Sun Hydraulics Third Quarter Net Sales Up 24% Over 2004, Net Income Rises 53%


SARASOTA, FL, Nov 08, 2005 (MARKET WIRE via COMTEX News Network) -- Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the third quarter 2005 as follows:

(Dollars in millions except net income per share)
                        October 1,   September 25,
                          2005           2004            Increase
                       ------------  ------------
    Three Months Ended
Net Sales                $ 28.7         $ 23.2              24%
Net Income               $  2.9         $  1.9              53%
Net Income per share:
   Basic                 $ 0.27         $ 0.18              50%
   Diluted               $ 0.27         $ 0.18              50%
    Nine Months Ended
Net Sales                $ 88.8         $ 71.1              25%
Net Income               $  9.9         $  5.8              71%
Net Income per share:
   Basic                 $ 0.92         $ 0.57              61%
   Diluted               $ 0.91         $ 0.57              60%
(1) All earnings per share and weighted average share information reflects
    a three-for-two stock split effective at the close of business on
    July 15, 2005.

Commenting on results, Allen Carlson, Sun's CEO and President, said, "We had another excellent quarter with our sales increasing 24% bringing year to date sales to 25% over last year. We remain confident going into the fourth quarter, as economic indicators in the U.S. capital goods market remain strong. The PMI, which Sun's business historically tracks, was published last week, and continues to show purchasing strength in the economy.

"We continue to strengthen our balance sheet by building cash and paying down debt," Carlson continued. "In September, we doubled our quarterly dividend from $0.05 to $0.10. We are also in a great position to take advantage of potential future internal or external investment opportunities through utilization of our new $35 million credit facility."

Carlson also announced that Sun CFO, Dick Dobbyn, will be retiring early next year and that Tricia Fulton will assume the CFO position. "Tricia has been with Sun since 1997 and has worked closely with Dick since she joined the company. I am proud that we were able to fill this important position from inside and have complete confidence that Tricia will do an outstanding job," Carlson said. Carlson also indicated that Dick Dobbyn, who will retain the CFO position through the close of 2005, will continue to work with the Company in an advisory role, including work on special projects.

Outlook

Historically, demand in the fourth quarter slows compared to prior periods, particularly in foreign markets. Sun Hydraulics estimates sales for the fourth quarter will be $27 million, a 15% increase over the fourth quarter last year. Annual sales would be approximately $116 million, representing a 22% increase compared to 2004. Fourth quarter earnings per share are estimated to be between $0.20 and $0.23 per share, compared to $0.19 per share in the fourth quarter last year.

Independent Research Analysis

Robert W. Baird has provided independent research coverage on Sun Hydraulics since 1997. Sun Hydraulics is pleased to announce that Westminster Securities Corporation initiated independent research on Sun earlier this month.

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 9, 2005. 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 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 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 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 July 2, 2005, 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 25, 2004. 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)
                                             Oct 1, 2005       Dec 25, 2004
                                              (unaudited)
Assets
Current assets:
  Cash and cash equivalents                     $  6,809          $  9,300
  Restricted cash                                    423               462
  Accounts receivable, net of allowance for
   doubtful accounts of $160 and $170             10,697             8,611
  Inventories                                      7,911             7,105
  Deferred income taxes                              392               392
  Other current assets                               900               776
                                                --------          --------
  Total current assets                            27,132            26,646
Property, plant and equipment, net                44,315            43,687
Other assets                                       1,796             1,475
                                                --------          --------
  Total assets                                  $ 73,243          $ 71,808
                                                ========          ========
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable                              $  3,740          $  2,536
  Accrued expenses and other liabilities           4,511             4,609
  Long-term debt due within one year                 454             1,058
  Dividends payable                                1,091               522
  Taxes payable                                      302             1,198
                                                --------          --------
  Total current liabilities                       10,098             9,923
Long-term debt due after one year                  2,021            11,196
Deferred income taxes                              4,980             4,986
Other noncurrent liabilities                         286               300
                                                --------          --------
  Total liabilities                               17,385            26,405
Commitments and contingencies                          -                 -
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, 10,906,248 and 10,441,920
   shares outstanding                                 11                10
  Capital in excess of par value                  32,686            28,579
  Unearned compensation related to outstanding
   restricted stock                                 (381)             (608)
  Retained earnings                               21,607            13,867
  Accumulated other comprehensive income           1,935             3,566
  Treasury stock                                       -               (11)
                                                --------          --------
  Total shareholders' equity                      55,858            45,403
                                                --------          --------
  Total liabilities and shareholders' equity    $ 73,243          $ 71,808
                                                ========          ========
Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
                                                     Three months ended
                                                Oct 1, 2005  Sept 25, 2004
                                                (unaudited)     (unaudited)
Net sales                                       $ 28,726          $ 23,164
Cost of sales                                     19,701            16,117
                                                --------          --------
Gross profit                                       9,025             7,047
Selling, engineering and
 administrative expenses                           4,644             4,002
                                                --------          --------
Operating income                                   4,381             3,045
Interest expense                                     102               123
Foreign currency transaction gain                    (23)              (43)
Miscellaneous expense/(income), net                  100                (7)
                                                --------          --------
Income before income taxes                         4,202             2,972
Income tax provision                               1,284             1,092
                                                --------          --------
Net income                                      $  2,918          $  1,880
                                                ========          ========
Basic net income per common share (1)           $   0.27          $   0.18
Weighted average basic shares outstanding (1)     10,894            10,343
Diluted net income per common share (1)         $   0.27          $   0.18
Weighted average diluted shares outstanding (1)   10,991            10,459
Dividends declared per share                    $  0.100          $  0.050
(1) All earnings per share and weighted average share information reflects
    a three-for-two stock split effective at the close of business on
    July 15, 2005.
Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
                                                     Nine months ended
                                               Oct 1, 2005   Sept 25, 2004
                                                (unaudited)     (unaudited)
Net sales                                       $ 88,819          $ 71,077
Cost of sales                                     59,956            49,338
                                                --------          --------
Gross profit                                      28,863            21,739
Selling, engineering and
 administrative expenses                          13,387            12,262
                                                --------          --------
Operating income                                  15,476             9,477
Interest expense                                     385               405
Foreign currency transaction gain                   (290)              (75)
Miscellaneous expense/(income), net                   78               (25)
                                                --------          --------
Income before income taxes                        15,303             9,172
Income tax provision                               5,384             3,343

  	 	  
    
            
                                                        --------          --------
Net income                                      $  9,919          $  5,829
                                                ========          ========
Basic net income per common share (1)           $   0.92          $   0.57
Weighted average basic shares outstanding (1)     10,797            10,217
Diluted net income per common share (1)         $   0.91          $   0.57
Weighted average diluted shares outstanding (1)   10,893            10,304
Dividends declared per share                    $  0.225          $  0.140
(1) All earnings per share and weighted average share information
    reflects a three-for-two stock split effective at the close
    of business on July 15, 2005.
Sun Hydraulics Corporation
Consolidated Statements of Cash Flows                Nine Months ended
(in thousands)                                  Oct 1, 2005   Sept 25, 2004
                                                (unaudited)     (unaudited)
Cash flows from operating activities:
Net income                                      $  9,919          $  5,829
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                      4,172             4,073
Loss on disposal of assets                            18                43
Provision for deferred income taxes                   (6)              (93)
Allowance for doubtful accounts                      (10)                6
Stock-based compensation expense                     245               186
(Increase) decrease in:
  Accounts receivable                             (2,076)           (2,211)
  Inventories                                       (806)             (173)
  Other current assets                              (124)              (56)
  Other assets                                        72                31
Increase (decrease) in:
  Accounts payable                                 1,204              (226)
  Accrued expenses and other liabilities             960             1,533
  Taxes payable                                     (286)            2,050
  Other liabilities                                  (14)              (23)
                                                --------          --------
Net cash provided by operating activities         13,268            10,969
Cash flows from investing activities:
Equity method investment                            (400)
Capital expenditures                              (6,207)           (3,531)
Proceeds from dispositions of equipment                1                19
                                                --------          --------
Net cash used in investing activities             (6,606)           (3,512)
Cash flows from financing activities:
Proceeds from debt                                10,099                 -
Repayment of debt                                (19,878)           (5,837)
Proceeds from exercise of stock options            2,348             1,387
Proceeds from stock issued                           111                 -
Payments for purchase of treasury stock              (27)             (657)
Proceeds from reissuance of treasury stock             -               589
Dividends to shareholders                         (1,609)             (885)
                                                --------          --------
Net cash used in financing activities             (8,956)           (5,403)
Effect of exchange rate changes on cash and
 cash equivalents                                   (236)              359
                                                --------          --------
Net increase in cash and cash equivalents         (2,530)            2,413
Cash and cash equivalents, beginning of period     9,762             5,219
                                                --------          --------
Cash and cash equivalents, end of period        $  7,232          $  7,632
                                                ========          ========
Supplemental disclosure of cash flow
 information:
Cash paid:
  Interest                                      $    385          $    405
  Income taxes                                  $  6,286          $  1,386
                      United                     United  Elimin-  Consoli-
                      States    Korea   Germany  Kingdom  ation    dated
                     -------- -------- -------- -------- -------- --------
Three Months Ended
 October 1, 2005
Sales to unaffiliated
 customers           $ 18,118 $  2,992 $  3,736 $  3,880 $      - $ 28,726
Intercompany sales      5,179        -       16      721   (5,916)       -
Operating income        3,121      377      617      270       (4)   4,381
Depreciation              973       37      121      255        -    1,386
Capital expenditures    1,733        7      712      117        -    2,569
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        1,921      201      791      135       (3)   3,045
Depreciation              960       34      132      259        -    1,385
Capital expenditures      883       32       38       99        -    1,052
Nine Months Ended
 October 1, 2005
Sales to unaffiliated
 customers           $ 55,821 $  8,909 $ 11,914 $ 12,175 $      - $ 88,819
Intercompany sales     16,614        -       59    2,068  (18,741)       -
Operating income       10,855    1,174    2,705      923     (181)  15,476
Depreciation            2,934      112      340      779        -    4,165
Capital expenditures    4,565       14      806      822        -    6,207
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        6,361      776    2,013      338      (11)   9,477
Depreciation            2,835      102      341      795        -    4,073
Capital expenditures    2,921       40      105      465        -    3,531
Contact:
Richard K. Arter
Investor Relations
941-362-1200
Richard J. Dobbyn
Chief Financial Officer
941-362-1200

SOURCE: Sun Hydraulics Corporation

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