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Sun Hydraulics Corporation Earnings Dented by Construction Slowdown

Image source: Sun Hydraulics.

Sun Hydraulics (NASDAQ: SNHY) reported first-quarter results on May 9. A challenging macroeconomic environment and a strong U.S dollar took a toll on the high-performance valve-and-manifold maker's revenue and profits.

Sun Hydraulics results: The raw numbers

 Metrics

Q1 2016

Q1 2015

Growth (YOY)

Net sales

$51.0 million

$54.4 million

(6%)

Net income

$8.2 million

$10.4 million

(21%)

Earnings per share

$0.31

$0.39

(21%)

Data source: Sun Hydraulics Q1 2016 earnings press release.

What happened with Sun Hydraulics this quarter?

Sun Hydraulics saw revenue declines in all of its geographic segments, including the Americas (5%), Europe (6%), and Asia-Pacific (11%). Slowing end-user markets dented demand in Sun's Americas and European businesses, while its Asia-Pacific division continued to struggle with a weakening of the region's construction industry.

A strong U.S. dollar further dented Sun's profitability, with gross margin falling to 38% from 39% in Q1 2015, as gross profit fell 8.7%, to $19.5 million. All told, operating income decreased 15.7%, to $11.9 million, net income declined 20.9%, to $8.2 million, and EPS dropped 20.5% to $0.31.

Despite the downturn, Sun Hydraulics continues to invest in its technology, business processes, and people. "Advancements in our lean manufacturing technology and process automation are ongoing, and there is increased focus on other elements of our business," said CEO Wolfgang Dangel in a press release. "Investments in human capital continue, as we are actively recruiting additional application and product engineers in all major regions around the globe."

Looking ahead

Sun Hydraulics expects second-quarter revenue to decline 7% year over year, to approximately $50 million, and earnings per share are projected to fall to a range of $0.25 to $0.27, down from $0.35 in Q2 2015. Management also noted that foreign-currency movements are expected to account for $1.2 million of the estimated decline in revenue, and $0.03 of the projected decrease in earnings per share.

Dangel added:

Looking forward to next quarter, economic indicators are mixed, making it difficult to garner substantial insight about demand for our products. We maintain our expectation of improved economic activity beginning sometime in the second half of 2016, but an increase in orders has yet to materialize. We are operating as we always have, investing today to ensure we will be prepared to capitalize on tomorrow's growth opportunities.

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