Sun Hydraulics (SNHY) Beats Q3 Earnings, Sales, Ups '17 View

Sun Hydraulics Corporation (NASDAQ:SNHY) reported impressive results for third-quarter 2017, marking the third consecutive quarter of a positive earnings surprise.

The quarter’s non-GAAP adjusted earnings came in at 43 cents per share, surpassing the Zacks Consensus Estimate of 36 cent by 19.4%. Also, the bottom line increased 126% from the year-ago tally of 19 cents.

Organic and Inorganic Gains Drive Revenues

Net sales in the quarter were $88 million, topping the Zacks Consensus Estimate of $80 million by 9.6%. Also, the top line surged 95% year over year on the back of solid organic growth of 27%, benefits from acquired assets of Enovation Controls (completed in December 2016) and favorable impact of foreign currency translation.

On a geographical basis, sales from the Americas increased 143.5% year over year to $52.1 million, representing 59% of net sales. Europe/Middle East/Africa sales comprising roughly 22% of net sales were $19 million, up 35.7% year over year. Sales from Asia Pacific grew 72.4% to $16.9 million. It represented 19% of net sales.

The company reports its quarterly sales under two segmental heads. Details for this quarter are provided below:

Hydraulics’ revenues totaled $56.6 million, increasing 27.6% year over year. It represented 64.4% of net sales. The segment gained from strengthening foothold in new markets as well as investments in field application specialists.

Revenues from Electronics totaled $31.4 million, significantly above $0.8 million generated in the year-ago quarter. It represented 35.6% of net sales. The performance was driven by benefits derived from new products launched, solid demand in the power controls and recreational vehicle markets and gains from sales initiatives.

Margin Profile Improves

Sun Hydraulics’ cost of sales in the quarter increased 74% year over year, partially offsetting 95% growth in the quarter’s net sales. Gross profit grew 134% year over year while gross margin came in at 41.2% versus 34.4% in the year-ago quarter.

Selling, engineering and administrative expenses, as a percentage of revenues were 19.2% compared with 18.1% in the year-ago quarter. Operating income escalated 142% year over year to $17.4 million while margin came in at 19.8% compared with 15.9% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the third quarter, Sun Hydraulics’ cash and cash equivalents were $81.2 million, up from $78.7 million in the preceding quarter.

In the first nine months of 2017, the company generated net cash of $38.4 million from its operating activities, up 22.7% over the year-ago period. Capital spending totaled $8.3 million, increasing 84.4% year over year. During the period, the company paid dividends amounting to $7.8 million.

Outlook

Sun Hydraulics is working diligently to improve its product portfolio and serve its customers better. The company aims to improve its operational execution, product development and market penetration.

The company has increased its revenue guidance for 2017 to $330-$340 million from the earlier projection of $315-$330 million. On a segmental basis, Hydraulics’ revenues are predicted to be $225-$230 million, up from $215-$225 million expected earlier. Electronics’ revenues are anticipated to be within $105-$110 million, increasing from $100-$105 million expected earlier.

Operating margin projection was reaffirmed at 22−24% while capital spending still is projected to be in $20-$25 million range. Effective tax rate will be 32-34%.

Sun Hydraulics Corporation Price and Consensus

Sun Hydraulics Corporation Price and Consensus | Sun Hydraulics Corporation Quote

Zacks Rank & Key Picks

With a market capitalization of $1.6 billion, Sun Hydraulics currently sports a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the industry include Kadant Inc. (NYSE:KAI) , Twin Disc, Incorporated (NASDAQ:TWIN) and Altra Industrial Motion Corporation (NASDAQ:AIMC) . While Kadant and Twin Disc sport a Zacks Rank #1, Altra Industrial Motion carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kadant pulled off an average positive earnings surprise of 20.32% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Twin Disc delivered an average positive earnings surprise of 123.97% in the trailing four quarters. Also, bottom-line expectations for fiscal 2018 and fiscal 2019 improved over the past 60 days.

Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 17.30% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

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