Sun Hydraulics Corporation (NASDAQ:HLIO) reported earnings after the market closed on Monday, and it didn't disappoint investors. Growth in demand for hydraulic and industrial electronics products is strong, margins are up, and if not for some acquisition costs, net income would have doubled as well. 

The bullish earnings trend also has management eyeing its next manufacturing expansion, which should help drive future growth. Here are the highlights from a transitional quarter for Sun Hydraulics. 

Large, yellow hydraulic piston in extended position.

Image source: Getty Images.

Sun Hydraulics: The raw numbers

Metric Q2 2017 Q2 2016 Year-Over-Year Change
Sales $89.3 million  $50.8 million  76% 
Net income $7.3 million  $7.0 million  4% 
Diluted earnings per share $0.27  $0.26  4% 

Data source: Sun Hydraulics. 

What happened with Sun Hydraulics this quarter? 

The headline numbers don't quite tell the whole story for Sun Hydraulics. Here are some important numbers from the quarter. 

  • Enovation Controls, which the company acquired on Dec. 5, 2016, contributed a large portion of the growth you see above. About $27.8 million of the $38.5 million in growth is due to this acquisition. 
  • Organic growth was still strong at 21%. 
  • Hydraulics segment revenue was up 22% to $60.8 million in the quarter, and operating margin improved to 26.9% from 21.3% a year ago. 
  • Electronics sales grew 44% on a pro forma basis to $28.5 million in the second quarter, and operating income was 22.5% of sales at $6.4 million. 
  • Geographic growth was widespread, with the Americas growing 59% and EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) growing 22% and 19%, respectively. 
  • Management said that acquisition-related amortization and contingent consideration negatively impacted the bottom line. Non-GAAP net income without those items doubled to $14.1 million, or $0.52 per share. 

What management had to say

Faster-than-expected growth has forced Sun Hydraulics to push forward more quickly with growth plans. As CEO Wolfgang Dangel said: 

We recently identified property in South Korea which we believe is ideally suited for this purpose. Accordingly, we intend to purchase land and develop a production facility, of which approximately half of the cost is expected to be incurred in 2017, with completion in 2018.

The new factory may increase spending in 2017, but it should keep the company growing in 2018. 

Looking forward

2017 is looking a lot stronger for Sun Hydraulics than originally anticipated, primarily driven by organic growth. To that end, management upped full-year guidance, increasing the expected revenue range $20 million to $315 million-$330 million and operating margin by 200 basis points to 22%-24%. 

Momentum in industrial markets is strong, and Sun Hydraulics is able to ride that wave with a growing number of products. After Monday's earnings report, the year looks a little brighter for the stock as well. 

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