Reaffirms 2019 Growth and Margin Expansion
Guidance
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its first quarter ended
March 31, 2019. Having completed a series of strategic
initiatives over the past several years, Sypris Solutions is now
better positioned to achieve long-term growth and a return to
profitable operations for 2019. These steps have included reducing
and realigning its cost structure while diversifying its book of
business in terms of both customers and markets.
Results for the first quarter of 2019 fundamentally reflected
these expectations, especially with respect to Sypris Technologies.
However, an anticipated and ongoing shortage of electronic
components and resulting labor inefficiencies continued to have a
negative impact on Sypris Electronics in the first quarter and, in
turn, the Company's consolidated results.
HIGHLIGHTS
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- The Company’s first quarter 2019
consolidated revenue was largely flat compared with the prior-year
quarter, while consolidated gross margin for the first quarter
declined to 8.1% from 10.2% in the year-earlier quarter, both
reflecting primarily the expected near-term drag from Sypris
Electronics.
- Revenue for Sypris Technologies
increased 11.3% during the quarter compared to the prior-year
period, primarily reflecting increased sales volume with customers
in the commercial vehicle market.
- Gross profit for Sypris Technologies
increased 9.3% for the first quarter of 2019 from the year-earlier
quarter, while operating income increased 245% to 6.5% of sales, up
from 2.1% for the prior year period.
- Revenue for Sypris Electronics declined
in the first quarter of 2019, compared with the year-earlier
quarter, reflecting a delay in shipments under a pending new
contract and the effect of aforementioned shortages of certain
electronic components and extensive lead-time issues in the
electronic industry.
- The Company reaffirmed its outlook for
2019, including revenue of $100-$110 million for the year,
representing 19% year-over-year growth at the midpoint, and gross
margin of 14%-16%, with both business segments forecasted to
register solid profitability beginning in the last half of the
year.
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“We are pleased with the year-over-year revenue growth at Sypris
Technologies,” commented Jeffrey T. Gill, president and chief
executive officer. “Shipment volumes remained strong in the quarter
to support demand coming from the automotive and commercial vehicle
markets. Energy products also performed well during the period
despite some orders that shifted out of the quarter.
“While shipments at Sypris Electronics were generally in line
with expectations for the quarter, its results were adversely
affected by the labor inefficiencies and overhead absorption
challenges that accompanied the lower shipment volumes. We expect
to see progressively higher levels of shipments sequentially
through 2019, with a full recovery to normal deliveries during the
second half of the year.”
Concluding, Mr. Gill said, “We continue to see strong demand in
each of our primary markets to support our revenue outlook for the
balance of the year. Our customer base and the markets we serve
remain resilient and are considerably more diversified than at any
point in our recent history. The combination of our expected
revenue growth and lower fixed manufacturing overhead costs, driven
by effective cost reduction actions, are the keys to our return to
profitability for 2019.”
First Quarter Results
The Company reported revenue of $19.6 million for the first
quarter, compared to $19.9 million for the prior-year period.
Additionally, the Company reported a net loss of $2.3 million,
or $0.11 per share, compared to a loss of $1.8 million,
or $0.09 per share, for the prior-year period. The results for
the quarter ended March 31, 2019, include costs of
$0.1 million related to preparing the Broadway facility for
sale or other use. Results for the quarter ended
April 1, 2018, include severance, relocation and other
costs of $0.5 million partially offset by a gain of
$0.3 million from the sale of excess equipment by Sypris
Technologies.
Sypris Technologies
Revenue for Sypris Technologies was $16.1 million in the
first quarter, compared to $14.5 million for the prior-year
period, primarily reflecting an increase in demand from customers
in the automotive and commercial vehicle industries. Gross profit
for the quarter was $2.3 million, or 14.3% of revenue,
compared to $2.1 million, or 14.5% of revenue, for the same
period in 2018. Gross profit was negatively affected by product mix
during the first quarter of 2019, as well as the incurrence of
expenses associated with the launch of several new programs.
Sypris Electronics
Revenue for Sypris Electronics was $3.4 million in the
first quarter of 2019, compared to $5.4 million for the prior
year-period. Revenue for the quarter was affected by shortages of
certain electronic components and extensive lead-time issues in the
electronics manufacturing industry, as well as the delay of
shipments pending the successful resolution of a new contract. The
low volumes in the first quarter of 2019 also reflect shipments
accelerated into the fourth quarter of 2018 as the Company planned
for the implementation of a new ERP system effective in January of
this year. Gross profit for the quarter was a loss of
$0.7 million, compared to a loss of $0.1 million for the
prior-year period, primarily reflecting lower volumes.
Outlook
Commenting on the future, Mr. Gill added, “Our markets are
poised to provide Sypris with the opportunity for healthy,
double-digit revenue growth during 2019. We anticipate new contract
awards and market expansion in each of our targeted markets for
energy, automotive, commercial vehicle, and aerospace and defense
products as well as new electronics programs.
“Third-party forecasts for the Class 8 commercial vehicle market
indicate production will be up approximately 4% in 2019 over the
record setting highs in 2018. The energy market continues to
benefit from strong demand and higher oil prices. The National
Defense Authorization Act for Fiscal Year 2019 provides nearly
$700 billion in funding for the U.S. Department of Defense,
which is expected to support program growth and market expansion
for Aerospace and Defense participants during the coming year.
“As a result, we are pleased to reaffirm our guidance for 2019,
with full-year revenue expected to be in the range of $100-$110
million, which primarily reflects strong market conditions for the
commercial vehicle and energy markets and our expectation that
headwinds from component availability will improve in the aerospace
and defense market allowing shipments to increase sequentially
through the year. Of note, shipments have commenced under the new
contract referred to previously, as well as for programs that
previously had been waiting for electronic components.
“We expect to see meaningful improvements in gross margin, up to
14%-16% for the year as a whole, with sequential improvements from
the first to second half periods."
Sypris Solutions is a diversified provider of truck components,
oil and gas pipeline components and aerospace and defense
electronics. The Company performs a wide range of manufacturing
services, often under multi-year, sole-source contracts. For more
information about Sypris Solutions, visit its Web site at
www.sypris.com.
Forward Looking Statements
This press release contains “forward-looking” statements
within the meaning of the federal securities laws.
Forward-looking statements include our plans and expectations of
future financial and operational performance. Each
forward-looking statement herein is subject to risks and
uncertainties, as detailed in our most recent Form 10-K and Form
10-Q and other SEC filings. Briefly, we currently believe that
such risks also include the following: our failure to achieve
targeted gains and cash proceeds from the anticipated sale of
certain equipment; our failure to return to profitability on a
timely basis by steadily increasing our revenues from profitable
contracts with a diversified group of customers, which would cause
us to continue to use existing cash resources or other assets to
fund operating losses; dependence on, retention or recruitment of
key employees; the cost, quality, timeliness, efficiency and yield
of our operations and capital investments, including the impact of
tariffs, product recalls or related liabilities, employee training,
working capital, production schedules, cycle times, scrap rates,
injuries, wages, overtime costs, freight or expediting costs; cost,
quality and availability of raw materials such as steel, component
parts (especially electronic components), natural gas or utilities;
inventory valuation risks including excessive or obsolescent
valuations or price erosions of raw materials or component parts on
hand or other potential impairments, non-recoverability or
write-offs of assets or deferred costs; potential weaknesses in
internal controls over financial reporting and enterprise risk
management; disputes or litigation involving governmental,
supplier, customer, employee, creditor, stockholder, product
liability or environmental claims; the fees, costs and supply of,
or access to, debt, equity capital, or other sources of liquidity;
our reliance on a few key customers, third party vendors and
sub-suppliers; continued shortages and extensive lead-times for
electronic components; breakdowns, relocations or major repairs of
machinery and equipment, especially in our Toluca Plant; our
failure to successfully complete final contract negotiations with
regard to our announced contract “orders”, “wins” or “awards”;
volatility of our customers’ forecasts, scheduling demands and
production levels which negatively impact our operational capacity
and our effectiveness to integrate new customers or suppliers, and
in turn cause increases in our inventory and working capital
levels; the costs of compliance with our auditing, regulatory or
contractual obligations; labor relations; strikes; union
negotiations; pension valuation, health care or other benefit
costs; our inability to patent or otherwise protect our inventions
or other intellectual property from potential competitors; adverse
impacts of new technologies or other competitive pressures which
increase our costs or erode our margins; U.S. government spending
on products and services that Sypris Electronics provides,
including the timing of budgetary decisions; changes in licenses,
security clearances, or other legal rights to operate, manage our
work force or import and export as needed; risks of foreign
operations; currency exchange rates; war, terrorism, or political
uncertainty; cyber security threats and disruptions; failure to
adequately insure or to identify environmental or other insurable
risks; 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 March
31, April 1, 2019 2018
(Unaudited) Revenue $ 19,564 $ 19,942 Net loss $ (2,305 ) $
(1,795 ) Loss per common share: Basic $ (0.11 ) $ (0.09 ) Diluted
(0.11 ) (0.09 ) Weighted average shares outstanding: Basic 20,669
20,394 Diluted 20,669 20,394
Sypris Solutions,
Inc. Consolidated Statements of Operations (in
thousands, except for per share data)
Three Months Ended March 31,
April 1, 2019 2018 (Unaudited) Net
revenue: Sypris Technologies $ 16,141 $ 14,507 Sypris Electronics
3,423 5,435
Total net revenue 19,564 19,942 Cost of sales: Sypris Technologies
13,837 12,400 Sypris Electronics
4,136
5,511 Total cost of sales 17,973 17,911
Gross profit (loss): Sypris Technologies 2,304 2,107 Sypris
Electronics
(713 )
(76 ) Total gross profit 1,591 2,031
Selling, general and administrative 3,454 3,148 Severance,
relocation and other costs
98
509 Operating loss (1,961 ) (1,626 ) Interest
expense, net 217 213 Other expense (income), net
51 (84 ) Loss
before taxes (2,229 ) (1,755 ) Income tax expense, net
76 40 Net loss
$ (2,305 ) $
(1,795 ) Loss per common share: Basic $
(0.11 ) $ (0.09 ) Diluted $ (0.11 ) $ (0.09 ) Dividends declared
per common share $ - $ - Weighted average shares outstanding: Basic
20,669 20,394 Diluted 20,669 20,394
Sypris
Solutions, Inc. Consolidated Balance Sheets (in
thousands, except for share data)
March 31, December 31, 2019
2018 (Unaudited) (Note) ASSETS Current
assets: Cash and cash equivalents $ 5,689 $ 10,704 Accounts
receivable, net 9,120 9,881 Inventory, net 21,209 18,584 Other
current assets 4,385 4,755 Assets held for sale
1,474 1,474 Total
current assets 41,877 45,398 Property, plant and equipment, net
14,758 14,655 Operating lease right-of-use assets 7,532 - Other
assets
1,509 1,515
Total assets
$ 65,676
$ 61,568 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
11,670 $ 13,427 Accrued liabilities 14,717 14,965 Operating lease
liabilities, current portion 980 - Finance lease obligations,
current portion
632
593 Total current liabilities 27,999 28,985
Note payable - related party 6,453 6,449 Operating lease
liabilities, net of current portion 7,367 - Finance lease
obligations, net of current portion 2,889 2,804 Other liabilities
6,810 8,496
Total liabilities 51,518 46,734 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; 21,370,395 shares issued and
21,354,203 outstanding in 2019 and 21,414,374 shares issued and
21,398,182 outstanding in 2018
214 214 Additional paid-in capital 154,450 154,388 Accumulated
deficit (115,789 ) (114,926 ) Accumulated other comprehensive loss
(24,717 ) (24,842 ) Treasury stock, 16,192 in 2019 and 2018
- - Total
stockholders’ equity
14,158
14,834 Total liabilities and stockholders’
equity
$ 65,676 $
61,568
Note: The balance sheet at December 31,
2018, has been derived from the audited consolidated financial
statements at that date but does not include all information and
footnotes required by accounting principles generally accepted in
the United States for a complete set of financial statements.
Sypris Solutions, Inc. Consolidated Cash
Flow Statements (in thousands)
Three Months Ended March 31,
April 1, 2019 2018 (Unaudited) Cash
flows from operating activities: Net loss $ (2,305 ) $ (1,795 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 691 672 Stock-based compensation
expense 111 143 Deferred loan costs recognized 4 3 Gain on the sale
of assets - (281 ) Provision for excess and obsolete inventory 37
(75 ) Other noncash items (127 ) 68 Contributions to pension plans
(10 ) (11 ) Changes in operating assets and liabilities: Accounts
receivable 758 (675 ) Inventory (2,664 ) 78 Prepaid expenses and
other assets 398 (667 ) Accounts payable (1,801 ) 1,047 Accrued and
other liabilities
436
847 Net cash used in operating activities
(4,472 ) (646 ) Cash flows from investing activities: Capital
expenditures (348 ) (406 ) Proceeds from sale of assets
- 363 Net cash used
in investing activities (348 ) (43 ) Cash flows from financing
activities: Capital lease payments (146 ) (425 ) Indirect
repurchase of shares for minimum statutory tax withholdings
(49 ) - Net
cash used in financing activities
(195
) (425 ) Net decrease
in cash and cash equivalents (5,015 ) (1,114 ) Cash and cash
equivalents at beginning of period
10,704
8,144 Cash and cash equivalents
at end of period
$ 5,689
$ 7,030
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version on businesswire.com: https://www.businesswire.com/news/home/20190515005226/en/
Anthony C. AllenChief Financial Officer(502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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