6,432
    Depreciation               1,874      67     210     536      --    2,687
    Capital expenditures       2,039       8      66     366      --    2,479

    Six Months
    Ended June 28, 2003
    Sales to unaffiliated
     customers               $21,264  $3,545  $4,635  $5,893  $   --  $35,337
    Intercompany sales         6,876      --      24     708  (7,608)      --
    Operating income           1,298     353     494    (464)     39    1,720
    Depreciation               1,852      57     191     546      --    2,646
    Capital expenditures         932      30      92     316      --    1,370

SOURCE Sun Hydraulics Corporation

Richard Arter, Investor Relations, or Richard Dobbyn, Chief
Financial Officer, both of Sun Hydraulics Corporation, +1-941-362-1200
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