Sypris Reports Second Quarter Results; Cash Flow Remains Strong
LOUISVILLE, Ky.--(BUSINESS WIRE)--July 27, 2006--Sypris Solutions, Inc. (Nasdaq/NM: SYPR) today reported revenue increased 5% to a record $132.2 million for the second quarter compared to $125.6 million for the prior year period. Net income for the second quarter of 2006 declined from $2.0 million, or $0.11 per diluted share in the prior period to a net loss of $0.4 million, or $0.02 per diluted share. Free cash flow for second quarter reached a record $21.4 million.
For the six months ended June 30, 2006, the Company reported revenue increased 5% to a record $262.2 million compared to $249.8 million for the prior year period. Net income was $0.4 million compared to $2.6 million for the same period in 2005, while earnings per share were $0.02 per diluted share compared to $0.14 per diluted share. Earnings per share included the impact of adopting SFAS No. 123R, Share-Based Payment, which approximated $0.4 million, or $0.02 per diluted share in the first half of 2006. Free cash flow for the first half of 2006 was $24.7 million.
"Our Industrial Group experienced unplanned equipment downtime that resulted in significant overtime, labor inefficiencies and increased material consumption during a period in which record demand required the business to be at full operational capacity. All systems have since been returned to service, but the cost of doing so under these conditions had a material impact on margins," said Jeffrey T. Gill, president and chief executive officer.
"In addition to the headwinds experienced by our Industrial Group, our Electronics Group was impacted by a delay in shipments under certain classified programs with the U.S. Government. Unfortunately, these delays are expected to continue through the balance of this year as the various agencies work to complete the required certification processes. Once certified, we expect demand to be robust, with preliminary customer feedback indicating that initial estimates of demand are likely to be exceeded."
"The results for the quarter and the year continue to reflect the strain and expense of working with a major customer that has filed for court protection under bankruptcy law. While we have been fortunate and have successfully collected a substantial amount of our pre-petition accounts receivable, we continue to experience program launch delays, pricing disputes and excessive external costs that are impacting both the top and bottom line. The silver lining remains the Company's strong free cash flow, which has reached a record $63.5 million over the past four quarters."
The Industrial Group
Revenue for our Industrial Group increased 10% to $98.5 million in the second quarter from $89.7 million for the prior year period, and increased 6.4% sequentially from the first quarter of this year. Gross profit for the quarter decreased to $4.5 million from $7.5 million for the same period in 2005, as a result of unplanned equipment downtime that resulted in significant overtime, labor inefficiencies and increased material consumption.
The Electronics Group
Revenue for our Electronics Group was $33.8 million in the second quarter compared to $35.9 million for the prior year period. Gross profit for the quarter was $5.9 million compared to $6.3 million for the same period in 2005, reflecting a decline in product shipments under certain classified programs with the U.S. Government.
Revenue for the Aerospace & Defense segment was $21.9 million compared to $24.1 million for the prior year period, as program activity slowed. Revenue from the Test & Measurement segment increased to $11.9 million compared to $11.8 million for prior year period, and increased over 3% sequentially from the first quarter of this year. Gross profit for the Aerospace & Defense segment was $3.3 million, as compared to $3.4 million for the prior year period. Gross profit for the Test & Measurement segment decreased to $2.6 million from $3.0 million for the same period in 2005, due to an unfavorable shift in sales mix from product sales with higher margins to technical services sales.
"Net orders for our Electronics Group approximated $30.7 million for the quarter, while backlog was $91.2 million," said Gill. "Despite delays inherent in the certification process for two new classified programs, the outlook remains strong for our A&D segment in 2007."
Outlook
Gill added, "Looking forward, we believe that it is prudent to establish a more conservative outlook for the remainder of 2006. Until we demonstrate that our Industrial Group can operate for sustained periods at capacity, our forecast for operating margins will remain at current levels. The delay in the certification of the classified programs in our Electronics Group is expected to shift as much as $20 million of shipments from 2006 into 2007, the result of which is forecast to impact revenue and earnings during the second half of 2006."
Gill added, "We are reiterating our prior guidance from July 13, 2006 with expected revenue during the second half of 2006 in the range of $275 to $285 million and earnings are forecast to be in the range of $0.10 to $0.15 per diluted share during the second half of 2006. For the full year 2006, the revenue outlook is expected to a range of $537 to $548 million, while earnings are now forecast to be in the range of $0.12 to $0.17 per diluted share. We continue to expect free cash flow to remain strong for 2006 and consistent with the lower end of our prior guidance, which was $30 to $40 million for the year."
Sypris Solutions is a diversified provider of technology-based outsourced services and specialty products. The Company performs a wide range of manufacturing and technical services, typically under multi-year, sole-source contracts with major corporations and government agencies in the markets for aerospace and defense electronics, truck components and assemblies, and test and measurement services. For more information about Sypris Solutions, visit its Web site at www.sypris.com.
Each "forward-looking statement" herein is subject to serious risks and should not be relied upon, as detailed in our most recent Form 10-K and Form 10-Q and subsequent SEC filings. Briefly, we currently believe that such risks also include: cost and availability of raw materials such as steel, components, freight, natural gas or utilities; cost and inefficiencies associated with increasing our manufacturing capacity and launching new programs; stability and predictability of our costs and margins or our customers' forecasts, financial conditions, late payments, low-margin product mix, market shares, changing product requirements or scheduling demands; costs associated with breakdowns or repairs of machinery and equipment; growth beyond our productive capacity, cyclical or other downturns, adverse impacts of new technologies or other competitive pressures which erode our margins; cost, efficiency and yield of our operations including capital investments, working capital, scrap rates, cycle times, injuries, self-insured risks, wages, freight, production schedules, overtime costs, expediting costs or scrap rates; failure to make strategic acquisitions or to integrate and improve results of acquired businesses or to identify and adequately insure environmental or other risks in due diligence; inventory valuation risks due to obsolescence, shrinkage, theft, price, overstocking or underbilling; changes in government funded or other customer programs; reliance on major customers or suppliers, especially in the automotive sector where bankruptcies (such as Dana Corporation's recent filing) could result in the rejection or modification of our contracts; revised contract prices or estimates of major contract costs; dependence on, recruitment or retention of management or other key employees; union negotiations; pension valuation, health care or other benefit costs; labor relations; strikes; risks of foreign operations; currency exchange rates; costs and supply of debt, equity capital, or insurance due to poor operating or financial results, new business risks, credit ratings, debt covenant violations, contract claims, insurance conditions or regulatory developments; impairments or write-offs of goodwill or fixed assets; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; weaknesses in internal controls; costs of compliance with auditing, regulatory or contractual obligations; regulatory actions or sanctions; disputes or litigation, involving customer, supplier, creditor, stockholder, product liability or environmental claims; war, terrorism or political uncertainty; unanticipated or uninsured disasters, losses or business risks; inaccurate data about markets, customers or business conditions; or unknown risks and uncertainties.
SYPRIS SOLUTIONS, INC.
Financial Highlights
(In thousands, except per share amounts)
Three Months Ended
June 30,
----------------------
2006 2005
---------- ---------
(Unaudited)
Revenue $ 132,233 $ 125,602
Net (loss) income $ (444) $ 1,981
(Loss) earnings per common share:
Basic $ (0.02) $ 0.11
Diluted $ (0.02) $ 0.11
Weighted average shares outstanding:
Basic 18,065 18,028
Diluted 18,065 18,261
Six Months Ended
June 30,
----------------------
2006 2005
---------- ---------
(Unaudited)
Revenue $ 262,228 $ 249,843
Net income $ 412 $ 2,571
Earnings per common share:
Basic $ 0.02 $ 0.14
Diluted $ 0.02 $ 0.14
Weighted average shares outstanding:
Basic 18,055 17,996
Diluted 18,237 18,279
Sypris Solutions, Inc.
Consolidated Income Statements
(in thousands, except for per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
2006 2005 2006 2005
--------- -------- -------- --------
(Unaudited) (Unaudited)
Net revenue:
Industrial Group $ 98,454 $ 89,673 $190,952 $178,363
Aerospace & Defense 21,917 24,095 47,927 48,091
Test & Measurement 11,862 11,834 23,349 23,389
-------- -------- -------- --------
Electronics Group 33,779 35,929 71,276 71,480
-------- -------- -------- --------
Total net revenue 132,233 125,602 262,228 249,843
Cost of sales:
Industrial Group 93,963 82,132 180,513 164,425
Aerospace & Defense 18,570 20,726 40,626 42,331
Test & Measurement 9,266 8,856 18,038 17,840
-------- -------- -------- --------
Electronics Group 27,836 29,582 58,664 60,171
-------- -------- -------- --------
Total cost of sales 121,799 111,714 239,177 224,596
Gross profit:
Industrial Group 4,491 7,541 10,439 13,938
Aerospace & Defense 3,347 3,369 7,301 5,760
Test & Measurement 2,596 2,978 5,311 5,549
-------- -------- -------- --------
Electronics Group 5,943 6,347 12,612 11,309
-------- -------- -------- --------
Total gross profit 10,434 13,888 23,051 25,247
Selling, general and
administrative 9,632 9,113 19,551 17,666
Research and development 371 944 704 1,617
Amortization of intangible
assets 158 175 317 313
-------- -------- -------- --------
Operating income 273 3,656 2,479 5,651
Interest expense, net 1,083 1,508 2,242 2,769
Other income, net (8) (586) (258) (767)
-------- -------- -------- --------
(Loss) income before
income taxes (802) 2,734 495 3,649
Income tax (benefit) expense (358) 753 83 1,078
-------- -------- -------- --------
Net (loss) income $ (444) $ 1,981 $ 412 $ 2,571
======== ======== ======== ========
(Loss) earnings per common
share:
Basic $ (0.02) $ 0.11 $ 0.02 $ 0.14
Diluted $ (0.02) $ 0.11 $ 0.02 $ 0.14
Dividends declared per
common share $ 0.03 $ 0.03 $ 0.06 $ 0.06
Weighted average shares
outstanding:
Basic 18,065 18,028 18,055 17,996
Diluted 18,065 18,261 18,237 18,279
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
June 30, December 31,
2006 2005
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,348 $ 12,060
Accounts receivable, net 97,168 95,432
Inventory, net 73,460 79,724
Other current assets 29,468 26,020
----------- -----------
Total current assets 226,444 213,236
Property, plant and equipment, net 168,349 176,719
Goodwill 14,277 14,277
Other assets 12,015 13,392
----------- -----------
Total assets $ 421,085 $ 417,624
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 92,283 $ 76,567
Accrued liabilities 24,624 24,904
Current portion of long-term debt 15,000 --
----------- -----------
Total current liabilities 131,907 101,471
Long-term debt 55,000 80,000
Other liabilities 22,248 22,419
----------- -----------
Total liabilities 209,156 203,890
Stockholders' equity:
Preferred stock, par value $0.01 per share,
975,150 shares authorized; no shares issued -- --
Series A preferred stock, par value $0.01
per share, 24,850 shares authorized; no
shares issued -- --
Common stock, non-voting, par value $0.01
per share, 10,000,000 shares authorized; no
shares issued -- --
Common stock, par value $0.01 per share,
30,000,000 shares authorized; 18,317,524
and 18,165,658 shares issued and
outstanding in 2006 and 2005, respectively 183 182
Additional paid-in capital 142,761 142,111
Retained earnings 72,688 73,375
Accumulated other comprehensive loss (3,702) (1,934)
----------- -----------
Total stockholders' equity 211,930 213,734
----------- -----------
Total liabilities and stockholders' equity $ 421,085 $ 417,624
=========== ===========
Sypris Solutions, Inc.
Consolidated Cash Flow Statements
(in thousands)
Six Months Ended June 30,
-------------------------
2006 2005
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 412 $ 2,571
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,678 11,900
Other noncash items (1,072) 1,068
Changes in operating assets and
liabilities:
Accounts receivable (1,814) (6,517)
Inventory 6,161 (22,490)
Other current assets (3,448) (565 )
Accounts payable 15,827 35,993
Accrued liabilities (156) 1,230
----------- -----------
Net cash provided by operating
activities 29,588 23,190
Cash flows from investing activities:
Capital expenditures (4,903) (26,090)
Proceeds from sale of assets 57 29
Changes in nonoperating assets and
liabilities 431 (797)
----------- -----------
Net cash used in investing activities (4,415) (26,858)
Cash flows from financing activities:
Net change in debt under revolving credit
agreements (10,000) 7,500
Cash dividends paid (1,094) (1,078)
Proceeds from issuance of common stock 209 1,030
----------- -----------
Net cash used in financing activities (10,885) 7,452
----------- -----------
Net increase in cash and cash equivalents 14,288 3,784
Cash and cash equivalents at beginning of
period 12,060 14,060
----------- -----------
Cash and cash equivalents at end of period $ 26,348 $ 17,844
=========== ===========
CONTACT: Sypris Solutions, Inc.
T. Scott Hatton, 502-329-2000
SOURCE: Sypris Solutions, Inc.