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Sun Hydraulics Corporation Weathers the Forex Storm

By Joe Tenebruso - Mar 1, 2016 at 2:28PM

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The strong U.S. dollar and a challenging macroeconomic environment are taking a toll on the valve manufacturer's results.

Image source: Sun Hydraulics.

Sun Hydraulics (HLIO -0.17%) reported fourth-quarter results on Feb. 29. The maker of high-performance hydraulic cartridge valves and manifolds is facing a difficult combination of a slowing global economy and negative foreign currency movements.

Sun Hydraulics results: The raw numbers

Metric 

Q4 2015

Q4 2014

Growth (YOY)

Revenue

$44.3 million

$54.8 million

(19%)

Net income

$5.1 million

$10.3 million

(50%)

Earnings per share

$0.19

$0.39

(51%)

Data source: Sun Hydraulics Q4 2015 earnings press release.

What happened with Sun Hydraulics this quarter?
Full-year 2015 sales to the Americas fell 13%, with demand in Asia-Pacific and Europe decreasing 9% and 11%, respectively. Slowing end-user markets drove reduced demand in the Americas segment, while negative foreign currency fluctuations accounted for much of the decline in Europe. And in Sun's Asia-Pacific division, weakening demand from original equipment manufacturers, specifically in the Korean construction market, was responsible for the company's lower sales. 

"The fourth quarter was in line with our expectations, resulting in sales of $200.7 million for the year," said Allen Carlson, Sun's president and CEO. "While the 2015 financial results were sluggish coming off of a strong 2014, we feel we have weathered much of the storm with regard to contracting end markets and negative currency influences. Macro-economic indicators appear to be leveling out."

Despite the downturn, Sun Hydraulics is strengthening its product offerings and global distribution system.

"We continue to engage in various product and market expansion activities," said Carlson. "Initiatives to add marketing resources to all regions are increasing Sun's global presence to further our brand and reach worldwide."

Shared distribution
Although 2015 was a challenging year, Sun Hydraulics announced a $2.8 million shared distribution meant to reward both employees and shareholders alike. Employees will receive a distribution equal to 5% of wages, paid mostly in Sun Hydraulics stock. And shareholders of record as of March 15, 2016, will be paid a $0.04-per-share special cash dividend on March 31, 2016. 

Looking forward
Sun Hydraulics expects first-quarter revenue to decline 8% year over year to approximately $50 million, and earnings per share to fall to a range of $0.31 to $0.33, compared to $0.39 in the first quarter of 2015. Management also noted that foreign currency movements are expected to account for $1.6 million of the estimated decline in revenue and $0.04 of the projected decrease in earnings per share.

"Our first-quarter estimates indicate we may be nearing the bottom of this difficult cycle," added Carlson. "While global capital goods indicators aren't yet positive, our orders rates show promise. We remain agile and ready to capitalize on early cycle opportunities with our efforts focused on satisfying customer demand, growing market share, and delivering strong financial results."

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Sun Hydraulics Corporation Stock Quote
Sun Hydraulics Corporation
HLIO
$65.43 (-0.17%) $0.11

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