Sun Hydraulics Continues to Expand, Second Quarter Earnings Increase 50% on 19% Sales Increase


SARASOTA, FL--(Marketwire - August 5, 2008) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the second quarter 2008 as follows:

(Dollars in millions except net income per share)

                              June 28,   June 30,
                                2008       2007     Increase
   Three Months Ended
Net Sales                 $     51.6 $     43.4        19%
Net Income                $      8.9 $      6.0        48%
Net Income per share:
   Basic                  $     0.54 $     0.36        50%
   Diluted                $     0.54 $     0.36        50%

    Six Months Ended
Net Sales                 $    100.6 $     84.3        19%
Net Income                $     16.6 $     11.8        41%
Net Income per share:
   Basic                  $     1.00 $     0.72        39%
   Fully Diluted          $     1.00 $     0.71        41%


"European and Asian sales were both up over 20% in the second quarter and contributed more than 60% to Sun's total growth for the period," reported Allen Carlson, Sun CEO and president. "The North American rebound we commented on early in the year continued to gain strength last quarter and domestic sales were up 13.5% compared to last year."

"Profitability continued to benefit from the gross margin leverage resulting from the incremental sales volume," added Carlson. "We are, however, beginning to experience rising material input costs, as well as increasing utility and freight costs. Effective October 1, 2008, Sun will implement an across the board price increase that is expected to have a net effect of approximately 3%."

"Sales for the first half of 2008 were up 19%. Demand for Sun products has outpaced the industry for several years and remains strong. We have established the fundamentals that will allow us to continue to grow, gain market share, and outpace the industry," affirmed Carlson.

Outlook

"Sun's products are used in diversified equipment markets around the globe," stated Carlson. "Many of these markets, such as mining and energy, remain strong and demand is high. In other more obvious markets, such as equipment used in residential and commercial construction, we have begun to see some softening."

"The diversity of our end markets, both geographically and the segments we participate in, is pivotal to maintaining our growth," concluded Carlson.

2008 third quarter sales are estimated to be approximately $45 million, a 9% increase over last year. Third quarter earnings per share are estimated to be between $0.35 and $0.37 per share, compared to $0.32 per share last year. EPS estimates for the third quarter include a charge of $775K for U.S. income taxes due on the repatriation of $6 million from Sun Germany in July 2008.

Webcast

Sun Hydraulics Corporation will broadcast its 2008 second quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, August 6, 2008. To listen to the webcast, go to http://investor.sunhydraulics.com/medialist.cfm.

Webcast Q&A

If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-877-407-8033. Questions also may be submitted to the Company via email 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. A copy of this earnings release is posted on the Investor Relations page of our website under "Press Releases."

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 29, 2007, and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in the Company's Form 10-Q for the quarter ended June 28, 2008. 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
                                                    June 28,     June 30,
                                                      2008         2007
                                                  (unaudited)  (unaudited)

Net sales                                         $    51,563  $    43,422

Cost of sales                                          32,488       29,125
                                                  -----------  -----------

Gross profit                                           19,075       14,297

Selling, engineering and
 administrative expenses                                5,792        5,438
                                                  -----------  -----------

Operating income                                       13,283        8,859

Interest income, net                                     (155)         (89)
Foreign currency transaction loss, net                     65           27
Miscellaneous (income)/expense, net                        32         (124)
                                                  -----------  -----------

Income before income taxes                             13,341        9,045

Income tax provision                                    4,433        3,093
                                                  -----------  -----------

Net income                                        $     8,908  $     5,952
                                                  ===========  ===========

Basic net income per common share                 $      0.54  $      0.36

Weighted average basic shares outstanding              16,592       16,425

Diluted net income per common share               $      0.54  $      0.36

Weighted average diluted shares outstanding            16,623       16,494

Dividends declared per share                      $     0.180  $     0.090



SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

                                                     Six months ended
                                                  June 28,      June 30,
                                                    2008          2007
                                                (unaudited)   (unaudited)

Net sales                                       $    100,571  $     84,275

Cost of sales                                         64,402        56,096
                                                ------------  ------------

Gross profit                                          36,169        28,179

Selling, engineering and
 administrative expenses                              11,746        10,653
                                                ------------  ------------

Operating income                                      24,423        17,526

Interest income, net                                    (268)         (162)
Foreign currency transaction loss, net                   101             1
Miscellaneous income, net                               (218)         (206)
                                                ------------  ------------

Income before income taxes                            24,808        17,893

Income tax provision                                   8,208         6,135
                                                ------------  ------------

Net income                                      $     16,600  $     11,758
                                                ============  ============

Basic net income per common share               $       1.00  $       0.72

Weighted average basic shares outstanding             16,577        16,401

Diluted net income per common share             $       1.00  $       0.71

Weighted average diluted shares outstanding           16,610        16,478

Dividends declared per share                    $      0.270  $      0.157




SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

                                                June 28, 2008  December 29,
                                                 (unaudited)       2007
Assets
Current assets:
  Cash and cash equivalents                     $      27,962 $      19,191
  Restricted cash                                         153           146
  Accounts receivable, net of allowance for
   doubtful accounts of $176 and $215                  22,302        17,029
  Inventories                                          12,203        11,421
  Deferred income taxes                                   301           301
  Other current assets                                  1,125         1,210
                                                ------------- -------------
      Total current assets                             64,046        49,298

Property, plant and equipment, net                     60,346        56,999
Other assets                                            4,467         4,483
                                                ------------- -------------

Total assets                                    $     128,859 $     110,780
                                                ============= =============

Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                              $       7,069 $       5,668
  Accrued expenses and other liabilities                4,796         4,857
  Long-term debt due within one year                      330           417
  Dividends payable                                     1,495         1,484
  Income taxes payable                                  2,338           674
                                                ------------- -------------
      Total current liabilities                        16,028        13,100

Long-term debt due after one year                         196           284
Deferred income taxes                                   5,106         5,108
Other noncurrent liabilities                              563           406
                                                ------------- -------------

      Total liabilities                                21,893        18,898

Shareholders' equity:
  Common stock                                             17            16
  Capital in excess of par value                       37,340        34,390
  Retained earnings                                    63,959        51,844
  Accumulated other comprehensive income                5,650         5,632
                                                ------------- -------------
      Total shareholders' equity                      106,966        91,882
                                                ------------- -------------

Total liabilities and shareholders’ equity      $     128,859 $     110,780
                                                ============= =============




SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

                                                     Six months ended
                                                  June 28,      June 30,
                                                    2008          2007
                                                (unaudited)   (unaudited)
Cash flows from operating activities:
Net income                                      $     16,600  $     11,758
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                          3,521         3,047
(Gain)/Loss on disposal of assets                        115           (61)
Provision for deferred income taxes                       (2)           84
Allowance for doubtful accounts                          (39)          (38)
Stock-based compensation expense                         434           331
Stock options income tax benefit                         (15)         (286)
(Increase) decrease in:
   Accounts receivable                                (5,234)       (3,831)
   Inventories                                          (782)         (754)
   Other current assets                                   85        (1,473)
   Other assets                                            3          (205)
Increase in:
   Accounts payable                                    1,401           959
   Accrued expenses and other liabilities              2,194         1,311
   Income taxes payable                                1,679         1,207
   Other noncurrent liabilities                          157           401
                                                ------------  ------------
Net cash provided by operating activities             20,117        12,450

Cash flows from investing activities:
Capital expenditures                                  (6,862)       (6,885)
Proceeds from dispositions of equipment                   99            76
                                                ------------  ------------
Net cash used in investing activities                 (6,763)       (6,809)

Cash flows from financing activities:
Repayment of debt                                       (225)         (210)
Proceeds from exercise of stock options                   84           256
Proceeds from stock issued                               162           123
Dividends to shareholders                             (4,474)       (2,181)
Stock options income tax benefit                          15           286
                                                ------------  ------------
Net cash used in financing activities                 (4,438)       (1,726)

Effect of exchange rate changes on cash and
 cash equivalents                                       (138)          310
                                                ------------  ------------

Net increase in cash and cash equivalents              8,778         4,225

Cash and cash equivalents, beginning of period        19,337         9,497
                                                ------------  ------------

Cash and cash equivalents, end of period        $     28,115  $     13,722
                                                ============  ============

Supplemental disclosure of cash flow
 information:
Cash paid:
   Interest                                     $         19  $         24
   Income taxes                                 $      6,546  $      5,349
Supplemental disclosure of noncash
 transactions:
   Common stock issued to ESOP through
    accrued expenses and other liabilities      $      2,255  $      1,386



                      United                     United   Elimin- Consoli-
                      States    Korea   Germany  Kingdom   ation   dated
Three Months
Ended June 28, 2008
Sales to unaffiliated
 customers            $ 31,705 $  5,465 $  7,859 $  6,534 $     -  $ 51,563
Intercompany sales       8,677        -       65      615  (9,357)        -
Operating income         9,391      425    2,314    1,078      75    13,283
Depreciation             1,265       42      151      336       -     1,794
Capital expenditures     4,180        1      117      164       -     4,462

Three Months
Ended June 30, 2007
Sales to unaffiliated
 customers            $ 25,836 $  5,695 $  6,107 $  5,784 $     -  $ 43,422
Intercompany sales       7,995        -       20      650  (8,665)        -
Operating income         6,153      636    1,377      686       7     8,859
Depreciation             1,098       43      136      264       -     1,541
Capital expenditures     2,976      152       21      533       -     3,682

Six Months
Ended June 28, 2008
Sales to unaffiliated
 customers            $ 60,024 $ 11,819 $ 15,821 $ 12,907 $     -  $100,571
Intercompany sales      17,804        -      143    1,204 (19,151)        -
Operating income        16,575    1,074    4,728    2,108     (62)   24,423
Depreciation             2,457       88      296      666       -     3,507
Capital expenditures     6,412       17      149      284       -     6,862

Six Months
Ended June 30, 2007
Sales to unaffiliated
 customers            $ 49,604 $ 10,652 $ 12,698 $ 11,321 $     -  $ 84,275
Intercompany sales      16,163        -       50    1,534 (17,747)        -
Operating income        11,896    1,146    3,021    1,521     (58)   17,526
Depreciation             2,160       82      272      520       -     3,034
Capital expenditures     5,718      209       47      911       -     6,885