- Net sales increase by 21.4% to record $65.8 million
- Income from continuing operations, after taxes increases 100.0% to $3.8
million
- Company raises earnings guidance for 2008
CLEVELAND, May 9 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales from continuing operations for the first
quarter ended March 31, 2008 increased by 21.4% to a record $65.8 million
from $54.2 million in the comparable prior year period. The Company's first
quarter 2008 net sales benefited from strong economic conditions in most of
its end markets, pricing actions to offset cost increases, favorable
foreign currency exchange rates and new product introductions. The effect
of foreign currency exchange rates accounted for 6.6% of the total net
sales increase of 21.4% during the first quarter of 2008. The Company
experienced strong sales growth from all of its facilities in the first
quarter of 2008, especially in Italy and China. On a local currency basis,
net sales increased 22.5% in Italy and 60.6% in China during the first
quarter of 2008 compared to the first quarter of 2007.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO )
Income from continuing operations for the first quarter ended March 31,
2008 was $6.5 million, an increase of $3.0 million, or 85.7%, from $3.5
million in the prior year. Income from continuing operations benefited from
the impact of sales volume increases, pricing, foreign currency exchange
rates and a continued implementation of the Company's lean manufacturing
processes. This increase during the first quarter of 2008 compared to 2007
was partially offset by increases in wages, employee benefits and variable
incentive compensation expense, as well as, increases in raw material costs
during the quarter.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are very pleased
with our first quarter 2008 results. We achieved record sales and earnings
from continuing operations during the quarter as a result of a strong
global economy in our industrial and performance automotive markets, served
by our Wellman friction business. As a result of our decision to focus our
management resources on the friction products business, we recently
announced a plan to sell our performance racing segment. This will allow us
to focus all of our resources on maintaining our world leadership position
in the development and manufacture of friction products." Mr. Weinberg
continued, "We continue to pursue acquisitions and organic growth in the
friction products segment. Our capital expenditure program for the full
year 2008 should allow us to broaden our base of current business while
adding new products and customers. Our geographic expansion continues to
show favorable results as our foreign operations continue to register
healthy quarter over quarter sales increases. The results that we have
achieved in the first quarter of 2008 give us confidence about the growth
potential we see for the balance of the year."
For the quarter ended March 31, 2008, the Company reported income from
continuing operations, after income taxes, of $3.8 million, or $0.40 per
diluted share, an improvement of $1.9 million or 100.0%, compared to $1.9
million, or $0.20 per diluted share, in the comparable prior year period.
For the three months ended March 31, 2008, the Company reported net
income of $3.2 million, or $0.33 per diluted share, a decrease of $9.6
million, compared to $12.8 million in the first quarter of 2007. The net
income of $3.2 million included an impairment loss of $0.8 million ($0.5
million net of tax), or $0.05 per diluted share, related to the performance
racing discontinued operation. The first quarter of 2007 included a gain on
the sale of the Company's precision components segment of $15.0 million
($11.8 million, net of tax), or $1.25 per diluted share.
Business Segment
----------------
During the first quarter of 2008, the Company continued its strategic
plan to focus its resources on the friction products business and committed
to sell its performance racing segment. This segment engineers and
manufactures premium branded clutch, transmissions and driveline systems
for the performance racing market. As a result of the decision to sell the
performance racing segment, the Company's consolidated financial statements
and other information provided in this press release reflect the racing
segment as a discontinued operation for all periods presented. After
reclassifying the racing segment to discontinued operations, the Company
has one remaining operating segment, the friction products segment. The
friction products segment manufactures friction products used in
off-highway, industrial, agricultural, performance and aircraft
applications. The Company will retain its Hawk Performance(R) brake
business, which has always been a component of its friction products
segment.
Working Capital and Liquidity
-----------------------------
At March 31, 2008, working capital increased by $3.8 million to $118.1
million from $114.3 million at December 31, 2007. The increase in working
capital was largely the result of increased accounts receivable levels at
March 31, 2008 as a result of first quarter 2008 sales increases and a
decrease in accounts payable levels during the quarter. The increase was
partially offset by lower cash levels during the quarter as a result of
senior note interest, incentive compensation and profit sharing payments
during the first quarter of 2008.
As of March 31, 2008, the Company had no borrowings under its revolving
credit facility and $19.8 million was available for additional borrowings
under that facility based on its eligible collateral.
During the first quarter of 2008, the Company spent $3.4 million on
capital expenditures compared to $2.5 million during the first quarter of
2007.
Business Outlook
----------------
With the performance racing segment being treated as a discontinued
operation, the Company is revising its guidance to reflect only the
expected results of its friction products segment for the 2008 year.
Based on the strong performance of its global industrial markets, the
Company expects that its net sales from continuing operations for 2008 will
increase between 13.5% and 15.8% to between $245.0 million and $250.0
million compared to 2007 net sales from continuing operations of $215.9
million.
The Company is increasing its guidance with respect to pre-tax income
from continuing operations for the full year 2008 to between $21.0 million
and $23.0 million, an increase of between 7.7% and 18.0% compared to 2007
pre-tax income from continuing operations of $19.5 million. The Company
expects to benefit from improved operating leverage due to increased sales
volumes and continued operating improvements through the balance of 2008.
Although the Company experienced limited commodity inflationary pressures
in the first quarter of 2008, the revised pre-tax income from continuing
operations for the balance of 2008 factors in expected escalation of steel
and other commodity prices as well as increased incentive compensation
expense. These costs will partially offset the sales volume benefits. The
Company will seek to minimize the effect of any material cost increases
through efficient purchasing and potential price increases. However, the
ability of the Company to pass on the expected cost increases to its
customers is dependent on market conditions.
The Company continues to anticipate that its capital spending in 2008
will be $15.0 million which will be used primarily to increase capacity, to
continue its lean manufacturing projects, and for equipment expenditures
for its fuel cell and carbon composite product line initiatives. The
Company expects depreciation and amortization expense to be approximately
$8.0 million in 2008. The Company believes that its 2008 effective tax rate
will be approximately 41.0%.
Based on current market conditions and the Company's position in its
friction markets, the Company believes that it has significant
opportunities to gain additional new business. While the Company does not
believe that these opportunities will result in meaningful net sales
increases in 2008, the Company may incur additional capital expenditures
and other expenses above the current forecast for 2008 as it seeks to take
advantage of these opportunities. The Company can provide no assurance that
these opportunities will be realized.
The Company
-----------
Hawk Corporation is a leading supplier of friction materials for
brakes, clutches and transmissions used in airplanes, trucks, construction
and mining equipment, farm equipment, recreational and performance
automotive vehicles. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,100 employees at 11 manufacturing, research, sales and
administrative sites in 7 countries.
Forward-Looking Statements
--------------------------
This press release includes forward-looking statements concerning sales
and operating earnings. 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
Company's ability to sell its performance racing segment on a timely basis
or at terms favorable to the Company; the Company's ability to execute its
business plan to meet its forecasted results from continuing operations;
the costs and outcome of the ongoing SEC and DOJ investigations; decisions
by the Company regarding the use of proceeds from the sale of its precision
components segment, including acquisition and organic growth opportunities;
the impact on the Company's gross profit margins as a result of changes in
product mix; the Company's vulnerability to adverse general economic and
industry conditions and competition; work stoppages by union employees;
ongoing capital expenditures and investment in research and development;
compliance with government regulations; compliance with environmental and
health and safety laws and regulations; the effect of any interruption in
the Company's supply of raw materials or a substantial increase in the
price of raw materials; 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;
reliance for a significant portion of the Company's total revenues on a
limited number of large organizations and the continuity of business
relationships with major customers; the loss of key personnel; and control
by existing preferred stockholders.
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, 2007, 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
quarterly and year to date results can be accessed via the investor
relations page on Hawk Corporation's web site (http://www.hawkcorp.com) on Monday,
May 12, 2008 at 2:00 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 INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended March 31
---------------------------
2008 2007
---------------------------
Net sales $65,779 $54,175
Cost of sales 48,368 40,178
---------------------------
Gross profit 17,411 13,997
Selling, technical and administrative
expenses 9,691 8,620
Amortization of finite-lived
intangible assets 174 181
---------------------------
Total operating expenses 9,865 8,801
Income from operations 7,546 5,196
Interest expense (2,015) (2,560)
Interest income 666 741
Other income (expense), net 291 110
---------------------------
Income from continuing operations,
before income taxes 6,488 3,487
Income tax provision 2,662 1,542
---------------------------
Income from continuing operations,
after income taxes 3,826 1,945
(Loss) income from discontinued
operations, after income taxes (675) 10,841
---------------------------
Net income $3,151 $12,786
===========================
Diluted earnings per share:
Income from continuing operations,
after income taxes $0.40 $0.20
Discontinued operations, after income
taxes (0.07) 1.16
---------------------------
Net earnings per diluted share $0.33 $1.36
===========================
Diluted weighted average shares outstanding 9,366 9,386
===========================
HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
March 31 December 31
2008 2007
----------------------------
ASSETS
Current assets:
Cash and cash equivalents $70,879 $79,972
Marketable securities - 1,019
Accounts receivable, net 48,710 37,486
Inventories 35,856 36,719
Deferred tax asset 1,617 1,355
Other current assets 3,847 4,766
Current assets of discontinued operations 5,682 5,509
Total current assets 166,591 166,826
Property, plant and equipment, net 42,222 39,575
Other intangible assets 6,983 7,157
Other assets 5,247 5,176
Long-term assets of discontinued operations - 1,170
----------------------------
Total assets $221,043 $219,904
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $28,401 $30,251
Other accrued expenses 17,916 21,434
Current portion of long-term debt 34 59
Current liabilities of discontinued
operations 2,132 1,814
Total current liabilities 48,483 53,558
Long-term debt 87,090 87,090
Deferred income taxes 989 922
Other 11,843 11,010
Shareholders' equity 72,638 67,324
----------------------------
Total liabilities and shareholders' equity $221,043 $219,904
============================
SOURCE Hawk Corporation
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http://www.hawkcorp.com
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PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Joseph J. Levanduski, Vice President - CFO,
+1-216-861-3553, Thomas A. Gilbride, Vice President - Finance,
+1-216-861-3553, both of Hawk Corporation; Investor Relations,
John Baldissera, BPC Financial Marketing, +1-800-368-1217
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