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Hammond Power Solutions Inc. Announces Quarter 2, 2018 Financial Results

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Challenging Quarter Due To Margin Erosion and Extraordinary Business Disruption Costs in Europe

GUELPH, Ontario, July 25, 2018 (GLOBE NEWSWIRE) -- Hammond Power Solutions Inc. ("HPS") (TSX:HPS), a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the Second Quarter of 2018.

SECOND QUARTER RESULTS

Sales for the quarter-ended June 30, 2018 were $77,393, a decrease of $1,481 or 1.9% from Quarter 2, 2017 sales of $78,874. Year-to-date 2018 sales decreased $770 or 0.5% to $150,466 compared to $151,236 in 2017. Sales in the United States ("U.S.") increased by $3,063 or 6.8%, finishing at $48,143 for Quarter 2, 2018 compared to $45,080 in Quarter 2, 2017. Year-to-date U.S. sales were $92,855 in 2018 and $87,751 in 2017, an increase of $5,104 or 5.8%. U.S. sales, when stated in U.S. dollars, were $37,334 in Quarter 2, 2018, compared to Quarter 2, 2017 of $33,473, an improvement of $3,861 or 11.5%.  Year-to-date U.S. sales stated in U.S. dollars were $73,196 in 2018 compared to $65,737 in 2017, an increase of $7,459 or 11.3%. Canadian sales were $22,592 for the quarter, an increase of $2,866 or 14.5% from Quarter 2, 2017 sales of $19,726. Year-to-date Canadian sales were $43,312 in 2018 compared to $36,665 in 2017, an increase of $6,647 or 18.1%. International sales for Quarter 2, 2018 finished at $6,658 versus $14,068 in Quarter 2, 2017, a decrease of $7,410 or 52.7%. Year-to-date international sales were $14,299 in 2018 compared to $26,820 in 2017, a decrease of $12,521 or 46.7%.

Booking rates in the distributor channel increased 11.4% over Quarter 2, 2017. On a direct channel basis, bookings were higher than Quarter 2, 2017 by 3.8%.  On a year-to-date basis, overall Company bookings have increased 5.5% over the same period as last fiscal year. The distributor channel bookings increased 14.9% and the direct channel bookings are lower by 2.1%.

The gross margin rate for Quarter 2, 2018 was 22.5% compared to a Quarter 2, 2017 gross margin rate of 25.0%, a decline of 2.5% of sales.  Year-to-date, the gross margin rate was 22.9% in 2018 versus 24.7% in 2017, a decrease of 1.8%.

"The weakening in margin rates can be attributed to selling price pressures, fluctuating commodity costs and sales mix. On a positive note, we continue to achieve growth in our North American sales and bookings," Bill Hammond commented.

Total selling and distribution expenses were $8,641 in Quarter 2, 2018 or 11.2% of sales, versus $8,627 in Quarter 2, 2017 or 10.9% of sales, a minimal increase of $14 and an increase 0.3% of sales. Year-to-date selling and distribution expenses were $17,246 or 11.5% of sales in 2018 compared to $16,832 or 11.1% in 2017, an increase of $414 and 0.4% of sales.

General and administrative expenses for Quarter 2, 2018 totaled $6,677 or 8.6% of sales, compared to Quarter 2, 2017 expenses of $6,128 or 7.8% of sales, an increase of $549 or 0.8% of sales.  Year-to-date general and administrative expenses were $13,175 or 8.8% of sales in 2018, compared to $12,366 or 8.2% of sales in 2017, an increase of $809 or 0.6% of sales.

Quarter 2, 2018 earnings from operations were $1,561, a decrease of $3,392 or 68.5% from $4,953 for the same quarter last year. The year-to-date earnings from operations were $3,534 in 2018 compared to $7,358 in 2017, a decrease of $3,824 or 52.0%.  The change in the quarter and year-to-date is a result of slightly decreased sales, lower gross margin rate and higher selling and administrative expenses. 

Interest expense for Quarter 2, 2018 was $388, an increase of $102 or 35.7% compared to the Quarter 2, 2017 expense of $286. Year-to-date interest cost was $684, an increase of $82 or 13.6% when compared to the 2017 year-to-date expense of $602.

The foreign exchange loss in Quarter 2, 2018 was $255 compared to a foreign exchange gain of $22 in Quarter 2, 2017.  The year-to-date foreign exchange loss for 2018 was $93, compared to $45 for the same period last year.

The net loss for Quarter 2, 2018 was $370 compared to net earnings of $2,842 in Quarter 2, 2017, a decrease of $3,212. Year-to-date net earnings were $525 and in 2018 compared to $3,926 in 2017, a decrease of $3,401 or 86.6%.  The decline in the quarter is primarily due to the unanticipated business disruption costs of $560 from restructuring, and a $479 negative earnings impact from the downsizing of our Italian operations and year to date disruption costs of $560 from restructuring, and a $1,171 negative earnings impact relating to our Italian operations. Lower sales, decreased gross margin rate, sales mix, increased losses on investment in the joint venture and a higher effective tax rate also contributed to the decline in the quarter and year-to-date earnings.   

The basic loss per share was $0.03 for Quarter 2, 2018, compared to a basic earnings per share of $0.25 in Quarter 2, 2017, a decrease of $0.28.  Year-to-date the basic earnings per share was $0.05 in 2018 and $0.34 in 2017.

Net cash generated by operating activities for Quarter 2, 2018 was $972 versus $2,315 in Quarter 2, 2017, a decline of $1,343. Year-to-date net cash used in operating activities was $935 compared to $5,307 in 2017, a decrease of $4,372. This decrease is a result of a decrease in income tax payments and a decrease in the cash used for working capital.

During the quarter, non-cash working capital used cash of $275 compared to $1,746 for the same quarter last year. The year-to-date change in non-cash working capital was a usage of cash of $5,970 in 2018 compared to $13,201 in 2017.

The Company's overall operating debt balance net of cash was $21,578 in Quarter 2, 2018 compared to $20,416 in Quarter 2, 2017, an increase in debt position of $1,162 primarily reflective of decreased funding of the joint venture, lower tax payments, offset with higher working capital usage.  

Mr. Hammond concluded, "The Company is focused on delivering escalating improvement in its revenue, and profitability. We believe in the strength of HPS and are confident in the Company's future."

FINANCIAL RESULTS

THREE MONTHS ENDED:
(dollars in thousands)

  June 30, 2018
  July 1, 2017
  Change
 
Sales
$ 77,393   $ 78,874   $ (1,481 )
Restructuring Charges $ 560   $ -   $ 560  
Earnings from Operations
$ 1,561   $ 4,953   $ (3,392 )
Exchange  Loss (Gain)
$ 255   $ (22 ) $ 277  
Share of loss of investment in joint venture $ 479   $ 255   $ 224  
Net (Loss)Earnings
$ (370 ) $ 2,842   $ (3,212 )
(Loss)Earnings per share      
Basic $ (0.03 ) $ 0.25   $ (0.28 )
Diluted $ (0.03 ) $ 0.25   $ (0.28 )
Cash provided by operations
$ 972   $ 2,315   $ (1,343 )

SIX MONTHS ENDED:
(dollars in thousands)

  June 30, 2018
  July 1, 2017
  Change
 
Sales $ 150,466   $ 151,236   $ (770 )
Restructuring Charges $ 560   $ 816   $ (256 )
Earnings from Operations $ 3,534   $ 7,358   $ (3,824 )
Exchange Loss $ 93   $ 45   $ (48 )
Share of loss of investment in joint venture $ 758   $ 512   $ 246  
Net Earnings $ 525   $ 3,926   $ (3,401 )
Earnings per share      
Basic $ 0.05   $ 0.34   $ (0.29 )
Diluted $ 0.05   $ 0.34   $ (0.29 )
Cash used in operations $ (935 ) $ (5,307 ) $ 4,372  

Caution Regarding Forward-Looking Information

This press release contains forward-looking statements that involve a number of risks and uncertainties, including statements that relate to among other things, HPS' strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "expect", "intend", "estimate", "anticipate", "believe", "plan", "objective" and "continue" and words and expressions of similar import. Although HPS believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to currency rates); changes in laws and regulations; legal and regulatory proceedings; and the ability to execute strategic plans. HPS does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT HAMMOND POWER SOLUTIONS INC.

Hammond Power Solutions Inc. (TSX:HPS) is a North American leader for the design and manufacture of dry-type custom electrical engineered magnetics, electrical dry-type and cast resin transformers. Leading edge engineering capabilities, high quality products, and responsive service to customers' needs have all served to establish HPS as a technical and innovative leader in the electrical and electronic industries.

HPS has operations in Canada, the United States, Mexico, India and Italy.

For further information please contact:

Dawn Henderson
Manager Investor Relations
(519) 822-2441 x414
ir@hammondpowersolutions.com 

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