Sun Hydraulics Continues Double Digit Sales and Earnings Growth in 3rd Quarter


SARASOTA, FL, Nov 07, 2006 (MARKET WIRE via COMTEX News Network) -- Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the third quarter of 2006 as follows:

(Dollars in millions except net income per share)
                                   September 30,    October 1,
                                      2006            2005        Increase
     Three Months Ended
Net Sales                         $       36.2  $       28.7           26%
Net Income                        $        3.9  $        2.9           34%
Net Income per share:
   Basic                          $       0.36  $       0.27           33%
   Diluted                        $       0.36  $       0.27           33%
     Nine Months Ended
Net Sales                         $      107.3  $       88.8           21%
Net Income                        $       12.4  $        9.9           25%
Net Income per share:
   Basic                          $       1.14  $       0.92           24%
   Fully Diluted                  $       1.13  $       0.91           24%

"Continued growth in the third quarter has again resulted in double-digit increases in sales and earnings," reported Allen Carlson, Sun Hydraulics' President and CEO. "This 14th consecutive quarter of double digit sales growth supports our belief that we continue to increase our market share.

"We completed two significant information technology projects in the third quarter," Carlson said. "In the US, we migrated to a 'multi-facility' system which will improve information sharing as products flow across business segments. In Germany, we installed new software that will improve order entry and communication with our customers. Our European businesses are now on the same platform.

"There were start-up costs associated with the implementations," Carlson said, "However, these software upgrades are a critical investment in Sun's future. Sun will continue to invest in people, machinery and processes to help us meet the demands of our customers and continue to focus on the long term."

Recognition

In October, Sun was recognized by Forbes for the 2nd consecutive year as one of the nations "Top 200 Small Companies." Sun's ranking this year improved to #87 from #113 last year. To learn more about the methodology for selecting companies, please visit http://www.forbes.com/lists/2006/23/biz_06200best_The-200-Best-Small-Companies_land.html.

Outlook

"We expect order rates to remain strong across all major markets in the fourth quarter," Carlson said.

2006 fourth quarter sales are estimated to be approximately $33 million, an 18% increase over the same period last year. 2006 year-end sales are estimated to be approximately $140 million, a 20% increase compared to 2005. Fourth quarter earnings per share are estimated to be between $0.31 and $0.33 per share, compared to $0.26 per share last year, approximately a 23% increase.

"We are looking forward to a great finish to a great year," Carlson concluded.

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 8, 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 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 July 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.

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                                                     Three months ended
                                                 September 30,  October 1,
                                                      2006        2005
                                                  (unaudited)  (unaudited)
Net sales                                         $    36,202  $    28,726
Cost of sales                                          25,540       19,701
                                                  -----------  -----------
Gross profit                                           10,662        9,025
Selling, engineering and
 administrative expenses                                4,707        4,644
                                                  -----------  -----------
Operating income                                        5,955        4,381
Interest expense                                           99          102
Foreign currency transaction loss/(gain)                   32          (23)
Miscellaneous (income)/expense, net                       (72)         100
                                                  -----------  -----------
Income before income taxes                              5,896        4,202
Income tax provision                                    1,980        1,284
                                                  -----------  -----------
Net income                                        $     3,916  $     2,918
                                                  ===========  ===========
Basic net income per common share                 $      0.36  $      0.27
Weighted average basic shares outstanding              10,812       10,894
Diluted net income per common share               $      0.36  $      0.27
Weighted average diluted shares outstanding            10,867       10,991
Dividends declared per share                      $     0.100  $     0.100
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                                                    Nine months ended
                                                September 30,  October 1,
                                                    2006         2005
                                                (unaudited)   (unaudited)
Net sales                                       $    107,315  $     88,819
Cost of sales                                         74,433        59,956
                                                ------------  ------------
Gross profit                                          32,882        28,863
Selling, engineering and
 administrative expenses                              14,068        13,387
                                                ------------  ------------
Operating income                                      18,814        15,476
Interest expense                                         235           385
Foreign currency transaction loss/(gain)                  63          (290)
Miscellaneous (income)/expense, net                     (134)           78
                                                ------------  ------------
Income before income taxes                            18,650        15,303
Income tax provision                                   6,240         5,384
                                                ------------  ------------
Net income                                      $     12,410  $      9,919
                                                ============  ============
Basic net income per share                      $       1.14  $       0.92
Basic weighted average shares outstanding             10,892        10,797
Diluted net income per share                    $       1.13  $       0.91
Diluted weighted average share outstanding            10,954        10,893
Dividends declared per share                    $      0.300  $      0.225
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                September 30, December 31,
                                                    2006         2005
                                                (unaudited)
Assets
Current assets:
  Cash and cash equivalents                     $      11,021 $      5,417
  Restricted cash                                          56          413
  Accounts receivable, net of allowance for
   doubtful accounts of $114 and $110                  15,138       10,975
  Inventories                                           9,318        7,870
  Income taxes receivable                                   -          236
  Deferred income taxes                                   782          782
  Other current assets                                    372          864
                                                ------------- ------------
      Total current assets                             36,687       26,557
Property, plant and equipment, net                     48,909       45,181
Other assets                                            1,875        1,823
                                                ------------- ------------
Total assets                                    $      87,471 $     73,561
                                                ============= ============
Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                              $       5,495 $      4,822
  Accrued expenses and other liabilities                4,148        3,857
  Long-term debt due within one year                      409          398
  Dividends payable                                     1,080        1,089
  Income taxes payable                                    758            -
                                                ------------- ------------
      Total current liabilities                        11,890       10,166
Long-term debt due after one year                       4,184        1,986
Deferred income taxes                                   4,708        4,688
Other liabilities                                         268          281
                                                ------------- ------------
      Total liabilities                                21,050       17,121
Shareholders' equity:
  Common stock                                             11           11
  Capital in excess of par value                       30,402       32,466
  Unearned compensation related to
   outstanding restricted stock                             -         (741)
  Retained earnings                                    32,556       23,406
  Accumulated other comprehensive income                3,452        1,647

  	 	  
    
            
          Treasury stock                                            -         (349)
                                                ------------- ------------
      Total shareholders' equity                       66,421       56,440
                                                ------------- ------------
Total liabilities and shareholders' equity      $      87,471 $     73,561
                                                ============= ============
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
                                                    Nine months ended
                                                September 30,  October 1,
                                                   2006          2005
                                                (unaudited)   (unaudited)
Cash flows from operating activities:
Net income                                      $     12,410  $      9,919
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                          4,372         4,172
Loss on disposal of assets                                37            18
Provision for deferred income taxes                       20            (6)
Allowance for doubtful accounts                            4           (10)
Stock-based compensation expense                         421           245
Stock options income tax benefit                         (82)            -
(Increase) decrease in:
   Accounts receivable                                (4,167)       (2,076)
   Inventories                                        (1,448)         (806)
   Income taxes receivable                               236             -
   Other current assets                                  492          (124)
   Other assets, net                                     (72)           72
Increase (decrease) in:
   Accounts payable                                      673         1,204
   Accrued expenses and other liabilities              1,474           960
   Income taxes payable                                  840          (286)
   Other liabilities                                     (15)          (14)
                                                ------------  ------------
Net cash provided by operating activities             15,195        13,268
Cash flows used in investing activities:
Investment in WhiteOak                                     -          (400)
Capital expenditures                                  (7,194)       (6,207)
Proceeds from dispositions of equipment                   20             1
                                                ------------  ------------
Net cash used in investing activities                 (7,174)       (6,606)
Cash flows used in financing activities:
Proceeds from debt                                     7,000        10,099
Repayment of debt                                     (4,791)      (19,878)
Proceeds from exercise of stock options                  112         2,348
Proceeds from stock issued                               179           111
Payments for purchase of treasury stock               (2,951)          (27)
Dividends to shareholders                             (3,267)            -
Stock options income tax benefit                          82        (1,609)
                                                ------------  ------------
Net cash (used in) provided by financing
 activities                                           (3,636)       (8,956)
Effect of exchange rate changes on cash and
   cash equivalents                                      862          (236)
                                                ------------  ------------
Net increase in cash and cash equivalents              5,247        (2,530)
Cash and cash equivalents, beginning of period         5,830         9,762
                                                ------------  ------------
Cash and cash equivalents, end of period        $     11,077  $      7,232
                                                ============  ============
Supplemental disclosure of cash flow
 information:
Cash paid:
   Interest                                     $        235  $        385
   Income taxes                                 $      5,226  $      6,286
                   United                      United   Elimina-  Consolid-
                   States   Korea   Germany   Kingdom     tion      ated
Three Months
Ended September
 30, 2006
Sales to
 unaffiliated
 customers      $  22,912 $   4,085 $   4,874 $   4,331 $      -  $  36,202
Intercompany
 sales              6,158         -        26       810   (6,994)         -
Operating
 income             3,760       488     1,114       572       21      5,955
Depreciation        1,023        37       127       247        -      1,434
Capital
 expenditures       2,179        26       143        30        -      2,378
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
Nine Months
Ended September
 30, 2006
Sales to
 unaffiliated
 customers      $  67,105 $  12,247 $  14,644 $  13,319 $      -  $ 107,315
Intercompany
 sales             19,450         -        88     2,262  (21,800)         -
Operating
 income            12,088     1,691     3,230     1,893      (88)    18,814
Depreciation        3,142       112       368       730        -      4,352
Capital
 expenditures       6,586        46       205       357        -      7,194
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

Contact:
Richard K. Arter
Investor Relations
941-362-1200

Tricia L. Fulton
Chief Financial Officer
941-362-1200


SOURCE: Sun Hydraulics Corporation

 

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