Sun Hydraulics Corporation Third Quarter Net Income Exceeds Expectations


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

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    (Dollars in millions except net income per share)

                                            September 25  September 27
                                                2004          2003   Increase
             Three Months Ended
    Net Sales                                   $23.2        $17.9        30%
    Net Income                                   $1.9         $0.5       280%
    Net Income per share:
       Basic                                    $0.27        $0.08       238%
       Fully Diluted                            $0.27        $0.08       238%


              Nine Months Ended
    Net Sales                                   $71.1        $53.2        34%
    Net Income                                   $5.8         $1.6       263%
    Net Income per share:
       Basic                                    $0.86        $0.24       258%
       Fully Diluted                            $0.85        $0.24       254%


    Sales increases by business segment
     were as follows:

                                              3rd Quarter   Year-to-date

    United States                                 31%           37%
    United Kingdom                                19%           15%
    Germany                                       46%           42%
    Korea                                         17%           30%

Sun Hydraulics President, Allen Carlson, commented, "Sales increased 30% during the quarter compared to last year. Our flexible production capability and our responsive supplier base continue to provide excellent delivery performance to our customers. Sales volume and productivity increases this quarter helped to offset increased material costs."

Gross profit for the third quarter increased 56% compared to the same quarter last year. Gross profit as a percentage of net sales increased to 30% from 25% last year.

"While we are now sharing in the raw material cost increases experienced by our suppliers, our production unit costs are unchanged," Carlson said. "We recently announced a modest price increase on selected products effective the beginning of next year. This will combat the rise in material costs as we continue to invest time and money to further improve our production processes."

Outlook

Third quarter orders increased 33% compared to last year, and October orders came in at an even higher rate.

Fourth quarter shipments are estimated to be $22.0 million, which would be a 25% increase over the same quarter last year. The majority of this increase is projected to be in the U.S. operation as the rate of growth internationally is projected to slow.

Net income per share on sales of $22.0 million should yield approximately $0.15, which would bring net income per share for the year to $1.00.

Webcast

Sun Hydraulics Corporation will broadcast its third quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, November 3, 2004. The conference call will be in conjunction with an Investor Open House to be held at the Company's facility at 701 Tallevast Road, Sarasota, Florida, from 2-5 P.M. 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 1-800-361-0912.

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 third 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)

                                       September 25, 2004  December 27, 2003
                                          (unaudited)
    Assets
    Current assets:
       Cash and cash equivalents             $7,199            $4,794
       Restricted cash                          433               425
       Accounts receivable, net of
        allowance for doubtful
        accounts of $193 and $187             8,420             6,215
       Inventories                            6,794             6,621
       Other current assets                     580               524
       Total current assets                  23,426            18,579

    Property, plant and equipment, net       42,539            42,829
    Other assets                              1,593             1,624

       Total assets                         $67,558           $63,032

    Liabilities and Shareholders'
     Equity
    Current liabilities:
       Accounts payable                      $2,214            $2,440
       Accrued expenses and other
        liabilities                           3,750             2,217
       Long-term debt due within one year       991               937
       Dividends payable                        345               270
       Taxes payable                          2,101                51
       Total current liabilities              9,401             5,915

    Long-term debt due after one year        11,379            17,270
    Deferred income taxes                     4,363             4,456
    Other noncurrent liabilities                305               328
       Total liabilities                     25,448            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
          6,906,214 shares outstanding,
          September 25, 2004
          6,757,941 shares outstanding,
          December 27, 2003                        7                 7
       Capital in excess of par value         27,796            26,478
       Unearned compensation related to
          outstanding restricted stock          (415)             (601)
       Retained earnings                      12,391             7,522
       Accumulated other comprehensive
        income                                 2,331             1,657
       Total shareholders' equity             42,110            35,063

       Total liabilities and
        shareholders' equity                 $67,558           $63,032


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

                                                Three months ended
                                       September 25, 2004  September 27, 2003
                                          (unaudited)       (unaudited)

    Net sales                               $23,164           $17,851

    Cost of sales                            16,117            13,328

    Gross profit                              7,047             4,523

    Selling, engineering and
     administrative expenses                  4,002             3,604

    Operating income                          3,045               919

    Interest expense                            123               137
    Foreign currency transaction
     (gain)/loss                                (43)               (1)
    Miscellaneous (income)/expense, net          (7)               (1)

    Income before income taxes                2,972               784

    Income tax provision                      1,092               275

    Net income                               $1,880              $509

    Basic net income per common share         $0.27             $0.08

    Weighted average basic shares
     outstanding                              6,895             6,591

    Diluted net income per common share       $0.27             $0.08

    Weighted average diluted shares
     outstanding                              6,972             6,635

    Dividends declared per share              $0.05             $0.04


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

                                                Nine months ended
                                      September 25, 2004  September 27, 2003
                                          (unaudited)        (unaudited)

    Net sales                               $71,077            $53,188

    Cost of sales                             49,338            39,059

    Gross profit                              21,739            14,129

    Selling, engineering and
     administrative expenses                  12,262            11,491

        Operating income                       9,477             2,638

    Interest expense                             405               415
    Foreign currency transaction
     (gain)/loss                                 (75)             (190)
    Miscellaneous (income)/expense, net          (25)              (24)

    Income before income taxes                 9,172             2,437

    Income tax provision                       3,343               857

    Net income                                $5,829            $1,580

    Basic net income per common share          $0.86             $0.24

    Weighted average basic shares
     outstanding                               6,811             6,491

    Diluted net income per common share        $0.85             $0.24

    Weighted average diluted shares
     outstanding                               6,869             6,535

    Dividends declared per share               $0.14             $0.12



    Sun Hydraulics Corporation
    Consolidated Statements of Cash Flows
    (in thousands)


                                             Nine Months ended
                                    September 25, 2004  September 27, 2003
                                          (unaudited)       (unaudited)

    Cash flows from operating
     activities:
    Net income                                $5,829            $1,580
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
    Depreciation                               4,073             3,907
    Loss on disposal of assets                    43               367
    Deferred income taxes                        (93)               (1)

  	 	  
    
            
            Allowance for doubtful accounts                6                35
    Amortization of compensation expense         186               116
    (Increase) decrease in:
       Accounts receivable                    (2,211)           (2,219)
       Inventories                              (173)               34
       Taxes receivable                           --                --
       Other current assets                      (56)              612
       Other assets                               31              (516)
    Increase (decrease) in:
       Accounts payable                         (226)              474
       Accrued expenses and other
        liabilities                            1,533             1,941
       Dividends payable                          75                11
       Taxes payable                           2,050               684
       Other liabilities                         (23)              (38)
    Net cash provided by operating
     activities                               11,044             6,987

    Cash flows from investing
     activities:
    Capital expenditures                      (3,531)           (3,090)
    Proceeds from dispositions of
     equipment                                    19                11
    Net cash used in investing
     activities                               (3,512)           (3,079)

    Cash flows from financing
     activities:
    Proceeds from debt                            --            18,850
    Repayment of debt                         (5,837)           (8,411)
    Proceeds from stock issuance               1,319               956
    Dividends to shareholders                   (960)          (14,133)
    Net cash used in financing
     activities                               (5,478)           (2,738)

    Effect of exchange rate changes on
     cash and cash equivalents                   359               (58)

    Net increase in cash and cash
     equivalents                               2,413             1,112

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

    Cash and cash equivalents, end of
     period                                   $7,632            $5,070

    Supplemental disclosure of cash
     flow information:
    Cash paid/(received):
       Interest                                 $405              $415
       Income taxes                           $1,386              $174




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

    Three Months Ended
    September 25, 2004
    Sales to unaffiliated
     customers              $14,676  $1,900  $3,390  $3,198      $--  $23,164
    Intercompany sales        4,112      --      19     465   (4,596)      --
    Operating income/(loss)   1,921     201     791     135       (3)   3,045
    Depreciation                960      34     132     259       --    1,385
    Capital expenditures        883      32      38      99       --    1,052

    Three Months Ended
    September 27, 2003
    Sales to unaffiliated
     customers              $11,208  $1,630  $2,316  $2,697      $--  $17,851
    Intercompany sales        2,918      --       9     323   (3,250)      --
    Operating income/(loss)     508     187     432    (190)     (18)     919
    Depreciation                900      32      94     235       --    1,261
    Capital expenditures        757     386     111     466       --    1,720

    Nine Months Ended
    September 25, 2004
    Sales to unaffiliated
     customers              $44,566  $6,744  $9,860  $9,907      $--  $71,077
    Intercompany sales       12,029      --      52   1,301  (13,382)      --
    Operating income/(loss)   6,361     776   2,013     338      (11)   9,477
    Depreciation              2,834     102     341     795       --    4,072
    Capital expenditures      2,922      40     105     465       --    3,532

    Nine Months Ended
    September 27, 2003
    Sales to unaffiliated
     customers              $32,473  $5,175  $6,951  $8,589      $--  $53,188
    Intercompany sales        9,794      --      33   1,032  (10,859)      --
    Operating income/(loss)   1,806     541     925    (655)      21    2,638
    Depreciation              2,752      89     285     781       --    3,907
    Capital expenditures      1,688     418     203     781       --    3,090

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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