Hardinge Inc. (NASDAQ: HDNG), a leading international provider
of advanced metal-cutting solutions, reported financial results for
its first quarter 2012.
Net sales (“sales”) were $74.7 million in the first quarter of
2012, up $1.2 million, or 2%, over sales of $73.5 million in the
prior year’s first quarter. Foreign currency translation had
approximately $0.9 million favorable effect on sales in the quarter
compared with the prior year first quarter. When compared with the
trailing fourth quarter of 2011, sales were down $16.4 million, or
18%, during the first quarter 2012. The fourth quarter 2011
benefited from several high value shipments as well as the impact
of customers in the U.S. accelerating purchasing decisions to take
advantage of tax benefits expiring in 2011. In comparison, the
first quarter of 2012 was negatively impacted by the Chinese Lunar
New Year coupled with very soft January sales activity in North
America. Net income for the first quarter increased to $2.4
million, up $1.1 million, or 77% when compared with the prior year
first quarter. On a per diluted share basis, earnings were $0.21 in
the first quarter of 2012 compared with $0.12 in the same period in
the prior year.
Commenting on the outlook for the year, Richard L. Simons,
Chairman, President and Chief Executive Officer indicated, “Our
sales channels experienced a high level of quote activity during
the first quarter, but orders started off slowly. Orders in March
have picked up and continued to be strong through April. Based on
our current backlog and order activity, we expect sales over the
next two quarters to be similar to the last half of 2011. Although
for the year we are not expecting significant year-over-year sales
growth, we do believe we will have a stronger margin mix of
business and be able to better leverage our operations to drive
earnings.”
Diversified Markets Create Balance
Sales by Region
Quarter Ended March 31,
(in thousands)
Sales
toCustomers in 2012
2011 %Change
2012 %of Total
North America $ 18,621 $ 17,195
8 % 25% Europe 24,657 19,816 24 % 33% Asia
31,372 36,471 (14)% 42%
Total $ 74,650 $ 73,482
2 %
North America sales, which represented 25% of total sales in the
first quarter of 2012, increased by 8% compared with the first
quarter of 2011 as the U.S. industrial economy strengthened.
Sequentially, North America sales during the first quarter 2012
decreased 41% when compared with fourth quarter of 2011. This
decrease was driven by the impact of customers in the U.S.
accelerating purchase decisions during the fourth quarter 2011 to
take advantage of favorable tax benefits expiring in 2011.
In Europe, first quarter sales grew by 24% year-over-year. The
year-over-year increase was driven by higher demand for machine
tools with solid levels of sales activity in Germany and the United
Kingdom. Europe sales during the first quarter 2012 were flat
compared with the fourth quarter of 2011.
Asia sales declined by 14% in the first quarter compared with
the prior year period. Last year’s first quarter included an
additional $4.7 million in lower margin sales to a China-based
supplier to the consumer electronics industry. Sales to Asia in the
first quarter 2012 were down just 4% when compared with the fourth
quarter in 2011 despite the typical weakness in the first quarter
due to the Chinese Lunar New Year.
Fluctuations in Hardinge’s sales in total and among geographic
locations and industries can vary from quarter-to-quarter based on
the timing and magnitude of orders and projects. Hardinge does not
believe that such quarter-to-quarter fluctuations are necessarily
indicative of larger business trends. Rather, the Company believes
that such business trends can be discerned from the Company’s
performance during a longer period of time, such as a trailing
twelve-month period.
Favorable Mix Drives Margin Improvements
Gross profit was $21.2 million, or 28.4% of sales, in the 2012
first quarter compared with $19.1 million, or 26.0% of sales, in
the same period of the prior year. The increase in gross margin
over the prior year was primarily attributable to favorable product
and pricing mix.
Selling, general and administrative (“SG&A”) expenses in the
2012 first quarter were $17.6 million, or 23.6% of sales, compared
with $16.7 million, or 22.7% of sales, in the prior year’s first
quarter. The year-over-year increase was primarily
inflationary.
Income from operations in the first quarter of 2012 was $3.4
million, up 51%, or $1.1 million over the prior year’s first
quarter. As a percent of sales, income from operations was 4.5%, a
140 basis point improvement over the same period of the prior
year.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) grew 23% to $5.1 million, or 6.9% of sales, in the 2012
first quarter compared with $4.2 million, or 5.7% of sales, in the
same period of the prior year. The Company believes that, when used
in conjunction with GAAP measures, EBITDA, which is a non-GAAP
measure, helps in the understanding of the Company’s operating
performance. (See the attached table for a Reconciliation of Net
Income to EBITDA and other important information regarding
Hardinge’s use and presentation of EBITDA).
Strong Balance Sheet
Cash and cash equivalents at March 31, 2012 were $22.2 million
compared with $21.7 million at December 31, 2011. Cash used in
operations in the first quarter was $3.5 million, compared with
$7.1 million during the same period of the prior year. Cash used in
operations during the first quarter 2012 included a $4.2 million
payment to the domestic pension plan. The Company expects to fund
an additional $0.5 million over each of the remaining quarters of
2012.
Edward J. Gaio, Vice President and CFO of Hardinge, commented,
“Although working capital requirements and timing impacted cash
from operations in the first quarter, we expect to be cash flow
positive for the year with growing EBITDA and closely managed
working capital.”
Capital expenditures in the first quarter of 2012 were $2.1
million. Capital expenditures in fiscal 2012 are expected to be
approximately $7 million to $9 million of which approximately $3
million to $5 million is for general maintenance purposes. The
remainder is planned for completion of the new facility in China,
which is anticipated to triple the Company’s production capacity in
that country, as well as the investments in the Company’s
operations in Switzerland to improve the Company’s productivity and
enhance capabilities in that country.
Mr. Gaio noted, “The sizable investments we made in China and
Switzerland are long-term investments. We expect capital spending
to normalize to our regular maintenance capital spending levels
after we finish these projects this year. Importantly, the
investments enable us to capture greater market share in China, as
well as the high precision cylindrical grinding global market which
we expect will drive the return on our investment.”
Net Orders (“Orders”) by
Region
Quarter Ended March 31, (in thousands)
Orders
from 2012 2011
%Change 2012 %of
Total Customers in
North America $ 20,699 $ 23,217 (11)% 25%
Europe 29,796 29,417 1 % 37% Asia 30,867
61,124 (50)% 38%
Total
$ 81,362 $113,758 (28)%
Orders during the quarter were $81.4 million, a decrease of
$32.4 million, or 28%, when compared with the prior year quarter.
The decrease was the result of the exceptional order levels in
China that were experienced by the machine tool industry during the
prior year quarter. Order volumes during the prior year quarter
were at a record level for the Company as customers reacted to
increasing prices and extended lead times. These trends resulted
from constraints on the machine tool supply chain due to
significant demand caused by strong economic recovery in the
industry. The Company’s order backlog at the end of the quarter was
$149 million, most of which is expected to ship in 2012.
Outlook
Mr. Simons noted, “Although we know our markets can vary quickly
with changing economic conditions, as we look further out, we do
believe that the long-term trends of approximately 10% compounded
annual growth in machine tool consumption projected by industry
analysts are reasonable. This industry growth is expected to be
primarily in Asia, where we are well positioned with products and
operations to take advantage of this opportunity. Given that level
of global growth, we believe we can leverage operations and achieve
improved earnings over time. Through careful management of working
capital and capital investments, we are focused on building
shareholder value.”
Webcast and Conference Call
Hardinge will host a conference call and webcast today at 11:00
a.m. Eastern Time. During the conference call and webcast, Richard
L. Simons, Chairman, President and CEO, and Edward J. Gaio, Vice
President and CFO, will review the financial and operating results
for the quarter, as well as the Company’s strategy and outlook. A
question and answer session will follow the formal discussion.
Their review will be accompanied by a slide presentation which will
be available on Hardinge’s website at www.hardinge.com.
The conference call can be accessed by dialing (201) 689-8560.
The listen-only audio webcast can be monitored at
www.hardinge.com.
A telephonic replay will be available from 2:00 p.m. ET the day
of the call through Wednesday, May 16, 2012. To listen to the
archived call, dial (858) 384-5517 and enter conference ID number
392773. Alternatively, an archive of the webcast will be available
on the Company’s website at www.hardinge.com. A transcript will
also be posted to the website, once available.
About Hardinge
Hardinge is a global designer, manufacturer and distributor of
machine tools, specializing in SUPER-PRECISION® and precision CNC
Lathes, high performance Machining Centers, high-end cylindrical
and jig Grinding Machines, and technologically advanced Workholding
& Rotary Products. The Company’s products are distributed to
most of the industrialized markets around the world with
approximately 75% of its sales outside of North America. Hardinge
has a very diverse international customer base and serves a wide
variety of end-user markets. This customer base includes
metalworking manufacturers which make parts for a variety of
industries, as well as a wide range of end users in the aerospace,
agricultural, transportation, basic consumer goods, communications
and electronics, construction, defense, energy, pharmaceutical and
medical equipment, and recreation industries, among others. The
Company has manufacturing operations in Switzerland, Taiwan, the
United States, China and the United Kingdom. Hardinge’s common
stock trades on the NASDAQ Global Select Market under the symbol,
“HDNG.”
For more information, please visit http://www.hardinge.com.
Safe Harbor Statement
This news release contains forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended). Such statements are based on management's current
expectations that involve risks and uncertainties. Any statements
that are not statements of historical fact or that are about future
events may be deemed to be forward-looking statements. For example,
words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates,"
"plans," "expects," "intends," and similar expressions are intended
to identify forward-looking statements. The Company's actual
results or outcomes and the timing of certain events may differ
significantly from those discussed in any forward-looking
statements. The Company undertakes no obligation to publicly update
any forward-looking statement, whether as a result of new
information, future events, or otherwise.
FINANCIAL TABLES FOLLOW.
HARDINGE INC. AND SUBSIDIARIES Consolidated
Statements of Operations (in thousands except per share data)
Quarter Ended
March 31, 2012 2011
Net sales $ 74,650 $ 73,482 Cost of sales
53,427 54,406 Gross profit 21,223
19,076 Gross profit margin 28.4 % 26.0 %
Selling, general and administrative expenses 17,633 16,673
Gain on sale of assets (2 ) (25 ) Other expense 204
177 Income from operations 3,388
2,251 Operating margin 4.5 % 3.1 % Interest expense
140 78 Interest income (24 ) (39 ) Income before
income taxes 3,272 2,212 Income tax expense 829
831 Net income $ 2,443 $ 1,381
Basic and diluted earnings per share $ 0.21 $ 0.12
Cash dividends declared per share $ 0.02 $ 0.005 Weighted
avg. shares outstanding: Basic 11,524 11,450 Weighted avg. shares
outstanding: Diluted 11,557 11,476
HARDINGE INC. AND SUBSIDIARIES Consolidated
Statements of Comprehensive Income (in thousands)
Quarter Ended March 31, 2012
2011 Net income $ 2,443 $ 1,381 Other comprehensive
income, net of tax 4,808 1,821 Comprehensive income,
net of tax $ 7,251 $ 3,202
HARDINGE
INC. AND SUBSIDIARIES Consolidated Balance Sheets (in
thousands except share and per share data)
March 31,
December 31, 2012 2011
Assets Cash and cash equivalents $ 22,206 $ 21,736
Restricted cash 4,634 4,575 Accounts receivable, net 52,720 65,909
Inventories, net 134,199 122,782 Other current assets 14,085
13,338 Total current assets 227,844 228,340
Property, plant and equipment, net 70,600 68,204 Intangible
assets, net 12,808 12,765 Other non-current assets 2,221
2,360 Total non-current assets 85,629
83,329 Total assets $ 313,473 $ 311,669
Liabilities and shareholders' equity Accounts
payable $ 32,122 $ 36,952 Notes payable to bank 18,853 12,969
Accrued expenses 20,910 25,103 Customer deposits 19,947 18,881
Accrued income taxes 3,178 3,480 Deferred income taxes 2,530 2,556
Current portion of long-term debt 2,530 1,548
Total current liabilities 100,070 101,489 Long-term
debt 6,560 7,020 Pension and postretirement liabilities 44,948
49,310 Deferred income taxes 3,105 2,391 Other liabilities
4,767 4,436 Total non-current liabilities
59,380 63,157 Common stock ($0.01 par value, 12,472,992
issued) 125 125 Additional paid-in capital 114,097 114,369 Retained
earnings 67,251 65,041 Treasury shares (10,125 ) (10,379 )
Accumulated other comprehensive loss (17,325 )
(22,133 ) Total shareholders' equity 154,023
147,023 Total liabilities and shareholders' equity $ 313,473
$ 311,669
HARDINGE INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in
thousands)
Three Months
Ended March 31, 2012
2011 Operating activities Net income $ 2,443 $
1,381
Adjustments to reconcile net income to net
cash used in operating
activities:
Depreciation and amortization 1,743 1,916 Debt issuance
amortization 52 26 Provision for deferred income taxes 981 (1,085 )
Gain on sale of assets (2 ) (25 ) Unrealized intercompany foreign
currency transaction loss (gain) 427 (215 ) Changes in operating
assets and liabilities: Accounts receivable 14,108 (2,308 )
Inventories (8,447 ) (9,311 ) Other assets (295 ) (1,079 ) Accounts
payable (5,564 ) 1,081 Customer deposits 676 5,065 Accrued expenses
(9,505 ) (2,677 ) Accrued postretirement benefits (124 )
176 Net cash used in operating activities (3,507 )
(7,055 )
Investing activities Capital expenditures
(2,113 ) (4,354 ) Proceeds on sale of assets -
25 Net cash used in investing activities (2,113 ) (4,329 )
Financing activities Proceeds from short-term notes
payable to bank 23,900 7,016 Repayments of short-term notes payable
to bank (18,312 ) (1,636 ) Proceeds from long-term debt 476 -
Repayments on long-term debt (152 ) (154 ) Dividends paid (233 )
(58 ) Other financing activities (49 ) 20 Net
cash provided by financing activities 5,630 5,188 Effect of
exchange rate changes on cash 460 196
Net increase (decrease) in cash 470 (6,000 ) Cash and cash
equivalents at beginning of year 21,736 30,945
Cash and cash equivalents at end of year $ 22,206 $
24,945
HARDINGE
INC. AND SUBSIDIARIES Reconciliation of Net Income to
EBITDA (in thousands)
The following table provides a
reconciliation of the Company’s
reported net income (loss) to EBITDA for
the first quarter ended
March 31, 2012 and 2011, respectively
Quarter Ended March 31, 2012
2011 $Change GAAP
net income $ 2,443 $ 1,381 $ 1,062 Plus: Interest expense, net 116
39 77 Income tax expense 829 831 (2 ) Depreciation and amortization
1,743 1,916 (173 )
EBITDA (1) $ 5,131 $ 4,167 $ 964
(1) EBITDA, a non-GAAP financial measure,
is defined as earnings
before interest, taxes, depreciation and
amortization. EBITDA is used by
management to internally measure our
operating and management
performance and by investors as a
supplemental financial measure to
evaluate the performance of our business.
We believe that monitoring
EBITDA along with our GAAP results and the
accompanying
reconciliation provides additional
information that is useful to gain an
understanding of the factors and trends
affecting our business.
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