Sun Hydraulics (NASDAQ:SNHY) reported second-quarter earnings results after the bell on Aug. 3. Here's what you need to know.
The key numbers
For the quarter ended June 27, the Florida-based maker of hydraulic valves and related controls earned net income $9.2 million, or $0.35 per diluted share. That was down 24% from its $0.46-per-share year-ago result. Revenue was $54 million, down 12%.
Revenue and per-share income were right in line with the guidance given by CEO Allen Carlson in May. Shares moved modestly lower in trading after the news was released.
A year-over-year drop in demand around the world
During last quarter's earnings discussion, Carlson said he thought demand in the U.S. would continue to be strong -- but he expected "a softening in demand" on a global basis as the second quarter unfolded.
That's about how it played out. Carlson said in a statement that sales in the second quarter were "consistent with our expectations," as Sun was hit both by "unfavorable fluctuations in demand" and by currency swings.
The strengthening U.S. dollar dented quarterly results at a lot of American companies with substantial operations overseas, as their earnings in local currencies are now worth less in dollar terms. Sun was no exception: The dollar's strength put a $1.8 million dent in the company's second-quarter revenue, Carlson said.
Carson emphasized that demand was down in nearly all regions, too. In the Americas, sales fell 14%; in Europe, sales fell 13% (of which 6% was released to exchange-rate movements); and in Asia, sales decreased by 2%. But sales were up 9% in China, a result of Sun's strong marketing focus in the country, Carlson said.
Riding out the economic cycle by controlling costs and boosting sales efforts
"While this continues to be a challenging economic environment, we are focused on things we can control," Carlson said. Sun is adding staff around the world to help boost marketing efforts, improving its manufacturing efficiency to help reduce costs, rolling out some new products, and using an online system-design tool to help draw new business.
Looking ahead, the company expects revenue in the third quarter of 2015 to come in at about $50 million, down 8% from the third quarter of 2014, with earnings per share of between $0.32 and $0.34, down from $0.37 a year ago.
It noted that currency fluctuations account for $1.9 million of the expected decline in revenue and $0.04 of the decline in earnings per share.
It's a reminder that Sun is in a cyclical industry. As economic growth falls, so will revenue and profits. As Carlson acknowledges, he and his team can't control the economy -- but they can work to keep costs down, roll out some new products, and make sure they're getting their share of the sales that are taking place. For now, that seems like the right approach.