Sun Hydraulics Reports $0.34 Earnings on $38 Million Sales


SARASOTA, FL--(Marketwire - November 8, 2010) - Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the third quarter 2010 as follows:

(Dollars in millions except net income per share)

                                      October 2, September 26,
                                           2010          2009     Increase

     Three Months Ended
Net Sales                         $        38.1 $        23.3           64%
Net Income                        $         5.7 $         0.6          850%
Net Income per share:
  Basic                           $        0.34 $        0.03         1033%
  Diluted                         $        0.34 $        0.03         1033%

     Nine Months Ended
Net Sales                         $       108.9 $        70.1           55%
Net Income                        $        15.1 $         0.6         2417%
Net Income per share:
  Basic                           $        0.89 $        0.03         2867%
  Fully Diluted                   $        0.89 $        0.03         2867%

"Business continued to rebound in all geographic regions in the third quarter," said Allen Carlson, Sun Hydraulics' president and CEO. "We continue to service new customers in all regions, which is great for our long-range outlook. Traditional segments that have been slow to recover appear to be regaining momentum, which bolsters our short- and mid-term outlook. The moderate softening we experienced in the third quarter was normal seasonal demand."

Commenting on earnings, Carlson said, "We are extremely pleased with how quickly we have regained our operating leverage in 2010. This is the result of actions taken in late 2008 and throughout 2009 to retain and educate our workforce and invest in capabilities, as well as prospect for customers. We are currently operating at a level similar to 2006, but 2010 earnings are expected to be 25% better than 2006. We anticipate that 2011 will look a lot like 2007, also with the potential for stronger operational results. Third quarter 2010 earnings included a year-to-date retirement benefit adjustment which was not planned for in our previous third quarter estimates. Without this adjustment, earnings per share would have been 38 cents."

In conclusion, Carlson said, "The long-term outlook remains bright for Sun Hydraulics. Our core business drivers are unchanged with an emphasis on delivery reliability and superior product and customer service performance. We expect to continue to outgrow our industry by both creating new markets and gaining market share. We believe the result will be better than average returns for our shareholders."

Outlook

Fourth quarter 2010 revenues are expected to be approximately $38 million, up approximately 39% from the fourth quarter of 2009. Earnings per share are estimated to be $0.34 to $0.36 compared to $0.08 in the same period a year ago.

2010 year-end sales are estimated to be approximately $147 million, an approximately 51% increase over 2009 sales. Earnings per share for 2010 are estimated to be $1.23 to $1.25, compared to $0.11 in 2009.

Sun's prior year fourth quarter results were based on a 14-week quarter resulting in a 53-week year for 2009.

Webcast

Sun Hydraulics Corporation will broadcast its Q3 financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, November 9, 2010. To listen to the webcast, go to the Investor Relations section of www.sunhydraulics.com.

Webcast Q&A

If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing (888) 602-6363 and using 5302024 as the access code. 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 heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-Q for the quarter ended October 2, 2010, and under the heading "Business" and particularly under the subheading, "Business Risk Factors" in the Company's Form 10-K for the year ended January 2, 2010. 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
                                      October 2, 2010   September 26, 2009
                                        (unaudited)         (unaudited)

Net sales                           $           38,073  $           23,316

Cost of sales                                   24,523              17,965
                                    ------------------  ------------------

Gross profit                                    13,550               5,351

Selling, engineering and
 administrative expenses                         5,368               4,928
                                    ------------------  ------------------

Operating income                                 8,182                 423

Interest income, net                              (195)               (146)
Foreign currency transaction loss
 (gain), net                                        14                 (88)
Miscellaneous (income) expense, net                (46)                 87
                                    ------------------  ------------------

Income before income taxes                       8,409                 570

Income tax provision                             2,700                  16
                                    ------------------  ------------------

Net income                          $            5,709  $              554
                                    ==================  ==================

Basic net income per common share   $             0.34  $             0.03

Weighted average basic shares
 outstanding                                    16,961              16,883

Diluted net income per common share $             0.34  $             0.03

Weighted average diluted shares
 outstanding                                    16,993              16,917

Dividends declared per share        $            0.090  $            0.090




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

                                              Nine months ended
                                      October 2, 2010   September 26, 2009
                                        (unaudited)         (unaudited)

Net sales                           $          108,923  $           70,131

Cost of sales                                   71,270              54,968
                                    ------------------  ------------------

Gross profit                                    37,653              15,163

Selling, engineering and
 administrative expenses                        15,369              14,570
                                    ------------------  ------------------

Operating income                                22,284                 593

Interest income, net                              (477)               (427)
Foreign currency transaction loss,
 net                                                56                 243
Miscellaneous (income) loss, net                  (175)                387
                                    ------------------  ------------------

Income before income taxes                      22,880                 390

Income tax provision (benefit)                   7,747                (179)
                                    ------------------  ------------------

Net income                          $           15,133  $              569
                                    ==================  ==================

Basic net income per common share   $             0.89  $             0.03

Weighted average basic shares
 outstanding                                    16,952              16,806

Diluted net income per common share $             0.89  $             0.03

Weighted average diluted shares
 outstanding                                    16,985              16,837

Dividends declared per share        $            0.270  $            0.360



SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                  October 2,   January 2,
                                                      2010         2010
                                                  (unaudited)
Assets
Current assets:
  Cash and cash equivalents                       $     36,815 $     30,314
  Restricted cash                                          134          132
  Accounts receivable, net of allowance for
   doubtful accounts of $93 and $90                     16,420        9,949
  Inventories                                            9,761        7,799
  Income taxes receivable                                    8        1,485
  Deferred income taxes                                    575          575
  Marketable securities                                 12,042        7,844
  Other current assets                                   2,981        1,797
                                                  ------------ ------------
      Total current assets                              78,736       59,895

Property, plant and equipment, net                      53,353       56,633
Other assets                                             2,763        3,405
                                                  ------------ ------------

Total assets                                      $    134,852 $    119,933
                                                  ============ ============

Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                                $      4,436 $      2,442
  Accrued expenses and other liabilities                 4,044        2,475
  Dividends payable                                      1,527        1,524
                                                  ------------ ------------
      Total current liabilities                         10,007        6,441

Deferred income taxes                                    5,185        5,191
Other noncurrent liabilities                               851          687
                                                  ------------ ------------

      Total liabilities                                 16,043       12,319

Shareholders' equity:
  Common stock                                              17           17
  Capital in excess of par value                        43,388       42,210
  Retained earnings                                     74,930       64,383
  Accumulated other comprehensive income                   474        1,004
                                                  ------------ ------------
      Total shareholders' equity                       118,809      107,614
                                                  ------------ ------------

Total liabilities and shareholders' equity        $    134,852 $    119,933
                                                  ============ ============




SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                                      Nine months ended
                                                  October 2,  September 26,
                                                      2010        2009
                                                  (unaudited)  (unaudited)
Cash flows from operating activities:
Net income                                        $    15,133  $       569
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                           5,116        5,269
Loss on disposal of assets                                 22           17
Provision for deferred income taxes                        (6)          25
Allowance for doubtful accounts                             3          (17)
Stock-based compensation expense                          798          686
Stock options income tax benefit                          (32)           -
(Increase) decrease in:
   Accounts receivable                                 (6,474)       1,800
   Inventories                                         (1,962)       1,863
   Income taxes receivable                              1,509         (320)
   Other current assets                                (1,184)         (31)
   Other assets                                           622          457
(Increase) decrease in:
   Accounts payable                                     1,994          271
   Accrued expenses and other liabilities               1,569          558
   Other noncurrent liabilities                           164          153
                                                  -----------  -----------
Net cash provided by operating activities              17,272       11,300

Cash flows from investing activities:
Capital expenditures                                   (2,060)      (4,549)
Purchases of marketable securities                    (11,626)      (8,928)
Proceeds from sale of marketable securities             7,326        1,451
                                                  -----------  -----------
Net cash used in investing activities                  (6,360)     (12,026)

Cash flows from financing activities:
Repayment of debt                                           -         (261)
Proceeds from exercise of stock options                    44            7
Proceeds from stock issued                                303          310
Dividends to shareholders                              (4,583)      (6,024)
Stock options income tax benefit                           32            -
                                                  -----------  -----------
Net cash used in financing activities                  (4,204)      (5,968)

Effect of exchange rate changes on cash and
 cash equivalents                                        (205)       1,634
                                                  -----------  -----------

Net decrease in cash and cash equivalents               6,503       (5,060)

Cash and cash equivalents, beginning of period         30,446       35,303
                                                  -----------  -----------

Cash and cash equivalents, end of period          $    36,949  $    30,243
                                                  ===========  ===========

Supplemental disclosure of cash flow information:
Cash paid:
   Interest                                       $         -  $         9
   Income taxes                                   $     6,276  $       116
Supplemental disclosure of noncash transactions:
Common stock issued to ESOP through
 accrued expenses and other liabilities           $         -  $     2,797





                      United                     United   Elimin-  Consoli-
                      States    Korea   Germany  Kingdom   ation    dated
Three Months
Ended October 2, 2010
Sales to unaffiliated
 customers            $23,668  $  3,315 $  5,402 $  5,688 $     -  $ 38,073
Intercompany sales      6,873         -       37      311  (7,221)        -
Operating income        5,636       378    1,061    1,028      79     8,182
Depreciation            1,243        21      107      242       -     1,613
Capital expenditures      631        28       15       62       -       736

Three Months
Ended June 27, 2009
Sales to unaffiliated
 customers            $13,890  $  2,621 $  3,429 $  3,376 $     -  $ 23,316
Intercompany sales      3,881         -       43      217  (4,141)        -
Operating income
 (loss)                  (340)      193      498       24      48       423
Depreciation            1,284        27      125      268       -     1,704
Capital expenditures      961         4        9       69       -     1,043

Nine Months
Ended October 2, 2010
Sales to unaffiliated
 customers            $67,896  $ 12,151 $ 14,770 $ 14,106 $     -  $108,923
Intercompany sales     18,755         -      118      936 (19,809)        -
Operating income       15,511     1,655    3,088    2,122     (92)   22,284
Depreciation            3,891        66      320      727       -     5,004
Capital expenditures    1,712       141       20      187       -     2,060

Nine Months
Ended June 27, 2009
Sales to unaffiliated
 customers            $42,078  $  6,966 $ 11,041 $ 10,046 $     -  $ 70,131
Intercompany sales     11,581         -      118      915 (12,614)        -
Operating income
 (loss)                (2,430)      403    1,772      600     248       593
Depreciation            4,018        80      379      762       -     5,239
Capital expenditures    4,297        31       37      184       -     4,549