Helios Technologies Inc (HLIO) 2011 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Sun Hydraulics Corporation 2011 Third Quarter Earnings Conference Call. Today's conference is being recorded. After today's prepared remarks, there will be a question-and-answer session and instructions will be given at that time.

At this time, I would like to turn the conference over to Mr. Rich Arter. Please go ahead, sir.

Thank you, Miranda. Good morning and thank you for joining us to review our third quarter results. Allen Carlson, Sun's President and CEO; and Tricia Fulton, Sun's CFO, will be participating in today's call. As Miranda indicated, once we have concluded our prepared remarks, we will take questions from the dial-in audience.

Please be aware some statements made today may be considered forward-looking information. To learn more about forward-looking information, please see yesterday's press release.

It is now my pleasure to introduce Allen Carlson.

Good morning and thanks for joining us. We just completed another strong quarter and 2011 will be another great year for Sun. Third quarter sales increased in all geographic regions, with our North American business leading the way. Our forecast of breaking the $200 million revenue level will be another first for Sun. We continue to grow our revenues and gain market share while reporting exceptionally strong operating performance.

Our growth and success in 2011 is due to the efforts of many people; Sun personnel, our suppliers and our distributors, to name a few. Our collective focus is on satisfying our customer's requirements in a timely and efficient manner. Sun has built a reputation on having the best delivery reliability in our industry and this is a critical part of our growth and market share. Satisfying customers is what ultimately drives superior operating results.

During the third quarter, we completed our acquisition of High Country Tek, Inc. As you may recall, we made an initial investment in HCT in 2007. HCT designs and produces ruggedized electronic control products that are important elements in hydraulic systems. HCT's product line and capabilities complement Sun, allowing us to offer complete solutions for our customers, providing additional future growth opportunities for Sun and HCT.

Our fourth quarter forecast reflects softening in orders compared to earlier this year. The PMI has historically been a strong leading indicator for Sun's business and this cycle appears to be the same. The PMI peaked out in February of this year and has hovered in the low 50s since July. Sun's order patterns are mimicking the movements of the PMI, as our orders began to decline in August and have remained at this lower level through October. However, we are encouraged that the US PMI continues to operate in a positive territory.

I will now turn the call over to Tricia and will rejoin you later for the Q&A.

Thanks, Al. As Al mentioned, we completed our acquisition of HCT during the quarter. We have had the benefit of knowing and working with HCT since 2007, and are happy to complete this phase of our relationship. Al and I visited HCT last week and both parties are excited that the purchase is complete. We expect a smooth integration and look forward to the future growth opportunities for Sun and HCT. Our third quarter earnings were augmented by the acquisition of HCT, which added $0.03 per share to earnings, related to a gain on our original investment.

Let's look now at the numbers for the third quarter. EPS figures reflect the 50% stock dividend recorded on June 30th of this year. Sales for the quarter were $53 million, up 39% compared to Q3 last year. North American sales increased most significantly, up 47%. Asia Pacific was up 35% and Europe, 30%. A price increase implemented July 1st accounted for approximately 3% of the sales in the quarter. Foreign currency accounted for 2.5% of the sales in the quarter, driven primarily by the Euro to US dollar exchange.

Earnings increased to $0.44 per share from $0.22 a year ago. Gross profit as a percentage of sales increased 3.5 points to 39.1%, compared to 35.6% for Q3 last year. At these revenue levels, operating margins and earnings remain strong as we are able to utilize our operating leverage.

SEA expenses were down 2% to $5.2 million compared to last year. The changes related primarily to variable stock compensation adjustments.

The provision for income taxes for Q3 was 33%. We expect the Q4 tax rate to also be approximately 33%.

Net cash from operations for the quarter was $16 million.

Inventory turns increased to 10.7, and days sales outstanding decreased five days to 35.

Capital expenditures for 2011 are expected to be $10 million. This is comprised of machinery and small infrastructure projects, primarily in the US.

A normal quarterly dividend of $0.09 per share was paid on October 15th for shareholders of record as of September 30th.

Taking a look ahead; our fourth quarter forecast reflects some softening of orders compared to earlier this year, but demonstrates growth over Q4 2010. Sales are estimated to be $44 million, up 5% from last year. Earnings are expected to be in the range of $0.26 to $0.28 per share, compared to $0.25 last year. These Q4 estimates will bring the year to just over $200 million in sales, an increase of 34% over 2010, with earnings of $1.49 to $1.51 compared to $0.84 cents in 2010. Fourth quarter and year-end estimates include approximately $1.3 million in revenue from HCT's operations with minimal impact on earnings.

I would now like to open the call for questions.

Thank you, ladies and gentlemen. (Operator Instructions). We'll go first to Tom Hayes with Piper Jaffray.

Hi, this is Steve for Tom. Good morning. We were wondering if you could provide a little bit more color around where you're seeing weakness for -- going into next quarter, geographically?

Geographically, we are seeing decreases in every region. It's about equal in every region, as well.

Okay. And then switching gears a little bit; with regards to the acquisition in the quarter, you recognized a gain. Is that a cash gain or a non-cash gain?

Non-cash.

Okay, thank you.

Thank you.

(Operator Instructions). We'll go next to Robert Mitchell with Conestoga.

Good morning.

Good morning, Bob.

Maybe just a little -- if you could expound upon the comments in terms of weakness in every market. Are there pockets of strength that you're seeing? Last quarter you talked about some of the traditional markets showing some strength. Maybe just talk about areas of weakness, strength, and then a little bit about China, as well.

Geographically, we really are seeing just the general decline in our run rates of our orders. I don't think there are any specific set market segments that are showing any more strength. It seems to be just a general economic decline, which really was indicated by the PMI earlier this year, that we were going to see this overall decline in orders.

I will add a little bit to what Tricia said. Yes, going back to PMI, it peaked out in February, and then in the middle of the year, it was hovering in the 50s. So that is a pretty good indicator.

I would also like to remind everyone that Sun's business is made up of thousands and thousands of customers all around the world. So it is very difficult for us to see if there is some customer somewhere or some market somewhere, with the high mix of customers that we do have. And then the third thing is; our lead time is three weeks. And so we are going to see these little blips up and down from a general economic situation.

And then the final comment I would make as it relates to China, China began putting on the brakes in early 2011 to slow their economy down. And so what we are seeing is very reflective of the actions that the Central Government took in China early this year to curb inflation and lower their GDP. So no surprises. I think it is as predicted.

Okay. And if I could ask a couple more questions. In terms of what the -- you often talk about the expedited orders. What kind of percentage of revenue were those expedited orders this quarter?

Okay. I don't know what it is for the quarter, I will give you an estimate. It is in the mid high teens, for example, for the quarter. But I can tell you, for the last three weeks it has been 20%-plus, which is an indication that there is a lot of activity out there requiring short lead time. And perhaps our distributors don't have the inventory on hand to cope with the orders and so they are -- with the uncertainty in the market, they are quite pleased to just download short lead time orders on us, and let it ship, and not carry the overhead.

Great. And then the integration of High Country, obviously you guys have had an ownership interest, and now you are taking the final step. What type of integration do you need from this point on? How different will you operate? Or just comment on that a little bit.

HCT will continue to run pretty independently from Sun. Obviously, we have some internal integration that we are working on now, primarily related to administrative type things. But they will, in the marketplace, they'll continue to run very independently. And any time that we have the opportunity to bring our products together in a solution, we will do that.

Great. Thank you.

Thank you.

Thanks, Bob.

And we have no further questions from the phone audience at this time. I will turn the conference back over to our speakers.

Well, we would like to thank you all for joining us today. And we look forward to speaking to you in the beginning of the year with year end results. Thanks for joining us.

Thank you. Ladies and gentlemen, that does conclude today's conference call. We would like to thank you all for your participation.