Sypris Reports Third Quarter Results
Business Editors
LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 26, 2006--Sypris Solutions, Inc. (Nasdaq/NM: SYPR) today reported revenue of $126.0 million for the third quarter compared to $140.8 million for the prior year period. The Company reported a net loss of $0.8 million, or $0.04 per diluted share for the third quarter compared to earnings of $3.0 million, or $0.16 per diluted share for the prior year period. Free cash flow for the third quarter reached $10.7 million.
For the nine months ended September 30, 2006, the Company reported revenue of $388.2 million compared to $390.7 million for the prior year period and a net loss of $0.4 million, or $0.02 per diluted share compared to net income of $5.6 million, or $0.30 per diluted share for the same period in 2005. The net loss in the first nine months of 2006 included the impact of adopting SFAS No. 123R, Share-Based Payment, which approximated $0.4 million, net of taxes, or $0.02 per diluted share. Free cash flow for the first nine months of 2006 was $35.3 million.
"Our Industrial Group experienced a 39% reduction in orders for component shipments to the Ford Motor Company during the third quarter, the result of which had a material impact on the Company's revenue and margins for the period," said Jeffrey T. Gill, President and Chief Executive Officer. "Unfortunately, the rightsizing of our workforces in each of the plants impacted by the change required much of the quarter to complete, further compressing the group's short-term margins. Inventory corrections by other customers also impacted Industrial Group revenue to a lesser degree during the quarter."
Gill continued, "The lower than expected revenue and margins for the quarter were also driven by our Electronics Group, which generated lower sales primarily due to a reduction in the initial rate of production for the launch of a new classified program. The short-term change in schedules was necessitated to incorporate several new important design modifications earlier in the product's life cycle. We now expect to reach full rates of production early in 2007."
"Despite these headwinds, the Company continued to generate significant free cash flow. As a result, the Company's balance sheet remains a source of strength, with net debt representing less than 14% of total capital. As we go forward, we will continue to evaluate opportunities to use this strength to improve margins and increase the Company's market share."
The Industrial Group
Revenue for our Industrial Group was $93.0 million in the third quarter compared to $94.5 million for the prior year period. Gross profit for the quarter decreased to $5.2 million from $7.3 million for the same period in 2005, as a result of higher material losses and labor inefficiency from shifting volumes during the quarter.
"The near-term outlook for the production of light trucks and sport utility vehicles remains uncertain at best," said Gill. "We have reduced headcount at each of our plants that have been impacted by the announced changes in production outlook, but our sense is that this market will remain challenging for some time to come. We will continue to aggressively pursue initiatives that will enable the Company to succeed in this increasingly difficult environment."
The Electronics Group
Revenue for our Electronics Group was $32.9 million in the third quarter compared to $46.3 million for the prior year period. Gross profit for the quarter was $5.1 million compared to $8.3 million for the same period in 2005. The declines in revenue and gross profit reflect a decline in product shipments under certain classified programs with the U.S. Government.
Revenue for the Aerospace & Defense segment was $21.1 million compared to $33.9 million for the prior year period, as prior year programs ended and new programs were rescheduled to early 2007. Revenue from the Test & Measurement segment was $11.8 million compared to $12.4 million for the prior year period. Despite strong growth in calibration services, softness in our test services market more than offset calibration gains. Gross profit for the Aerospace & Defense segment was $2.6 million, as compared to $5.4 million for the prior year period reflecting the lower volumes, while gross profit for the Test & Measurement segment was $2.5 million compared to $2.9 million for the same period in 2005, due to the decline in testing services.
"Net orders for our Electronics Group approximated $37.7 million for the quarter, while backlog grew 5% sequentially from second quarter to $96.3 million," said Gill. "Despite the short-term delay in the launch of two new classified programs, the outlook remains strong for our A&D segment in 2007 when an additional key classified program is scheduled to resume shipment. As a result, we expect our Electronics Group to resume its top line growth during the coming year."
Outlook
Gill added, "Looking forward, we believe the balance of 2006 will remain challenging for Sypris as our Industrial Group faces continued softness on lower demand for light-duty trucks and sport utility vehicles, and management continues to absorb the impact of a major customer in bankruptcy. Additionally, our Electronics Group is forecasting lower revenue and earnings for fourth quarter to reflect the rescheduling of production for the new classified programs."
Gill added, "Consequently, we are lowering our prior guidance from July 27, 2006 with expected revenue during the fourth quarter of 2006 in the range of $115 to $125 million with a loss for the fourth quarter forecasted to be in the range of $0.9 million to $1.8 million, or $0.05 to $0.10 per diluted share. For the full year 2006, the revenue outlook is expected to be in the range of $503.0 to $513.0 million, while a net loss is now forecast to be in the range of $1.3 million to $2.2 million, or $0.07 to $0.12 per diluted share. We continue to expect free cash flow to remain strong for 2006 and to be at the upper end of our prior guidance of $30.0 to $40.0 million for the year. And consistent with our past practice, we will issue a press release and host a conference call on Thursday, January 11, 2007 to discuss the Company's financial outlook for 2007."
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, or expediting costs; 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
September 30,
-------------------
2006 2005
--------- ---------
(Unaudited)
Revenue $125,955 $140,811
Net (loss) income $(802) $3,001
(Loss) earnings per common share:
Basic $(0.04) $0.17
Diluted $(0.04) $0.16
Weighted average shares outstanding:
Basic 18,094 18,036
Diluted 18,094 18,423
Nine Months Ended
September 30,
-------------------
2006 2005
--------- ---------
(Unaudited)
Revenue $388,185 $390,654
Net (loss) income $(389) $5,572
(Loss) earnings per common share:
Basic $(0.02) $0.31
Diluted $(0.02) $0.30
Weighted average shares outstanding:
Basic 18,071 18,009
Diluted 18,071 18,328
Sypris Solutions, Inc.
Consolidated Income Statements
(in thousands, except for per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2006 2005 2006 2005
------------------ --------- ---------
(Unaudited) (Unaudited)
Net revenue:
Industrial Group $93,021 $94,504 $283,974 $272,867
Aerospace & Defense 21,166 33,866 69,094 81,957
Test & Measurement 11,768 12,441 35,117 35,830
--------- -------- --------- ---------
Electronics Group 32,934 46,307 104,211 117,787
--------- -------- --------- ---------
Total net revenue 125,955 140,811 388,185 390,654
Cost of sales:
Industrial Group 87,871 87,161 268,384 251,586
Aerospace & Defense 18,559 28,498 59,185 70,829
Test & Measurement 9,289 9,546 27,327 27,386
--------- -------- --------- ---------
Electronics Group 27,848 38,044 86,512 98,215
--------- -------- --------- ---------
Total cost of sales 115,719 125,205 354,896 349,801
Gross profit:
Industrial Group 5,150 7,343 15,590 21,281
Aerospace & Defense 2,607 5,368 9,909 11,128
Test & Measurement 2,479 2,895 7,790 8,444
--------- -------- --------- ---------
Electronics Group 5,086 8,263 17,699 19,572
--------- -------- --------- ---------
Total gross profit 10,236 15,606 33,289 40,853
Selling, general and
administrative 10,175 8,492 29,726 26,158
Research and development 427 767 1,132 2,384
Amortization of intangible
assets 163 161 480 474
--------- -------- --------- ---------
Operating (loss) income (529) 6,186 1,951 11,837
Interest expense, net 820 1,797 3,062 4,566
Other income, net 12 (89) (246) (856)
--------- -------- --------- ---------
(Loss) income before income
taxes (1,361) 4,478 (865) 8,127
Income tax (benefit) expense (559) 1,477 (476) 2,555
--------- -------- --------- ---------
Net (loss) income $(802) $3,001 $(389) $5,572
========= ======== ========= =========
(Loss) earnings per common
share:
Basic $(0.04) $0.17 $(0.02) $0.31
Diluted $(0.04) $0.16 $(0.02) $0.30
Dividends declared per common
share $0.03 $0.03 $0.09 $0.09
Weighted average shares
outstanding:
Basic 18,094 18,036 18,071 18,009
Diluted 18,094 18,423 18,071 18,328
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
September 30, December 31,
2006 2005
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $26,238 $12,060
Accounts receivable, net 76,047 95,432
Inventory, net 77,859 79,724
Other current assets 35,267 26,020
------------- ------------
Total current assets 215,411 213,236
Property, plant and equipment, net 160,217 176,719
Goodwill 14,277 14,277
Other assets 11,699 13,392
------------- ------------
Total assets $401,604 $417,624
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $85,512 $76,567
Accrued liabilities 21,341 24,904
Current portion of long-term debt 5,000 --
------------- ------------
Total current liabilities 111,853 101,471
Long-term debt 55,000 80,000
Other liabilities 23,018 22,419
------------- ------------
Total liabilities 189,871 203,890
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; 18,338,334
and 18,165,658 shares issued and
outstanding in 2006 and 2005,
respectively 183 182
Additional paid-in capital 143,217 142,111
Retained earnings 71,335 73,375
Treasury stock (16) --
Accumulated other comprehensive loss (2,986) (1,934)
------------- ------------
Total stockholders' equity 211,733 213,734
------------- ------------
Total liabilities and stockholders'
equity $401,604 $417,624
============= ============
Sypris Solutions, Inc.
Consolidated Cash Flow Statements
(in thousands)
Nine Months Ended
September 30,
-----------------
2006 2005
-------- --------
(Unaudited)
Cash flows from operating activities:
Net (loss) income $(389) $5,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,272 18,698
Other noncash items 1,414 1,714
Changes in operating assets and liabilities:
Accounts receivable 18,334 (5,095)
Inventory 1,657 (8,006)
Other current assets (4,142) (2,108)
Accounts payable 9,288 30,809
Accrued liabilities (4,238) 6,542
-------- --------
Net cash provided by operating activities 43,196 48,126
Cash flows from investing activities:
Capital expenditures (7,852) (32,805)
Proceeds from sale of assets 71 29
Changes in nonoperating assets and liabilities 85 (1,330)
-------- --------
Net cash used in investing activities (7,696) (34,106)
Cash flows from financing activities:
Net change in debt under revolving credit
agreements (20,000) (5,000)
Cash dividends paid (1,643) (1,619)
Proceeds from issuance of common stock 321 1,044
-------- --------
Net cash used in financing activities (21,322) (5,575)
-------- --------
Net increase in cash and cash equivalents 14,178 8,445
Cash and cash equivalents at beginning of period 12,060 14,060
-------- --------
Cash and cash equivalents at end of period $26,238 $22,505
======== ========
CONTACT: Sypris Solutions, Inc.
Chief Financial Officer:
T. Scott Hatton, 502-329-2000
SOURCE: Sypris Solutions, Inc.