Sun Hydraulics Reports Second Quarter Sales of $57 Million and Earnings of $0.43 per Share


SARASOTA, FL--(Marketwire - Aug 6, 2012) - Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the second quarter of 2012 as follows:

           
(Dollars in millions except net income per share)          
               
    June 30,   July 2,      
    2012   2011   Increase  
               
Three Months Ended                  
Net Sales   $ 57.0   $ 54.8   4 %
Net Income   $ 11.2   $ 10.4   8 %
Net Income per share:                  
  Basic   $ 0.43   $ 0.41   5 %
  Diluted   $ 0.43   $ 0.41   5 %
                   
Six Months Ended                  
Net Sales   $ 112.3   $ 105.5   6 %
Net Income   $ 21.9   $ 20.2   8 %
Net Income per share:                  
  Basic   $ 0.85   $ 0.79   8 %
  Fully Diluted   $ 0.84   $ 0.79   6 %
                     

Commenting on results, Sun's CEO and President Allen Carlson said, "Sun had another record quarter with sales of $57 million. Second quarter sales were up 4%, despite a 2% negative impact due to the strengthening of the U.S. dollar. Strong domestic demand continued to drive the top line, with year-to-date North American sales up 19% compared to last year. Despite emerging headwinds, Sun had a strong first half and is on track to have another great year of sales and earnings."

"Our international business slowed in the second quarter, primarily in Europe," Carlson continued. "While the European economy struggles and China's growth remains constrained, we continue to add new customers, enlarging our customer base in these regions. Long-term, this market penetration will help bolster Sun's global market share."

"We are in a period of economic volatility and it is difficult to anticipate short-term business conditions in this environment," Carlson concluded. "The PMI, which came in at 49.8, supports the idea of short-term uncertainty. But, Sun is a very agile company and, as we have demonstrated in the past, we are able to rapidly flex and adapt to changing business conditions. Our focus remains on long-term profitable growth by providing both products and services that our customers value. We believe this is the best way to achieve better than average returns for our shareholders."

Outlook

All geographic regions continue to moderately slow down and third quarter 2012 revenues are expected to be approximately $49 million, compared to $53 million in the third quarter of 2011. For comparison purposes, the third quarter 2012 outlook includes $1 million in revenue from High Country Tek (HCT), while there was no revenue impact in 2011's third quarter results from HCT. 

Third quarter 2012 earnings per share are estimated to be $0.34 to $0.36, compared to $0.44 in the same period a year ago. HCT is not expected to contribute to 2012 earnings. However, for comparison purposes, 2011 third quarter results included a one-time $0.03 per share gain resulting from the acquisition of HCT. The remainder of the earnings decline is predominantly related to lower sales volume.

Webcast

Sun Hydraulics Corporation will broadcast its 2012 first quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, August 7, 2012. 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 1-888-471-3835 and using 3822409 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 June 30, 2012, and under the heading "Business" and particularly under the subheading, "Business Risk Factors" in the Company's Form 10-K for the year ended December 31, 2011. 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 30, 2012     July 2, 2011  
    (unaudited)     (unaudited)  
             
Net sales   $ 57,031     $ 54,770  
                 
Cost of sales     34,062       33,096  
                 
Gross profit     22,969       21,674  
                 
Selling, engineering and administrative expenses     6,505       6,290  
                 
Operating income     16,464       15,384  
                 
Interest income, net     (294 )     (186 )
Foreign currency transaction gain, net     (66 )     (33 )
Miscellaneous (income) expense, net     (39 )     32  
                 
Income before income taxes     16,863       15,571  
                 
Income tax provision     5,616       5,134  
                 
Net income   $ 11,247     $ 10,437  
                 
Basic net income per common share   $ 0.43     $ 0.41  
                 
Weighted average basic shares outstanding     25,937       25,638  
                 
Diluted net income per common share   $ 0.43     $ 0.41  
                 
Weighted average diluted shares outstanding     25,975       25,674  
                 
Dividends declared per share   $ 0.090     $ 0.090  
                 
             
SUN HYDRAULICS CORPORATION        
CONSOLIDATED STATEMENTS OF OPERATIONS            
(in thousands except per share data)            
    Six months ended  
    June 30, 2012     July 2, 2011  
    (unaudited)     (unaudited)  
             
Net sales   $ 112,305     $ 105,473  
                 
Cost of sales     67,118       63,857  
                 
Gross profit     45,187       41,616  
                 
Selling, engineering and administrative expenses     13,459       12,322  
                 
Operating income     31,728       29,294  
                 
Interest income, net     (635 )     (349 )
Foreign currency transaction gain, net     (77 )     (87 )
Miscellaneous income, net     (164 )     (258 )
                 
Income before income taxes     32,604       29,988  
                 
Income tax provision     10,734       9,781  
                 
Net income   $ 21,870     $ 20,207  
                 
Basic net income per common share   $ 0.85     $ 0.79  
                 
Weighted average basic shares outstanding     25,861       25,593  
                 
Diluted net income per common share   $ 0.84     $ 0.79  
                 
Weighted average diluted shares outstanding     25,905       25,629  
                 
Dividends declared per share   $ 0.300     $ 0.223  
                 
             
SUN HYDRAULICS CORPORATION        
CONSOLIDATED BALANCE SHEETS            
(in thousands)            
    June 30, 2012     December 31, 2011  
    (unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 53,465     $ 51,262  
  Restricted cash     47       46  
  Accounts receivable, net of allowance for doubtful accounts of $68 and $83     21,736       16,227  
  Inventories     13,719       12,829  
  Income taxes receivable     -       120  
  Deferred income taxes     260       260  
  Marketable securities     30,872       21,832  
  Other current assets     1,658       1,354  
    Total current assets     121,757       103,930  
                 
Property, plant and equipment, net     58,402       56,959  
Other assets     6,350       6,639  
                 
Total assets   $ 186,509     $ 167,528  
                 
Liabilities and Shareholders' Equity                
Current liabilities:                
  Accounts payable   $ 4,805     $ 4,402  
  Accrued expenses and other liabilities     5,893       7,466  
  Income taxes payable     342       -  
  Dividends payable     2,337       2,318  
    Total current liabilities     13,377       14,186  
                 
Deferred income taxes     6,918       6,917  
Other noncurrent liabilities     244       1,149  
                 
    Total liabilities     20,539       22,252  
                 
Shareholders' equity:                
  Common stock     26       26  
  Capital in excess of par value     55,771       48,944  
  Retained earnings     112,508       98,426  
  Accumulated other comprehensive loss     (2,335 )     (2,120 )
    Total shareholders' equity     165,970       145,276  
                 
Total liabilities and shareholders' equity   $ 186,509     $ 167,528  
                 
           
SUN HYDRAULICS CORPORATION      
CONSOLIDATED STATEMENTS OF CASH FLOWS          
(in thousands)          
    Six months ended  
    June 30, 2012   July 2, 2011  
    (unaudited)   (unaudited)  
Cash flows from operating activities:              
Net income   $ 21,870   $ 20,207  
Adjustments to reconcile net income to              
net cash provided by operating activities:              
Depreciation and amortization     3,576     3,368  
(Gain) loss on disposal of assets     (21)     69  
Unrealized foreign exchange loss     15     -  
Provision for deferred income taxes     1     6  
Allowance for doubtful accounts     (15)     1  
Stock-based compensation expense     1,157     829  
(Increase) decrease in:              
  Accounts receivable     (5,494)     (6,954 )
  Inventories     (890)     (1,276 )
  Income taxes receivable     120     671  
  Other current assets     (304)     (352 )
  Other assets     181     (318 )
Increase (decrease) in:              
  Accounts payable     403     1,827  
  Accrued expenses and other liabilities     2,834     3,526  
  Income taxes payable     342     -  
  Other noncurrent liabilities     25     365  
Net cash provided by operating activities     23,800     21,969  
               
Cash flows from investing activities:              
Proceeds from sale of joint venture     -     1,451  
Capital expenditures     (4,752)     (2,811 )
Proceeds from dispositions     21     30  
Purchases of marketable securities     (12,251)     (5,500 )
Proceeds from sale of marketable securities     3,130     4,190  
Net cash used in investing activities     (13,852)     (2,640 )
               
Cash flows from financing activities:              
Proceeds from exercise of stock options     -     61  
Proceeds from stock issued     333     281  
Dividends to shareholders     (7,769)     (4,952 )
Net cash used in financing activities     (7,436)     (4,610 )
               
Effect of exchange rate changes on cash and cash equivalents    
(309)
   
1,795
 
               
Net increase in cash and cash equivalents     2,203     16,514  
               
Cash and cash equivalents, beginning of period     51,262     33,206  
               
Cash and cash equivalents, end of period   $ 53,465   $ 49,720  
               
Supplemental disclosure of cash flow information:              
Cash paid:              
  Income taxes   $ 10,272   $ 9,104  
Supplemental disclosure of noncash transactions:              
  Common stock issued for shared distribution through accrued expenses and other liabilities        
$ 4,407
   
$
 
2,412
 
 
  Common stock issued for deferred director's compensation through other noncurrent liabilities     $ 930   $ -  
                   
                           
 
 
 
 
 
 
 
United
States
 
 
 
 
 
Korea
 
 
 
 
 
Germany
 
 
 
 
United
Kingdom
 
 
 
 
 
Elimination
 
 
 
 
 
 
 
 
Consolidated
                           
Three Months                                      
Ended June 30, 2012                                      
Sales to unaffiliated customers   $ 39,458   $ 4,953   $ 7,054   $ 5,566   $ -     $ 57,031
Intercompany sales     8,466     -     21     473     (8,960 )     -
Operating income     13,116     508     1,647     1,085     108       16,464
Depreciation     1,306     31     78     219     -       1,634
Capital expenditures     2,621     9     15     321     -       2,966
                                       
Three Months                                      
Ended July 2, 2011                                      
Sales to unaffiliated customers   $ 35,152   $ 5,674   $ 7,308   $ 6,636   $ -     $ 54,770
Intercompany sales     8,470     -     63     407     (8,940 )     -
Operating income     11,383     659     1,922     1,281     139       15,384
Depreciation     1,292     29     88     246     -       1,655
Capital expenditures     1,615     23     5     56     -       1,699
                                       
Six Months                                      
Ended June 30, 2012                                      
Sales to unaffiliated customers   $ 75,078   $ 10,906   $ 14,474   $ 11,847   $ -     $ 112,305
Intercompany sales     17,541     -     44     847     (18,432 )     -
Operating income     24,897     1,214     3,192     2,219     206       31,728
Depreciation     2,631     57     160     438     -       3,286
Capital expenditures     4,214     20     32     486     -       4,752
                                       
Six Months                                      
Ended July 2, 2011                                      
Sales to unaffiliated customers   $ 65,618   $ 11,697   $ 14,496   $ 13,662   $ -     $ 105,473
Intercompany sales     17,959     -     116     783     (18,858 )     -
Operating income (loss)     21,359     1,599     3,662     2,487     187       29,294
Depreciation     2,585     54     188     486     -       3,313
Capital expenditures     2,510     146     50     104     -       2,810