Double-Digit Revenue and Margin Growth
Forecast for 2019
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its fourth quarter and full year ended
December 31, 2018. Net revenue for the full year 2018
increased 6.9% over 2017 and gross margin improved 460 basis
points. These improvements continue to reflect the successful
implementation of strategic initiatives to better align the
Company's revenue and cost structure and diversify the Company’s
book of business, both in terms of customers and markets.
HIGHLIGHTS
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- The Company’s fourth quarter revenue
increased 11.5% over the prior-year quarter and 13.5% sequentially,
with both segments contributing to the improvements.
- Full-year revenue increased 9.0% for
Sypris Technologies and 2.7% for Sypris Electronics, underscoring
favorable market conditions and strong customer relationships.
- Gross margin for Sypris Technologies
increased to 14.3% of revenue for the quarter, up from 11.3% in the
prior-year period and up from 8.9% sequentially, reflecting mix and
productivity improvements.
- Gross margin for Sypris Technologies
increased to 12.6% in 2018, up from 1.4% in 2017, primarily
attributable to the full-year impact of cost structure reductions,
revenue growth and operational improvements.
- Company gross margin for the full year
more than doubled in 2018, reaching 8.6% compared with 4.0% for the
prior-year.
- During the fourth quarter, the Company
entered into a series of supply agreements with Sistemas
Automotrices de Mexico, S.A. de C.V. (“Sisamex”), to supply Sisamex
with a variety of driveline components for use in the commercial
vehicle, agricultural and all-terrain markets.
- The Company’s outlook for 2019 includes
revenue of $100-$110 million, representing 19% year-over-year
growth at the midpoint, and gross margin of 14%-16%, with both
business segments forecasted to register solid profitability for
the year.
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“We were pleased with the year-over-year revenue growth and
margin expansion 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, which experienced a 17%
increase in shipments on a year-over-year basis.
“We also experienced strengthening demand for our energy-related
products, which resulted in a 22% increase sequentially in revenue.
A number of production, supply and other constraints that we
experienced in the previous quarter were mitigated in the current
period.
“During the fourth quarter, the Company entered into a series of
agreements to continue to supply axle shafts to Sisamex, in
addition to the introduction of new driveline products for use in
the commercial vehicle, agricultural and all-terrain markets.
Sisamex is a long-term strategic partner, and expanding the range
of products we supply further strengthens this relationship. We
expect to begin production on the new products during 2019,” he
continued.
“While shipments at Sypris Electronics were generally on plan
for the quarter, its results were adversely affected by operational
challenges as we neared completion on an engineering manufacturing
development program that included numerous design and material
changes, and the ramp-up on a new program on which we incurred an
unexpected level of inefficiencies. Aside from operational
challenges during the fourth quarter, we recognized charges
totaling approximately $0.9 million for a physical inventory
adjustment, which we performed at year-end concurrent with our
implementation of a new ERP system, and an increase to our reserve
for excess and obsolete inventory on certain specific
programs.”
Concluding, Mr. Gill said, “We continue to see strong demand in
each of our primary markets to support our revenue outlook for
2019. Our customer base and the markets we serve remain resilient
and are considerably more diversified than at any point in our
recent history. We are confident that the combination of our
forecasted revenue growth and lower fixed manufacturing overhead
costs, driven by effective cost-reduction actions, will contribute
to our expected return to profitability in 2019.”
Fourth Quarter and Full-Year Results
The Company reported revenue of $24.0 million for the
fourth quarter compared with $21.5 million for the prior-year
period. The Company reported a net loss of $0.2 million, or
$0.01 per share, compared with a loss of $1.2 million, or
$0.06 per share, for the prior-year quarter. The results for
the quarter ended December 31, 2018, include a benefit in
selling, general and administrative expense of $1.9 million
for the favorable resolution of a legal fee.
For the full-year ended December 31, 2018, the Company
reported revenue of $88.0 million compared with
$82.3 million for the prior-year. The Company reported a net
loss of $3.5 million, or $0.17 per share, compared with a net
loss of $10.8 million, or $0.53 per share, for 2017. In
addition to the $1.9 million legal fee benefit recorded in the
fourth quarter, results for the year ended
December 31, 2018, included an insurance recovery gain of
$2.3 million, which was partially offset by a net loss of
$0.2 million on the sale of excess equipment and costs of
$1.4 million related to preparing the Broadway facility for
sale or other use. Results for the year ended
December 31, 2017, included net gains of
$2.7 million related to the sale of excess equipment, which
was partially offset by severance, relocation and other costs of
$2.4 million.
Sypris Technologies
Revenue for Sypris Technologies was $15.1 million in the
fourth quarter compared with $14.5 million for the prior-year
period, primarily reflecting an increase in demand from customers
in the automotive and commercial vehicle markets that was partially
offset by lower energy product sales. Gross profit for the quarter
was $2.2 million, or 14.3% of revenue, compared with
$1.6 million, or 11.3% of revenue, for the same period in
2017. Gross profit benefitted from the increase in volume as well
as cost improvements realized following the transfer of production
from our Broadway Plant, which was completed as of the end of
2017.
Sypris Electronics
Revenue for Sypris Electronics was $8.8 million in the
fourth quarter of 2018 compared with $7.0 million for the
prior-year period. The increase in revenue over the prior-year was
primarily due to the launch of a new program beginning late in the
third quarter of 2018 that ramped up during the fourth quarter.
Additionally, certain new smaller programs and the expansion of
programs with existing customers offset demand reductions on legacy
programs. However, electronic component availability and labor
inefficiencies dampened our margins during the period. Gross profit
was further affected during the fourth quarter of 2018 by a
$0.4 million physical inventory adjustment and additional
excess and obsolete inventory reserves of $0.5 million.
Outlook
Commenting on the future, Mr. Gill added, “Buoyed by current
volume growth, we expect to capitalize on additional opportunities
across our markets for healthy revenue expansion in 2019. We also
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 that freight volumes will remain strong well into the
second half of 2019, albeit off from record-breaking 2018 levels.
The energy market continues to benefit from increased 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.
“Our revenue outlook for 2019 is in the range of $100-$110
million, which primarily reflects strong market conditions for the
commercial vehicle and energy markets that is partially offset by
the impact of delayed electronic component receipts for the
aerospace and defense market. We expect the second half of 2019 to
improve sequentially as we are targeting to benefit from a
normalization of these receipts and new program launches.
"We expect to see meaningful improvements in gross margin, up to
14.0%-16.0% 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; our reliance on a few key
customers, third party vendors and sub-suppliers; 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 fees, costs and
supply of, or access to, debt, equity capital, or other sources of
liquidity; 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
December 31,
2018 2017 (Unaudited) Revenue $ 23,955 $
21,489 Net loss $ (188 ) $ (1,234 ) Loss per common share: Basic $
(0.01 ) $ (0.06 ) Diluted $ (0.01 ) $ (0.06 ) Weighted average
shares outstanding: Basic 20,555 20,393 Diluted 20,555 20,393
Year Ended
December 31,
2018 2017 (Unaudited) Revenue $ 87,969 $
82,294 Net loss $ (3,505 ) $ (10,822 ) Loss per common share: Basic
$ (0.17 ) $ (0.53 ) Diluted (0.17 ) (0.53 ) Weighted average shares
outstanding: Basic 20,512 20,326 Diluted 20,512 20,326
Sypris Solutions, Inc. Consolidated Statements of
Operations (in thousands, except for per share data)
Three Months Ended
Year Ended December 31, December 31,
2018 2017 2018 2017 (Unaudited)
(Unaudited) Net revenue: Sypris Technologies $ 15,130 $
14,525 $ 59,816 $ 54,891 Sypris Electronics
8,825 6,964
28,153 27,403
Total net revenue
23,955 21,489 87,969 82,294 Cost of sales: Sypris Technologies
12,973 12,887 52,293 54,148 Sypris Electronics
9,577 7,089
28,104 24,816 Total
cost of sales 22,550 19,976 80,397 78,964 Gross profit (loss):
Sypris Technologies 2,157 1,638 7,523 743 Sypris Electronics
(752 ) (125
) 49
2,587 Total gross profit 1,405 1,513 7,572
3,330 Selling, general and administrative 1,213 2,953 10,474 13,078
Research and development - 2 - 38 Severance, relocation and other
costs
306 125
1,394 2,360
Operating loss (114 ) (1,567 ) (4,296 ) (12,146 ) Interest expense,
net 185 207 850 809 Other expense (income), net
215 148
(1,436 ) (1,515
) Loss before taxes (514 ) (1,922 ) (3,710 ) (11,440 )
Income tax benefit, net
(326 )
(688 ) (205
) (618 ) Net loss
$ (188 ) $
(1,234 ) $
(3,505 ) $
(10,822 ) Loss per common share: Basic $
(0.01 ) $ (0.06 ) $ (0.17 ) $ (0.53 ) Diluted $ (0.01 ) $ (0.06 ) $
(0.17 ) $ (0.53 ) Dividends declared per common share $ - $ - $ - $
- Weighted average shares outstanding: Basic 20,555 20,393 20,512
20,326 Diluted 20,555 20,393 20,512 20,326
Sypris
Solutions, Inc. Consolidated Balance Sheets (in
thousands, except for share data) December
31, December 31, 2018 2017
(Unaudited) (Note) ASSETS Current assets: Cash
and cash equivalents $ 10,704 $ 8,144 Accounts receivable, net
9,881 9,317 Inventory, net 18,584 17,641 Other current assets 4,755
2,003 Assets held for sale
1,474
2,898 Total current assets 45,398 40,003
Property, plant and equipment, net 14,655 15,574 Other assets
1,515 1,578
Total assets
$ 61,568
$ 57,155 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
13,427 $ 10,465 Accrued liabilities 14,965 10,330 Current portion
of capital lease obligations
593
829 Total current liabilities 28,985 21,624
Long-term capital lease obligations 2,804 3,397 Note payable
- related party 6,449 6,435 Other liabilities
8,496 8,769 Total
liabilities 46,734 40,225 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; 21,414,374 shares issued and
21,398,182 outstanding in 2018 and 21,438,269 shares issued and
21,422,077 outstanding in 2017
214 214 Additional paid-in capital 154,388 153,858 Accumulated
deficit (114,926 ) (111,591 ) Accumulated other comprehensive loss
(24,842 ) (25,551 ) Treasury stock, 16,192 in 2018 and 2017
- - Total
stockholders’ equity
14,834
16,930 Total liabilities and stockholders’
equity
$ 61,568 $
57,155 Note: The balance sheet at
December 31, 2017 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)
Year Ended
December 31,
2018 2017 (Unaudited) Cash flows from
operating activities: Net loss $ (3,505 ) $ (10,822 )
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,648 3,884 Deferred income taxes
(509 ) (667 ) Stock-based compensation expense 637 730 Deferred
loan costs recognized 14 60 Net loss (gain) on the sale of assets
249 (2,668 ) Insurance recovery gain (2,275 ) - Settlement gain
(1,890 ) - Provision for excess and obsolete inventory 520 116
Other noncash items 278 (32 ) Contributions to pension plans (77 )
- Changes in operating assets and liabilities: Accounts receivable
(612 ) (1,419 ) Inventory (2,857 ) (3,204 ) Prepaid expenses and
other assets (1,163 ) 951 Accounts payable 2,948 3,491 Accrued and
other liabilities
7,486
121 Net cash provided by (used in) operating
activities 1,892 (9,459 ) Cash flows from investing activities:
Capital expenditures (2,051 ) (1,637 ) Proceeds from sale of assets
1,380 2,801 Insurance proceeds for recovery of property damage, net
2,275 - Net
cash provided by investing activities 1,604 1,164 Cash flows from
financing activities: Capital lease payments (829 ) (208 ) Indirect
repurchase of shares for minimum statutory tax withholdings
(107 ) (123
) Net cash used in financing activities
(936 ) (331
) Net increase (decrease) in cash and cash equivalents
2,560 (8,626 ) Cash, cash equivalents and restricted cash at
beginning of period
8,144
16,770 Cash and cash equivalents at end of
period
$ 10,704 $
8,144
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version on businesswire.com: https://www.businesswire.com/news/home/20190328005286/en/
Anthony C. AllenChief Financial Officer(502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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