- Net sales increase 11.8%
- Net income up 13.3%
- Company continues to gain new product awards
- Move to Oklahoma on track
CLEVELAND, Aug. 2 /PRNewswire-FirstCall/ -- Hawk Corporation
(Amex: HWK) announced today that net sales for the second quarter of 2005
increased by 11.8% to $70.9 million from $63.4 million in the comparable prior
year period. The Company's net sales benefited during the quarter from
improved economic conditions and new product introductions in a majority of
the Company's end markets, including heavy truck, aerospace, construction,
specialty friction, fluid power and automotive. The effect of foreign
currency exchange rates accounted for only 0.8% of the net sales increase
during the quarter.
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Income from operations in the second quarter of 2005 increased 1.6% to
$6.2 million compared to $6.1 million in the prior year period. As a
percentage of net sales, the Company's operating margin decreased to 8.7% in
the second quarter of 2005 from 9.6% in the comparable quarter of 2004. This
unfavorable operating leverage was primarily the result of previously
announced restructuring costs relating to relocation of one of the Company's
friction manufacturing facilities from Ohio to Oklahoma and operating
inefficiencies due to the relocation, including increased labor, benefit,
freight and outsourcing costs, as a result of operating both the Ohio and
Oklahoma facilities during the production transition period.
Income from operations in the second quarter of 2005 included $1.3 million
($0.2 million of which was included in cost of sales), or $.09 per diluted
share, of the restructuring costs. In the second quarter of 2004, income from
operations included restructuring costs of $0.2 million or $.02 per diluted
share. Operating income before these charges was $7.6 million, or 10.7% of
net sales, in the second quarter of 2005, an increase of 20.6%, or $1.3
million, from $6.3 million, or 9.9% of net sales, in the comparable prior year
period.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
the second quarter results particularly because of our continued sales growth
despite the disruptions created by moving a facility to Oklahoma." Mr.
Weinberg continued, "The majority our markets continued to show positive
momentum during the quarter and we continued to benefit from new product
introductions to our customer base."
For the six month period ended June 30, 2005, net sales were $142.9
million, an increase of $19.2 million, or 15.5%, from $123.7 million in the
comparable prior year period. Income from operations for the same six month
period increased $1.0 million, or 8.5%, to $12.8 million from $11.8 million in
the comparable prior period. Included in the Company's income from operations
for the six months ended June 30, 2005 was $2.1 million of restructuring costs
related to the move to Oklahoma and $1.1 million of loan forgiveness costs,
which combined accounted for $.22 per diluted share. In the same six month
period of 2004, income from operations included restructuring costs of $0.2
million and loan forgiveness costs of $0.7 million, which combined accounted
for $.07 per diluted share. Operating income before these charges was $16.0
million, or 11.2% of net sales, in the first six months of 2005, an increase
of 26.0%, or $3.3 million, from $12.7 million, or 10.3% of net sales, in the
comparable prior year period.
The Company reported net income of $1.7 million, an increase of 13.3%, or
$.17 per diluted share, on 9.4 million diluted shares in the second quarter of
2005 compared to net income of $1.5 million, or $.16 per diluted share, on 8.8
million diluted shares in the comparable prior year period. The increase in
the number of shares outstanding from 2004 to 2005 was the result of 0.2
million shares issued from treasury for the exercise of employee stock options
and the dilutive result of 0.4 million unexercised option shares which are "in
the money" as of June 30, 2005. The Company reported a worldwide effective
tax rate of 52.4% in the second quarter of 2005 compared to 55.8% in the
comparable quarter of 2004 primarily resulting from the effect of the
restructuring costs on the Company's domestic tax losses. The Company expects
that its full year 2005 effective tax rate will be consistent with its prior
guidance of 48.0% to 53.0%. For the six months ended June 30, 2005 net income
was $3.6 million, an increase of 12.5%, compared to $3.2 million in the
comparable prior year period.
Business Segment Results
Net sales in the friction products segment for the second quarter ended
June 30, 2005 increased $6.1 million, or 15.4%, to $45.6 million from $39.5
million in the comparable prior year period. Primary drivers of this increase
were from sales arising from new product introductions in the construction and
heavy truck markets, strong world-wide economic growth in the Company's
construction, heavy truck and aerospace markets and increased sales to the
aftermarket. The effect of foreign currency exchange rates on the friction
products segment's net sales accounted for 1.3% of the 15.4% increase during
the quarter. For the six months ended June 30, 2005 net sales in this segment
were $90.0 million, up 20.0%, from $75.0 million in the comparable prior year
period.
Net sales at the Company's Italian facility, on a local currency basis,
increased 8.3% in the second quarter of 2005 compared to the same period in
2004 as a result of market share gains and new product introductions in the
period. Total shipments at the Company's Chinese friction products facility
increased 73.8% in the second quarter of 2005 compared to the same period in
2004.
For the second quarter ended June 30, 2005, income from operations in the
friction products segment increased $0.1 million, or 2.1%, to $4.8 million
from $4.7 million in the comparable prior year period. The increase was the
primarily the result of improved sales volumes in most of the markets served
by the segment which provided a higher absorption of fixed manufacturing
costs. These gains were partially offset by increased operating costs to
support the higher sales activity, restructuring costs of $1.3 million ($0.2
million of which was included in cost of sales) related to the plant
relocation and manufacturing and overhead cost inefficiencies from having both
the Ohio and Oklahoma facilities in production during the transition period.
For the six months ended June 30, 2005 income from operations in this segment
was $9.9 million, an increase of $1.3 million, or 15.1%, from $8.6 million in
the comparable prior year period.
In the Company's precision components segment, net sales for the three
months ended June 30, 2005 were up $1.4 million, or 7.1%, to $21.2 million
from $19.8 million in the comparable prior period. The segment's net sales
increases were driven by market improvements and new product introductions
primarily in the fluid power and automotive markets during the quarter. For
the six months ended June 30, 2005 net sales in this segment were $44.0
million, an increase of $3.5 million, or 8.6%, from $40.5 million in the
comparable prior year period.
Income from operations in the precision components segment in the second
quarter of 2005 and 2004 was flat at $1.2 million. During the second quarter
of 2005 the segment benefited from product mix and overall sales volume
increases which was offset by phase-in costs associated with the segment's new
powder metal technologies, sales volume declines at one of its plants, the
continued support of its new facility in China and outsourcing and freight
expediting costs. For the six months ended June 30, 2005 income from
operations in this segment was $2.2 million, a decrease of $0.2 million from
$2.4 million in the comparable prior year period.
In the Company's performance racing segment, net sales in the second
quarter were the same as in the prior year quarter at $4.0 million. For the
six months ended June 30, 2005, net sales were $8.9 million, an increase of
$0.7 million, or 8.5%, from $8.2 million in the comparable prior year period.
For the quarter ended June 30, 2005, income from operations in the
performance racing segment was also flat at $0.2 million compared to the prior
year period. For the six months ended June 30, 2005 income from operations in
this segment was $0.7 million, a decrease of $0.1 million from $0.8 million in
the comparable prior year period.
Working Capital and Liquidity
As of June 30, 2005, working capital increased by $1.3 million from
December 31, 2004 levels. However, the Company reduced its working capital by
$3.8 million compared to March 31, 2005 levels. The decrease in working
capital during the second quarter of 2005 was largely the result of increased
accounts receivable collections partially offset by increased inventory
requirements to support the move to the Company's new facility in Oklahoma.
The cash generated by the reduction in working capital during the quarter was
used to pay down the Company's outstanding loans. As of June 30, 2005, the
Company had no outstanding loans under its revolving credit facility.
Business Outlook
As a result of the impact of new business awards and the improved economic
conditions in our markets, the Company is increasing the range of expected
revenues for the year ended December 31, 2005 to between $270.0 and $273.0
million, which represents an 11.9% to 13.2% increase over full year 2004
revenues of $241.2 million. The Company anticipates second half revenues will
increase between 8.2% and 10.7% to a range of $127.1 million to $130.1 million
for the six months ended December 31, 2005 as compared to second half revenues
of $117.5 million for the six months ended December 31, 2004.
The Company is reaffirming its full year guidance that income from
operations will increase 7.0% to 9.0% when compared to 2004, after giving
effect to restructuring charges for the full year 2005 relating to the move of
a friction manufacturing facility. The Company expects that the restructuring
charges for the full year 2005 will be approximately $4.5 million, the high
end of the previously-announced range.
"The move of our friction products facility to Oklahoma is well underway.
Notwithstanding this transition, the group has achieved 20.0% revenue growth
for the first half of 2005," stated Mr. Weinberg. "The challenges that this
segment has successfully met in the first six months of 2005 in dealing with
increased production demands while at the same time migrating out of an
existing facility, is truly a credit to our management team."
Mr. Weinberg continued, "The challenges and costs associated with the move
of our facilities are expected to peak in the third quarter of 2005.
Operating two facilities at less than full capacity, with the attended fixed
overhead of each and the ramping up of the new facility will negatively impact
the third quarter and to a lesser extent, the fourth quarter of 2005. In
addition, our previously announced restructuring costs, such as severance and
other direct costs associated with the plant relocation will be approximately
$1.5 million for the quarter ended September 30, 2005 and approximately $0.9
million in the quarter ended December 31, 2005."
"Considering these factors, as well as initiatives being undertaken within
our performance racing segment to improve their operational efficiency and
increase their focus on new product development, the Company anticipates
second half 2005 income from operations will be flat compared to income from
operations of $5.5 million for the six month period ended December 31, 2004,"
stated Mr. Weinberg.
Excluding the effect of approximately $2.4 million in restructuring costs,
the Company currently anticipates income from operations for the second half
of 2005 to improve approximately 23.0% to approximately $7.9 million when
compared to income from operations for the six month period ended December 31,
2004 of $6.4 million, after adjusting for $0.9 million of restructuring costs.
The Company is also reaffirming its full year net income guidance of $.35
to $.40 per diluted share, after taking into account restructuring charges of
approximately $.30 per diluted share for the year ended December 31, 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 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 powder metal
facility in China; 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 ability of the Company to utilize tax loss carryforwards in
future periods; the effect of any interruption in the Company's supply of raw
materials or a substantial increase in the price of raw materials; and, the
continuity of business relationships with major customers.
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
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 Tuesday,
August 2, 2005 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
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Net sales $70,874 $63,376 $142,945 $123,671
Cost of sales 53,356 47,615 106,741 92,186
Gross profit 17,518 15,761 36,204 31,485
Selling, technical
and administrative
expenses 9,933 9,304 21,139 19,132
Restructuring costs 1,172 221 1,903 221
Amortization of
intangibles 184 182 368 366
Total expenses 11,289 9,707 23,410 19,719
Income from operations 6,229 6,054 12,794 11,766
Interest expense (2,625) (2,549) (5,241) (5,077)
Interest income 5 12 15 25
Other (expense)
income, net (105) (197) (256) (519)
Income from continuing
operations before
income taxes 3,504 3,320 7,312 6,195
Income tax provision 1,837 1,853 3,774 2,973
Income from
continuing operations 1,667 1,467 3,538 3,222
Income from
discontinued operations,
net of tax 38 4 111 9
Net income $1,705 $1,471 $3,649 $3,231
Diluted earnings
per share:
Earnings from
continuing operations $.17 $.16 $.37 $.36
Discontinued operations,
net of tax .00 .00 .01 .00
Earnings per
diluted share $.17 $.16 $.38 $.36
Diluted shares
outstanding 9,420 8,806 9,338 8,782
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Segment data:
Net sales
Friction products $45,620 $39,523 $90,013 $75,011
Precision components 21,213 19,841 44,012 40,439
Performance racing 4,041 4,012 8,920 8,221
Total $70,874 $63,376 $142,945 $123,671
Gross profit
Friction products $12,141 $10,240 $24,726 $19,827
Precision components 4,374 4,477 9,066 9,314
Performance racing 1,003 1,044 2,412 2,344
Total $17,518 $15,761 $36,204 $31,485
Depreciation and
Amortization:
Friction products $1,714 $1,679 $3,515 $3,468
Precision components 1,027 897 2,039 1,871
Performance racing 55 56 112 109
Total $2,796 $2,632 $5,666 $5,448
Income from operations:
Friction products $4,866 $4,659 $9,884 $8,583
Precision components 1,180 1,153 2,209 2,407
Performance racing 183 242 701 776
Total $6,229 $6,054 $12,794 $11,766
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
June 30,
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 $4,866 $4,659 $1,340 $221 $6,206 $4,880
Precision
components 1,180 1,153 1,180 1,153
Performance
racing 183 242 183 242
Total
pre-tax $6,229 $6,054 $1,340 $221 $7,569 $6,275
After tax $840 $136
Per diluted
share $0.09 $0.02
Operating
margin 8.8% 9.6% 10.7% 9.9%
*Restructuring costs in this table for the second quarter ended June 30,
2005 include $0.2 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
Six Months ended
June 30,
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 $9,884 $8,583 $2,071 $221 $593 $389 $12,548 $9,193
Precision
components 2,209 2,407 443 300 2,652 2,707
Performance
racing 701 776 64 43 765 819
Total
pre-tax $12,794 $11,766 $2,071 $221 $1,100 $732 $15,965 $12,719
After tax $1,298 $136 $715 $476
Per diluted share $0.14 $0.02 $0.08 $0.05
Operating margin 9.0% 9.5% 11.2% 10.3%
* Restructuring costs in this table for the six months ended June 30,
2005 include $0.2 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
June 30, December 31,
2005 2004
ASSETS
Current assets
Cash and cash equivalents $6,930 $6,785
Accounts receivable 43,866 39,044
Inventories 46,018 41,550
Taxes receivable 373 373
Deferred tax asset 4,153 4,583
Other current assets 5,145 3,460
Shareholder notes 600
Assets of discontinued operations 5,200 4,499
Total current assets 111,685 100,894
Property, plant and equipment, net 71,349 70,028
Goodwill 32,495 32,495
Other intangible assets 8,802 9,170
Other assets 8,356 8,279
Total assets $232,687 $220,866
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $29,802 $25,554
Other accrued expenses 23,008 18,277
Short-term debt 980 980
Current portion of long-term debt 397 639
Liabilities of discontinued operations 5,043 4,297
Total current liabilities 59,230 49,747
Long-term debt 111,453 111,402
Deferred income taxes 3,364 3,631
Other 10,992 11,059
Shareholders' equity 47,648 45,027
Total liabilities and shareholders' equity $232,687 $220,866
Hawk Corporation is online at: http://www.hawkcorp.com/
SOURCE Hawk Corporation
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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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