Sun Hydraulics Third Quarter Earnings Increase 25% on 7% Sales Increase


SARASOTA, FL--(Marketwire - November 3, 2008) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the third quarter 2008 as follows:

(Dollars in millions except net income per share)

                                     September 27, September 29,
                                         2008          2007      Increase

        Three Months Ended
Net Sales                            $        44.8 $        41.8         7%
Net Income                           $         6.7 $         5.2        29%
Net Income per share:
   Basic                             $        0.40 $        0.32        25%
   Diluted                           $        0.40 $        0.32        25%

         Nine Months Ended
Net Sales                            $       145.3 $       126.1        15%
Net Income                           $        23.3 $        17.0        37%
Net Income per share:
   Basic                             $        1.40 $        1.04        35%
   Fully Diluted                     $        1.40 $        1.03        36%


"Third quarter results were what we expected, with moderate growth in sales and a significant increase in earnings," stated Allen Carlson, Sun's President and CEO. "As we look into the fourth quarter and beyond, we see business slowing. Our business is cyclical and we are in the down slope of the cycle. How long the downturn will last is outside of our vision, but rest assured our focus remains on creating opportunities for long-term profitable growth."

"Sun Hydraulics has a strong balance sheet, the right products for the marketplace and an agile workforce," Carlson stated. "We will continue to do the things we have always done to ensure we are poised to take full advantage of the cyclical upturn when it occurs. Our ability to deliver product reliably throughout this cycle is at the heart of our market share gains and remains a primary focus. While we will look to tighten our belts in the short term, it will not be at the expense of our long-term objectives," Carlson concluded.

R&D Tax Credit Affects EPS

In September, Sun completed an assessment of available R&D tax credits for tax years 2004-07, which resulted in a tax benefit of $900K. This was offset by professional fees of $150K (net of tax) related to the assessment. The overall effect was additional net income of $750K, or $0.045 per share, in the third quarter. This amount was not included in the third quarter estimate provided by management on August 5, 2008.

Outlook

2008 fourth quarter sales are estimated to be approximately $34 million and earnings per share are estimated to be in the range of $0.20 to $0.22. This would represent a decrease of approximately 18% in sales and 32% in earnings per share over the same period last year.

2008 year-end sales are estimated to be approximately $180 million, an 8% increase compared to 2007. Earnings per share for 2008 are estimated to be between $1.60 and $1.62, up approximately 20% over last year.

Webcast

Sun Hydraulics Corporation will broadcast its 2008 third quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, November 4, 2008. To listen to the webcast, go to http://investor.sunhydraulics.com/eventdetail.cfm?EventID=59332.

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 September 27, 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
                                                   September    September
                                                    27, 2008     29, 2007
                                                  (unaudited)  (unaudited)

Net sales                                         $    44,771  $    41,809

Cost of sales                                          30,033       28,485
                                                  -----------  -----------

Gross profit                                           14,738       13,324

Selling, engineering and administrative expenses        5,457        5,279
                                                  -----------  -----------

Operating income                                        9,281        8,045

Interest income, net                                     (233)        (120)
Foreign currency transaction gain, net                   (258)           -
Miscellaneous (income)/expense, net                         4         (115)
                                                  -----------  -----------

Income before income taxes                              9,768        8,280

Income tax provision                                    3,111        3,034
                                                  -----------  -----------

Net income                                        $     6,657  $     5,246
                                                  ===========  ===========

Basic net income per common share                 $      0.40  $      0.32

Weighted average basic shares outstanding              16,612       16,460

Diluted net income per common share               $      0.40  $      0.32

Weighted average diluted shares outstanding            16,642       16,507

Dividends declared per share                      $     0.090  $     0.090


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

                                                      Nine months ended
                                                   September    September
                                                    27, 2008     29, 2007
                                                  (unaudited)  (unaudited)

Net sales                                         $   145,342  $   126,085

Cost of sales                                          94,436       84,581
                                                  -----------  -----------

Gross profit                                           50,906       41,504

Selling, engineering and administrative expenses       17,203       15,932
                                                  -----------  -----------

Operating income                                       33,703       25,572

Interest income, net                                     (500)        (282)
Foreign currency transaction (gain)/loss, net            (158)           2
Miscellaneous income, net                                (213)        (321)
                                                  -----------  -----------

Income before income taxes                             34,574       26,173

Income tax provision                                   11,319        9,169
                                                  -----------  -----------

Net income                                        $    23,255  $    17,004
                                                  ===========  ===========

Basic net income per common share                 $      1.40  $      1.04

Weighted average basic shares outstanding              16,589       16,401

Diluted net income per common share               $      1.40  $      1.03

Weighted average diluted shares outstanding            16,621       16,468

Dividends declared per share                      $     0.360  $     0.247

SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

                                                September 27,
                                                    2008      December 29,
                                                (unaudited)       2007
Assets
Current assets:
  Cash and cash equivalents                     $      33,137 $      19,191
  Restricted cash                                         141           146
  Accounts receivable, net of allowance for
     doubtful accounts of $140 and $215                18,921        17,029
  Inventories                                          11,505        11,421
  Deferred income taxes                                   301           301
  Other current assets                                  1,067         1,210
                                                ------------- -------------
      Total current assets                             65,072        49,298

Property, plant and equipment, net                     59,803        56,999
Other assets                                            4,366         4,483
                                                ------------- -------------

Total assets                                    $     129,241 $     110,780
                                                ============= =============

Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                              $       5,765 $       5,668
  Accrued expenses and other liabilities                5,186         4,857
  Long-term debt due within one year                      240           417
  Dividends payable                                     1,495         1,484
  Income taxes payable                                  1,161           674
                                                ------------- -------------
      Total current liabilities                        13,847        13,100

Long-term debt due after one year                         174           284
Deferred income taxes                                   5,065         5,108
Other noncurrent liabilities                              502           406
                                                ------------- -------------

      Total liabilities                                19,588        18,898

Shareholders' equity:
  Common stock                                             17            16
  Capital in excess of par value                       37,685        34,390
  Retained earnings                                    69,120        51,844
  Accumulated other comprehensive income                2,831         5,632
                                                ------------- -------------
      Total shareholders' equity                      109,653        91,882
                                                ------------- -------------

Total liabilities and shareholders’ equity      $     129,241 $     110,780
                                                ============= =============


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

                                                      Nine months ended
                                                   September    September
                                                    27, 2008     29, 2007
                                                  (unaudited)  (unaudited)
Cash flows from operating activities:
Net income                                        $    23,255  $    17,004
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                           5,297        4,657
(Gain)/Loss on disposal of assets                         138          (60)
Provision for deferred income taxes                       (43)          78
Allowance for doubtful accounts                           (75)         (39)
Stock-based compensation expense                          671          542
Stock options income tax benefit                          (15)        (286)
(Increase) decrease in:
   Accounts receivable                                 (1,817)      (4,341)
   Inventories                                            (84)        (935)
   Other current assets                                   143       (1,484)
   Other assets                                            97         (271)
Increase in:
   Accounts payable                                        97        1,235
   Accrued expenses and other liabilities               2,584        2,759
   Income taxes payable                                   502          712
   Other noncurrent liabilities                            96          204
                                                  -----------  -----------
Net cash provided by operating activities              30,846       19,775

Cash flows from investing activities:
Capital expenditures                                   (9,229)      (9,448)
Proceeds from dispositions of equipment                    99           76
                                                  -----------  -----------
Net cash used in investing activities                  (9,130)      (9,372)

Cash flows from financing activities:
Repayment of debt                                        (301)        (322)
Proceeds from exercise of stock options                    87          267
Proceeds from stock issued                                267          191
Dividends to shareholders                              (5,968)      (3,684)
Stock options income tax benefit                           15          286
                                                  -----------  -----------
Net cash used in financing activities                  (5,900)      (3,262)

Effect of exchange rate changes on cash and
 cash equivalents                                      (1,875)         713
                                                  -----------  -----------

Net increase in cash and cash equivalents              13,941        7,854

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

Cash and cash equivalents, end of period          $    33,278  $    17,351
                                                  ===========  ===========

Supplemental disclosure of cash flow information:
Cash paid:
   Interest                                       $        19  $        35
   Income taxes                                   $    10,875  $     8,884
Supplemental disclosure of noncash transactions:
   Common stock issued to ESOP through
    accrued expenses and other liabilities        $     2,255  $     1,386


                   United                       United    Elim-    Consoli-
                   States   Korea     Germany   Kingdom   ination  dated
Three Months
Ended September
 27, 2008
Sales to
 unaffiliated
 customers      $  28,810 $   3,854 $   6,746 $   5,361 $      -  $  44,771
Intercompany
 sales              6,300         -        48       607   (6,955)         -
Operating
 income             6,204       257     2,131       752      (63)     9,281
Depreciation        1,273        37       147       313        -      1,770
Capital
 expenditures       2,080        19       140       129        -      2,368

Three Months
Ended September
 29, 2007
Sales to
 unaffiliated
 customers      $  24,770 $   5,244 $   6,033 $   5,762 $      -  $  41,809
Intercompany
 sales              7,551         -        65       609   (8,225)         -
Operating
 income             4,871       613     1,583     1,007      (29)     8,045
Depreciation        1,142        46       131       284        -      1,603
Capital
 expenditures       1,957        55         5       547        -      2,564

Nine Months
Ended September
 27, 2008
Sales to
 unaffiliated
 customers      $  88,834 $  15,673 $  22,567 $  18,268 $      -  $ 145,342
Intercompany
 sales             24,104         -       191     1,811  (26,106)         -
Operating
 income            22,779     1,332     6,858     2,860     (126)    33,703
Depreciation        3,730       125       443       979        -      5,277
Capital
 expenditures       8,492        35       289       413        -      9,229

Nine Months
Ended September
 29, 2007
Sales to
 unaffiliated
 customers      $  74,375 $  15,896 $  18,730 $  17,084 $      -  $ 126,085
Intercompany
 sales             23,715         -       115     2,143  (25,973)         -
Operating
 income            16,767     1,759     4,604     2,529      (87)    25,572
Depreciation        3,301       129       403       804        -      4,637
Capital
 expenditures       7,675       263        52     1,458        -      9,448