- Net sales increase 19.6% setting quarterly record
- Income from operations up 15.8%
- Income from operations before previously disclosed charges up 31.3%
CLEVELAND, May 3 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that for the first quarter ended March 31, 2005, it had net
sales of $72.1 million, an increase of $11.8 million or 19.6%, from
$60.3 million in the comparable prior year period. Income from operations for
the first quarter of 2005 increased $0.9 million, or 15.8%, to $6.6 million
from $5.7 million in the comparable prior year period.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO )
Included in the Company's income from operations in the first quarter of
2005 are $0.7 million of restructuring costs relating to the previously
announced move of one of its friction products manufacturing facilities to
Oklahoma and $1.1 million of charges related to the previously disclosed
forgiveness of the remaining balance of shareholder loans outstanding. In the
first quarter of 2004, income from operations included loan forgiveness costs
of $0.7 million. Operating income before these charges was $8.4 million in
the first quarter of 2005, an increase of 31.3%, or $2.0 million, from
$6.4 million in the comparable prior year period.
Net sales in the first quarter of 2005 were $72.1 million, a new quarterly
record for the Company, compared to $60.3 million in the comparable prior year
period. Double digit percentage increases were posted in each of the
Company's business segments, with sales increases of 25.1% in the friction
products segment, 10.7% in the precision components segment and 16.7% in the
performance racing segment. The effect of foreign currency exchange rates
accounted for 1.2% of the total 19.6% net sales increase during the quarter.
In the first quarter of 2005, the Company's net sales benefited from new
business awards and continued improved economic conditions in most of the
Company's end markets, particularly in construction, heavy truck, specialty
friction, fluid power, aerospace and automotive.
Income from operations in the first quarter of 2005 increased to
$6.6 million compared to $5.7 million in the comparable period of 2004. The
improved operating income was primarily the result of increased sales volumes,
product mix and continued implementation of lean manufacturing and cost
reduction programs throughout the organization. This improvement in operating
income occurred despite the restructuring and loan forgiveness costs.
The Company reported income from continuing operations, after income
taxes, of $1.9 million, or $0.20 per diluted share, for the first quarter of
2005 compared to $1.8 million, or $0.20 per diluted share in the comparable
prior year period. The reported income from continuing operations, after
income taxes of $0.20 per diluted share includes loan forgiveness costs of
$1.1 million ($0.7 million, net of tax), or $0.08 per diluted share, and
restructuring costs relating to the move of one of its friction products
manufacturing facilities of $0.7 million ($0.5 million, net of tax), or $0.05
per diluted share. In the first quarter of 2004, the Company reported income
from continuing operations, after income taxes of $0.20 per diluted share
including a charge of $0.7 million ($0.5 million net of tax), or $0.05 per
diluted share, in loan forgiveness costs associated with a partial forgiveness
of shareholder loans.
The first quarter 2005 results reflected the Company's full year
anticipated effective tax rate of 50.9%. This rate is higher than the 39.0%
used by the Company to compute its effective tax rate in the first quarter of
2004. However, the 2005 full year anticipated effective tax rate of 50.9%
compares favorably to the Company's 2004 full year effective tax rate of
66.1%. The decrease in the full year effective tax rate for 2005 is
substantially driven by the impact of tax rate differences on the expected
full year foreign income and domestic losses to be incurred by the Company in
2005 as well as the impact on the effective tax rate of the repayment by the
Company of certain state tax credits in 2004.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "I am pleased with our
first quarter results as we continue to exert our leadership position in the
markets that we serve. Our end markets remain strong, we continue to gain
market share with the introduction of new products and the roll out of new
technology initiatives in both our friction products and precision component
businesses, providing us significant new sales opportunities and customer
relationships as we look forward through 2005 and beyond."
Business Segment Results
Net sales in the friction products segment for the first quarter ended
March 31, 2005 increased $8.9 million, or 25.1%, to $44.4 million from
$35.5 million in the comparable prior year period. Primary drivers of the
sales increase were new product introductions in the construction and heavy
truck markets, strong economic growth in the Company's global construction,
heavy truck and aerospace markets, increased sales to the aftermarket and to a
lesser extent, favorable foreign currency exchange rates. The effect of
foreign currency exchange rates on the friction segment net sales accounted
for 2.0% of the 25.1% increase during the quarter.
For the first quarter ended March 31, 2005, income from operations in the
friction products segment increased $1.1 million, or 28.2%, to $5.0 million
from $3.9 million in the comparable prior year period. The increase was the
result of improved sales volumes in most of the markets served by the segment
which provided a higher absorption of fixed manufacturing costs. The gains
were partially offset by increased operating costs to support the higher sales
activity and restructuring costs of $0.7 million related to the plant
relocation. As a percentage of net sales, the segment's operating margin
improved to 11.3% for the three months ended March 31, 2005 from 11.0% in the
comparable prior year period.
In the Company's precision components segment, net sales for the three
months ended March 31, 2005, were up $2.2 million, or 10.7%, to $22.8 million
from $20.6 million in the comparable prior period. The segment net sales
increases were driven by improvements primarily in the pump and motor and
automotive markets during the quarter.
Income from operations in the precision components segment in the first
quarter of 2005 was $1.1 million compared to $1.3 million in the comparable
prior year period, a decrease of 15.4%. The decrease was primarily the result
of start-up activities associated with the Company's implementation of its new
technology equipment, production inefficiencies in one of its plants and
outsourcing costs as a result of the sales volume increases during the quarter
as well as continued support of the segment's early stage facility in China.
As a percentage of net sales, the segment's operating margin declined to 4.8%
in the first quarter of 2005 compared to 6.3% for the comparable period of
2004.
In the Company's performance racing segment, net sales for the quarter
ended March 31, 2005 increased 16.7% to $4.9 million from $4.2 million in the
prior period. For the quarter ended March 31, 2005, income from operations in
the performance racing segment was flat at $0.5 million compared to the prior
year period.
Working Capital and Liquidity
As of March 31, 2005 working capital increased by $5.1 million from
December 31, 2004 levels. The increase was largely the result of growth in
the Company's accounts receivable and inventory as a result of the higher
sales and production volumes during the first quarter of 2005 and increased
inventory requirements to support the move to the Company's new facility in
Oklahoma.
Business Outlook
"The momentum that we experienced in new business awards that resulted in
such strong net sales growth in the first quarter of 2005 is expected to
continue in the second quarter of 2005," stated Mr. Weinberg. "As a result,
we believe our net sales in the second quarter of 2005 will grow between 12%
and 14% over the comparable period in 2004 achieving net sales of between
$71.0 million and $72.5 million as compared to actual net sales of
$63.4 million in the second quarter of 2004."
Despite the restructuring costs relating to the previously announced move
of one of its friction manufacturing facilities to Oklahoma, which are
expected to be approximately $1.3 million in the second quarter of 2005 as
compared to $0.2 million in the second quarter of 2004, the Company expects
income from operations to be approximately $6.3 million, an increase of
approximately 3% from income from operations reported in the second quarter of
2004 of $6.1 million. Excluding these charges, income from operations in the
second quarter of 2005 will increase approximately 21% from the comparable
quarter of 2004.
The Company continues to reaffirm its previously issued full year guidance
of net sales increasing 10% to 12% over 2004 levels, and income from
operations, after giving effect to the charges relating to the relocation into
its newly constructed manufacturing facility to increase by 7% to 9% when
compared to 2004.
Full year costs associated with the relocation project remain unchanged
from the Company's previously issued guidance of $4.0 million to $4.5 million,
and the project remains on plan for completion in 2005.
The Company
Hawk Corporation is a leading worldwide supplier of highly engineered
products. Its friction products group is a leading supplier of friction
materials for brakes, clutches and transmissions used in airplanes, trucks,
construction equipment, farm equipment, recreational and performance
automotive vehicles. Through its precision components group, the Company is a
leading supplier of powder metal and metal injected molded components used in
industrial, consumer and other applications, such as pumps, motors and
transmissions, lawn and garden equipment, appliances, small hand tools, trucks
and telecommunications equipment. The Company's performance racing group
manufactures clutches and gearboxes for motorsport applications and
performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,700 employees at 17 manufacturing, research, sales and
administrative sites in 6 countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning sales,
market share, foreign operations, working capital and other statements that
involve risks and uncertainties. These forward-looking statements are based
upon management's expectations and beliefs concerning future events. Forward-
looking statements are necessarily subject to risks, uncertainties and other
factors, many of which are outside the control of the Company and which could
cause actual results to differ materially from such statements. These risks
and uncertainties include, but are not limited to: the ability of the Company
to meet the terms of its credit facilities, including the numerous financial
covenants and other restrictions; the Company's vulnerability to adverse
general economic and industry conditions and competition; the Company's
ability to effectively utilize all of its manufacturing capacity as the
industrial and commercial end-markets it serves improve; the ability to hire
and train qualified people at the Company's new friction products facility;
the ability to transfer production to the new facility and commence production
at the new facility without causing customer delays or dissatisfaction; the
ability to achieve the projected cost savings at the new facility, including
whether the cost savings can be achieved in a timely manner; higher than
anticipated costs related to the relocation of the friction products segment
facility and the sale of the Company's motor segment; whether or not the
Company's motor segment will be sold and if sold whether the sale can take
place in the time or at the price projected by the Company; the impact on the
Company's gross profit margins as a result of changes in product mix; the
ability of the Company to begin generating profits from its facilities in
China and to turn a profit at its start-up metal injection molding operation;
the effect of the transfer of manufacturing to China and other lower wage
locations by other manufacturers who compete with the Company; the effect on
the Company's international operations of unexpected changes in legal and
regulatory requirements, export restrictions, currency controls, tariffs and
other trade barriers, difficulties in staffing and managing foreign
operations, political and economic instability, difficulty in accounts
receivable collection and potentially adverse tax consequences; the effect of
foreign currency exchange rates as the Company's non-U.S. sales continue to
increase; the ability of the Company to successfully negotiate new agreements,
as they expire, with its unions representing certain of its employees, on
terms favorable to the Company without experiencing work stoppages; the
effect of any interruption in the Company's supply of raw materials or a
substantial increase in the price of raw materials; the continuity of business
relationships with major customers; and the ability of the Company's aircraft
component products to meet stringent Federal Aviation Administration criteria
and testing requirements.
Actual results and events may differ significantly from those projected in
the forward-looking statements. Reference is made to Hawk's filings with the
Securities and Exchange Commission, including its annual report on Form 10-K
for the year ended December 31, 2004, its quarterly reports on Form 10-Q, and
other periodic filings, for a description of the foregoing and other factors
that could cause actual results to differ materially from those in the
forward-looking statements. Any forward-looking statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise.
Investor Conference Call
A live Internet broadcast of the Company's conference call discussing the
first quarter 2005 results can be accessed via the investor relations page on
Hawk Corporation's web site (http://www.hawkcorp.com) on Tuesday, May 3, 2005
at 1:30 p.m. Eastern time. An archive of the call will be available shortly
after the end of the conference call on the investor relations page of the
Company's web site.
Hawk Corporation is online at: http://www.hawkcorp.com/
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2005 2004
Net sales $72,071 $60,295
Cost of sales 53,385 44,571
Gross profit 18,686 15,724
Selling, technical and administrative expenses 11,206 9,828
Restructuring costs 731
Amortization of intangibles 184 184
Total expenses 12,121 10,012
Income from operations 6,565 5,712
Interest expense (2,616) (2,528)
Interest income 10 13
Other expense, net (151) (322)
Income from continuing operations
before income taxes 3,808 2,875
Income tax provision 1,937 1,120
Income from continuing operations, after
income taxes 1,871 1,755
Income from discontinued
operations, net of tax 73 5
Net income $1,944 $1,760
Diluted earnings per share:
Earnings from continuing operations, after
income taxes $0.20 $0.20
Discontinued operations 0.01 0.00
Net earnings per diluted share $0.21 $0.20
Fully diluted shares outstanding 9,232 8,811
Three Months Ended
March 31,
2005 2004
Segment data:
Net sales
Friction products $44,393 $35,488
Precision components 22,799 20,598
Performance racing 4,879 4,209
Total $72,071 $60,295
Gross profit
Friction products $12,585 $9,587
Precision components 4,692 4,837
Performance racing 1,409 1,300
Total $18,686 $15,724
Depreciation and amortization
Friction products $1,801 $1,789
Precision components 1,012 974
Performance racing 57 53
Total $2,870 $2,816
Income from operations:
Friction products $5,017 $3,924
Precision components 1,030 1,254
Performance racing 518 534
Total $6,565 $5,712
Reconciliation of Financial Measures
This earnings release discloses income from operations, income from
operations per diluted share and income from operations before restructuring
and loan forgiveness costs for each business segment, each of which excludes
amounts that differ from the most directly comparable measure calculated in
accordance with generally accepted accounting principles (GAAP). A
reconciliation of each of these financial measures to the most comparable GAAP
measure is included below in this earnings release. Management believes that
these financial measures are useful to investors because they exclude
transactions of an unusual nature, allowing investors to more easily compare
the Company's financial performance period to period. Management uses this
information in monitoring and evaluating the on-going performance of the
Company and each business segment.
Three Months ended
March 31,
Income from
operations
before
Income from restructuring
operations, Loan and loan
as reported Restructuring forgiveness forgiveness
(GAAP) costs costs costs
2005 2004 2005 2004 2005 2004 2005 2004
Friction
products $5,017 $3,924 $731 $593 $389 $6,341 $4,313
Precision
components 1,030 1,254 443 300 1,473 1,554
Performance
racing 518 534 64 43 582 577
Total
pre-tax $6,565 $5,712 $731 $1,100 $732 $8,396 $6,444
After tax $475 $715 $476
Per diluted
share $0.05 $0.08 $0.05
Operating
margin 9.2% 9.5% 11.7% 10.6%
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
March 31, December 31,
2005 2004
ASSETS
Current assets
Cash and cash equivalents $6,184 $6,785
Accounts receivable 46,890 39,044
Inventories 45,648 41,550
Taxes receivable 373 373
Deferred tax asset 4,546 4,583
Other current assets 4,081 3,460
Shareholder notes 600
Assets of discontinued operations 5,482 4,499
Total current assets 113,204 100,894
Property, plant and equipment, net 71,109 70,028
Goodwill 32,495 32,495
Other intangible assets 8,986 9,170
Other assets 8,344 8,279
Total assets $234,138 $220,866
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $31,571 $25,554
Other accrued expenses 18,979 18,277
Short-term debt 980 980
Current portion of long-term debt 544 639
Liabilities of discontinued operations 4,837 4,297
Total current liabilities 56,911 49,747
Long-term debt 116,208 111,402
Deferred income taxes 3,597 3,631
Other 11,059 11,059
Shareholders' equity 46,363 45,027
Total liabilities and shareholders' equity $234,138 $220,866
Certain amounts have been reclassified in prior periods to conform to the
2005 presentation
SOURCE Hawk Corporation
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Related links:
http://www.hawkcorp.com
Photo Notes:
NewsCom:
http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Joseph J. Levanduski, CFO, +1-216-861-3553,
or Thomas A. Gilbride, Vice President - Finance, +1-216-861-3553,
both of Hawk Corporation, or Investor Relations, John Baldissera
of BPC Financial Marketing, +1-800-368-1217
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