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, July 2, 2006 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 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. 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 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 SUN HYDRAULICS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) July 1, December 31, 2006 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 ============ ============ 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 United United Elimina- Consoli- States Korea Germany Kingdom tion dated 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 Contact: Richard K. Arter Investor Relations 941-362-1200 Tricia L. Fulton Chief Financial Officer 941-362-1200 SOURCE: Sun Hydraulics Corporation Copyright 2006 Market Wire, All rights reserved. News Provided by COMTEX