Gross Margin Expands 220 Basis
Points
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its third quarter ended
September 30, 2018. While net revenue for the third
quarter was relatively flat compared with the year-earlier quarter,
the Company's overall gross margin improved versus the third
quarter of 2017 and the net loss for the period narrowed
significantly. 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 gross margin increased to
5.7% of revenue, up 220 basis points from the third quarter of
2017.
- Revenue for Sypris Technologies
increased 9.6% during the quarter compared with the prior-year
period, reflecting the impact of new contract awards and favorable
market conditions.
- Gross margin for Sypris Technologies
increased to 8.9% of revenue, up from a loss of 4.2% for the
prior-year period, reflecting the impact of increased revenue and
significantly lower operating costs.
- Revenue for Sypris Electronics declined
compared with the prior-year period, reflecting program delays and
the short-term impact on sales from the delay in the receipt of
certain electronic components.
- Subsequent to quarter-end, 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 announced its financial
guidance for the fourth quarter of 2018, with revenue forecasted to
be in the range of $24-$26 million, representing top-line growth of
16% at the midpoint on a year-over-year basis, and gross profit
forecasted to be in the range of 13%-15% of revenue.
- The Company’s initial outlook for 2019
includes revenue of $105-$110 million, representing 20%
year-over-year growth at the midpoint, and gross margin of 15%-17%,
with both business segments registering solid profitability.
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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. And with Class 8
order rates at record levels, we expect demand will remain high
through 2019.
“We also experienced substantial strength in demand for our
energy-related products, where orders increased 50% on a
year-over-year basis. The strength in customer demand, however, did
not translate into increased shipments during the quarter, which
actually declined sequentially during the period as we confronted a
number of production, supply and other issues that resulted in
shipments being delayed into the fourth quarter.”
“Subsequent to quarter end, 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 early in 2019,” he
continued.
“We were challenged by continued customer delays on certain
programs and material availability at Sypris Electronics, as well
as the timing of the ramp-up on a large program that began late in
the third quarter” he added. “Together, these challenges resulted
in lower shipment levels than were otherwise planned. As the timely
receipt of electronic components improves, customer product designs
are tested and finalized, and with a new program now ramping up, we
expect to see higher levels of shipments going forward, supported
by our backlog.”
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 and into 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 expected revenue growth and
lower fixed manufacturing overhead costs, driven by our
cost-reduction actions, will contribute to our return to
profitability going forward.”
Third Quarter Results
The Company reported revenue of $21.1 million for the third
quarter compared with $21.4 million for the prior-year period.
Additionally, the Company reported a net loss of $2.3 million,
or $0.11 per share, compared with a loss of $3.1 million,
or $0.15 per share, for the prior-year period. The results for
the quarter ended September 30, 2018, included costs of
$0.3 million related to preparing the Broadway facility for
sale or other use. Results for the quarter ended
October 1, 2017, included severance and relocation costs
of $0.4 million related to the Broadway transition.
For the nine months ended September 30, 2018, the Company
reported revenue of $64.0 million compared with
$60.8 million for the first nine months of 2017. The Company
reported a net loss for the current nine-month period of
$3.3 million, or $0.16 per share, compared with a net loss of
$9.6 million, or $0.47 per share, for the prior-year period.
Results for the nine months ended September 30, 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 $1.1 million related to
preparing the Broadway facility for sale or other use. Results for
the nine months ended October 1, 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
$2.2 million.
Sypris Technologies
Revenue for Sypris Technologies was $14.9 million in the
third quarter compared with $13.5 million for the prior-year
period, primarily reflecting an increase in demand from customers
in the automotive and commercial vehicle markets. Gross profit for
the quarter was $1.3 million, or 8.9% of revenue, compared
with a loss of $0.6 million, or 4.2% 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 $6.2 million in the
third quarter of 2018 compared with $7.8 million for the
prior-year period. Revenue for the quarter was impacted by delays
on certain programs, as the customer designs are tested and
finalized, and shortages of certain electronic components in the
electronics manufacturing industry. Gross profit for the quarter
was a loss of $0.1 million compared with profit of
$1.3 million for the prior-year period, primarily reflecting
the lower volumes and changes in revenue mix.
Outlook
Commenting on the future, Mr. Gill added, “Alongside current
volume growth, we are poised to capitalize on additional
opportunities across our markets for healthy, revenue expansion as
we close 2018 and head into 2019. New contract awards and market
expansion are expected to occur 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 freight volumes are now expected to be strong well into
the second half of 2019. 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. And,
from a cost standpoint, we expect to benefit from significantly
lower fixed overhead and production costs at Sypris Technologies,
as well as from the elimination of severance and other
expenses.
“Our revenue outlook for the fourth quarter is forecasted to be
in the range of $24-$26 million, representing top-line growth
of 16% at the midpoint on a year-over-year basis, and gross profit
is forecasted to be in the range of 13%-15% of revenue. Our initial
outlook for 2019 includes revenue of $105-$110 million and gross
margin of 15%-17%, with both business segments registering solid
profitability.”
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, which would cause us to continue to use existing cash
resources or other assets to fund operating losses; the cost,
quality, timeliness, efficiency and yield of our operations and
capital investments, including the impact of tariffs, product
recalls or related liabilities, 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; 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”; dependence on, retention or
recruitment of key employees; disputes or litigation involving
governmental, supplier, customer, employee, creditor, stockholder,
product liability or environmental claims; 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; changes in
licenses, security clearances, or other legal rights to operate,
manage our work force or import and export as needed; 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; our reliance on third party vendors and
sub-suppliers; 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; 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 September
30, October 1, 2018 2017
(Unaudited) Revenue $ 21,101 $ 21,371 Net loss $ (2,336 ) $
(3,133 ) Loss per common share: Basic $ (0.11 ) $ (0.15 ) Diluted $
(0.11 ) $ (0.15 ) Weighted average shares outstanding: Basic 20,555
20,397 Diluted 20,555 20,397
Nine Months
Ended September 30, October 1, 2018
2017 (Unaudited) Revenue $ 64,014 $ 60,805 Net loss $
(3,317 ) $ (9,588 ) Loss per common share: Basic $ (0.16 ) $ (0.47
) Diluted (0.16 ) (0.47 ) Weighted average shares outstanding:
Basic 20,497 20,305 Diluted 20,497 20,305
Sypris
Solutions, Inc. Consolidated Statements of Operations
(in thousands, except for per share data)
Three Months Ended Nine
Months Ended September 30, October
1, September 30, October 1,
2018 2017 2018 2017 (Unaudited)
(Unaudited) Net revenue: Sypris Technologies $ 14,852 $
13,547 $ 44,686 $ 40,366 Sypris Electronics
6,249 7,824
19,328 20,439 Total
net revenue 21,101 21,371 64,014 60,805 Cost of sales: Sypris
Technologies 13,523 14,121 39,320 41,261 Sypris Electronics
6,376 6,509
18,527 17,727 Total
cost of sales 19,899 20,630 57,847 58,988 Gross profit (loss):
Sypris Technologies 1,329 (574 ) 5,366 (895 ) Sypris Electronics
(127 ) 1,315
801 2,712
Total gross profit 1,202 741 6,167 1,817 Selling, general
and administrative 2,942 3,134 9,261 10,125 Research and
development - 5 - 36 Severance, relocation and other costs
274 357
1,088 2,235
Operating loss (2,014 ) (2,755 ) (4,182 ) (10,579 ) Interest
expense, net 231 208 665 602 Other expense (income), net
56 115
(1,651 ) (1,663
) Loss before taxes (2,301 ) (3,078 ) (3,196 ) (9,518
) Income tax expense
35
55 121
70 Net loss
$ (2,336
) $ (3,133 )
$ (3,317 ) $
(9,588 ) Loss per common share: Basic $
(0.11 ) $ (0.15 ) $ (0.16 ) $ (0.47 ) Diluted $ (0.11 ) $ (0.15 ) $
(0.16 ) $ (0.47 ) Dividends declared per common share $ - $ - $ - $
- Weighted average shares outstanding: Basic 20,555 20,397 20,497
20,305 Diluted 20,555 20,397 20,497 20,305
Sypris
Solutions, Inc. Consolidated Balance Sheets (in
thousands, except for share data)
September 30, December 31, 2018
2017 (Unaudited) (Note) ASSETS Current
assets: Cash and cash equivalents $ 8,623 $ 8,144 Accounts
receivable, net 11,471 9,317 Inventory, net 18,856 17,641 Other
current assets 6,020 2,003 Assets held for sale
2,016 2,898 Total
current assets 46,986 40,003 Property, plant and equipment, net
14,766 15,574 Other assets
881
1,578 Total assets
$
62,633 $ 57,155
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 14,472 $ 10,465 Accrued liabilities
15,027 10,330 Current portion of capital lease obligations
577 829 Total
current liabilities 30,076 21,624 Long-term capital lease
obligations 2,959 3,397 Note payable - related party 6,446 6,435
Other liabilities
8,686
8,769 Total liabilities 48,167 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 154,244 153,858 Accumulated
deficit (114,738 ) (111,591 ) Accumulated other comprehensive loss
(25,254 ) (25,551 ) Treasury stock, 16,192 in 2018 and 2017
- - Total
stockholders’ equity
14,466
16,930 Total liabilities and stockholders’
equity
$ 62,633 $
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)
Nine Months Ended September 30,
October 1, 2018 2017 (Unaudited) Cash
flows from operating activities: Net loss $ (3,317 ) $ (9,588 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,988 2,929 Stock-based compensation
expense 493 563 Deferred loan costs recognized 11 45 Net loss
(gain) on the sale of assets 241 (2,664 ) Insurance recovery gain
(2,275 ) - Provision for excess and obsolete inventory (125 ) 145
Other noncash items 127 622 Contributions to pension plans (77 ) -
Changes in operating assets and liabilities: Accounts receivable
(2,164 ) (2,552 ) Inventory (2,184 ) (7,713 ) Prepaid expenses and
other assets (2,681 ) 658 Accounts payable 4,007 5,617 Accrued and
other liabilities
4,891
3,392 Net cash used in operating activities
(1,065 ) (8,546 ) Cash flows from investing activities: Capital
expenditures (1,321 ) (1,457 ) Proceeds from sale of assets 1,388
2,750 Insurance proceeds for recovery of property damage, net 2,275
- Change in restricted cash
-
1,500 Net cash provided by investing activities
2,342 2,793 Cash flows from financing activities: Capital lease
payments (691 ) (149 ) Indirect repurchase of shares for minimum
statutory tax withholdings
(107 )
(123 ) Net cash used in financing
activities
(798 )
(272 ) Net increase (decrease) in cash
and cash equivalents 479 (6,025 ) Cash and cash equivalents at
beginning of period
8,144
15,270 Cash and cash equivalents at end of
period
$ 8,623 $
9,245
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version on businesswire.com: https://www.businesswire.com/news/home/20181113005305/en/
Sypris Solutions, Inc.Anthony C. Allen, 502-329-2000Chief
Financial Officer
Sypris Solutions (NASDAQ:SYPR)
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