* Company Posts Record Quarterly Revenues of $63.4 million
* Income from Operations up 36%
* Income from Continuing Operations up 25%
* Net Income up 200%
CLEVELAND, Aug. 3 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales from continuing operations for the second
quarter of 2004 increased by 21.5% to $63.4 million from $52.2 million in the
comparable prior year period. Increases were posted in each of the Company's
business segments.
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Income from continuing operations was $1.5 million or $.16 per diluted
share in the second quarter of 2004 compared to $1.2 million or $.14 per
diluted share in the comparable prior year period, an increase of 25.0%. The
Company's worldwide effective tax rate was 55.8% in the second quarter of
2004. This second quarter effective tax rate incorporates the Company's most
recent full year earnings expectations in order to achieve a full year
effective tax rate of approximately 48.0%.
The Company's net sales of $63.4 million from continuing operations were
the highest in its history surpassing the previous high set during the first
quarter of 2004. The Company's net sales from continuing operations benefited
from improved economic conditions and new business awards during the quarter
in a number of the Company's end markets, including construction, agriculture,
heavy truck, specialty friction and fluid power. In addition, during the
second quarter, the Company shipped an initial stocking order of its Hawk
Performance(R) brand brake pads to Pep Boys automotive retail outlets for the
national rollout of its performance brake components. The effect of foreign
currency exchange rates accounted for 1.4% of the net sales increase during
the quarter. The net sales increase was partially offset by sales declines
resulting from the previously announced June 2003 sale of an automotive
product line, which reported sales of $1.0 million in the second quarter of
2003.
Income from operations in the second quarter of 2004 increased 35.6% to
$6.1 million compared to $4.5 million in the prior year period. As a
percentage of net sales, the Company's operating margin improved to 9.6% in
the second quarter of 2004 from 8.6% in the comparable quarter of 2003. The
favorable operating leverage was the result of increased sales volumes, higher
absorption of fixed manufacturing costs and continued implementation of lean
manufacturing and cost-out programs throughout the organization. The gains
were dampened by surcharges on a number of our raw materials, production
inefficiencies and freight expediting costs resulting from availability issues
on steel shipments, product mix, and to a lesser extent, restructuring costs
relating to the Company's new facility in Oklahoma.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
the second quarter results particularly because our sales growth and income
from operations during the period surpassed the high end of our most recently
issued guidance. We anticipate continued strength in our end markets for the
balance of 2004." Mr. Weinberg continued, "We have noted that based on our
increased sales in the quarter, there has been less than the expected pull-
through of profit margin to our operating results. Management is working
proactively to pass on the surcharges we have encountered and to respond to
the production disruptions caused by material shortages in the face of
increased market demand."
For the six month period ended June 30, 2004, net sales from continuing
operations were $123.7 million, an increase of $16.8 million or 15.7%,
from $106.9 million in the comparable prior year period. Income from
operations for the same six month period increased $3.6 million, or 43.9%, to
$11.8 million from $8.2 million in the comparable prior period. As a percent
of net sales, income from operations increased to 9.5% for the first six
months of 2004 compared to 7.7% in the comparable period of 2003.
The Company reported net income of $1.5 million, or $.16 per diluted
share, in the second quarter of 2004 compared to net income of $0.5 million,
or $.05 per diluted share in the comparable prior year period, an increase of
200.0%. This improvement in net income was the result of the Company's
increased earnings from continuing operations and the elimination of net
losses from the Company's discontinued motor segment through better operating
performance. This improvement was partially offset by the higher worldwide
effective tax rate for the period.
Business Segment Results
In the friction segment, second quarter net sales increased $7.6 million
or 23.8%, to $39.5 million from $31.9 million in the year-ago period. Primary
drivers of the sales increase were new sales from the initial stocking order
to Pep Boys automotive retail outlets, market share gains primarily in the
construction market, improved conditions in the Company's construction,
agriculture, truck and aerospace markets, increased sales to the aftermarket
and the fleet market, increased sales from the Company's Italian facility, and
to a lesser extent, favorable foreign currency exchange rates. The effect of
foreign currency exchange rates accounted for 2.3% of the net sales increase
during the quarter. These increases were partially offset by sales declines
from the Company's sale of its automotive stamping product line which reported
sales of $1.0 million in the second quarter of 2003. Net sales in the
friction segment for the six months ended June 30, 2004 increased 18.7% to
$75.0 million from $63.2 million in the comparable prior year period.
Net sales at the Company's Italian facility, on a local currency basis,
increased 24.4% in the second quarter of 2004 compared to the same period in
2003 as a result of market share gains, economic improvement and new product
introductions in the period.
Income from operations in the friction segment during the second quarter
of 2004 increased 21.1%, to $4.6 million compared to $3.8 million in the prior
year period. The increase was the result of improved sales volumes in all of
the markets served by the Company which provided a higher absorption of fixed
manufacturing costs and the continued implementation of cost-out programs
throughout the segment. The gains were partially offset by higher material
costs due to raw material surcharges, increased operating costs to support the
higher sales activity and limited availability of product during the period,
increased labor and incentive compensation costs, restructuring costs
associated with the Company's new manufacturing facility in Oklahoma and
product mix. For the six months ended June 30, 2004, income from operations
increased $2.1 million, or 32.8%, to $8.5 million from $6.4 million in the
comparable prior year period. As a percentage of net sales, the segment's
operating margin improved to 11.3% during the first six months of 2004 from
10.1% in the comparable period of 2003.
In the Company's precision components segment, net sales increased 17.1%
to $19.9 million in the second quarter of 2004 from $17.0 million in the
comparable prior year period. The increase during the quarter was driven by
the continued improvements in the industrial markets served by this segment.
The segment experienced increases in its fluid power, appliance, truck and
power tool markets, partially offset by a slight decline in the lawn and
garden market during the quarter. Net sales for the six months ended June 30,
2004, were up $4.1 million, or 11.3%, to $40.5 million from $36.4 million in
the prior year.
Income from operations in the precision components segment in the second
quarter of 2004 was $1.2 million compared to $0.6 million during the
comparable quarter of 2003, an increase of 100.0%. The increase was primarily
due to the increased sales volumes as well as product mix. The segment
continues to support the start-up of its new facility in China. During the
second quarter of 2004, operating costs increased when compared to the 2003
prior year period as the Company incurred increased personnel costs to support
the production levels at this new facility. As a percentage of net sales, the
segment's operating margin improved to 6.0% in the second quarter of 2004 from
2.9% in the comparable quarter of 2003. For the six months ended June 30,
2004, income from operations increased 84.6% to $2.4 million from $1.3 million
in the prior year. As a percentage of net sales, the segment's operating
margin improved to 5.9% for the six month period ended June 30, 2004 from 3.6%
in the comparable prior year period.
Net sales in the Company's performance racing segment increased 21.2%, to
$4.0 million in the second quarter of 2004 compared to $3.3 million in the
prior year period. The increase in net sales was primarily caused by the
introduction of new products during the quarter. Net sales for the six months
ended June 30, 2004 increased 12.3% to $8.2 million from $7.3 million in the
prior year.
Income from operations in the performance racing segment in the second
quarter of 2004 increased by 200.0% to $0.3 million compared to $0.1 million
in the comparable prior year period. For the six month period ended June 30,
2004, income from operations was $0.9 million compared to $0.5 million in the
prior year, an increase of 80.0%. As a percentage of net sales, the segment's
operating margin improved to 11.0% for the six month period ended June 30,
2004 from 6.8% in the comparable prior year period.
Working Capital and Liquidity
As of June 30, 2004 working capital, exclusive of the Company's senior
credit facility increased by $6.0 million from December 31, 2003 levels. The
increase was largely the result of growth in the Company's receivable levels
as a result of the higher sales volumes and expanded inventory levels to
support the increased production volumes. Principal amounts outstanding under
the Company's senior credit facility increased by $5.0 million, to $29.1
million, compared to $24.1 million at December 31, 2003. The increase was
primarily to support the growth of the Company's working capital assets. The
principal amounts outstanding under the Company's senior credit facility as of
June 30, 2004 decreased by $2.5 million or 7.9% from the amount outstanding as
of March 31, 2004. Borrowing availability under the Company's senior credit
facility continued to increase during the period.
Business Outlook
"Our year to date results have benefited from the continuing economic
improvements and the sales demand increases to our customers as well as the
continued implementation of our technology initiatives. We have been awarded
a number of new product programs that we believe will lead to continued sales
growth during the balance of this year. Additionally, sales from our Italian
operation should remain robust for the balance of 2004. As a result of this
sales momentum, we believe our revenues will increase in the third quarter of
2004 by approximately 8% to 10% compared to the third quarter of 2003," stated
Mr. Weinberg. "We believe that we are positioned to achieve our previously
stated revised net sales growth objectives of 10% to 13% and operating income
from continuing operations of 55% to 60%, respectively, for the full year
2004. We will continue to pursue our growth initiatives which we believe will
provide future sales opportunities for all of our businesses."
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 1,600 employees at 16 manufacturing, research, sales and
administrative sites in 5 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 effect of our debt service requirements
on funds available for operations and future business opportunities and our
vulnerability to adverse general economic and industry conditions and
competition; our ability to effectively utilize all of our manufacturing
capacity as the industrial and commercial end-markets we serve improve; the
timely completion of the construction of the new facility in our friction
products segment; the ability to hire and train qualified people at the new
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; whether or not Hawk's motor segment will be sold and if sold whether
the sale can take place in the time or at the price projected by Hawk; whether
or not the motor segment will be able to improve its operating performance
during the selling process; higher than anticipated costs related to the sale
of Hawk's motor segment; the impact on our gross profit margins as a result of
changes in our product mix; the effect of general economic and industry
conditions and competition; the ability of the Company to begin generating
profits from its facilities in China and to turn a profit at our 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 us; the effect of changes in international laws and regulations and
currency exchange rates; the effect of competition by manufacturers using new
or different technologies; the ability of the Company to successfully
negotiate new agreements with its unions as they come due; 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, 2003, 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 3, 2004 at 1:00 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 OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Net sales $63,376 $52,193 $123,671 $106,854
Cost of sales 47,615 39,320 92,186 80,995
Gross profit 15,761 12,873 31,485 25,859
Selling, technical
and administrative
expenses 9,304 8,227 19,132 17,295
Restructuring costs 221 221
Amortization of
intangibles 182 192 366 389
Total expenses 9,707 8,419 19,719 17,684
Income from operations 6,054 4,454 11,766 8,175
Interest expense (2,549) (2,737) (5,077) (5,482)
Interest income 12 15 25 27
Other (expense)
income, net (197) 274 (519) 9
Income from continuing
operations before
income taxes 3,320 2,006 6,195 2,729
Income tax provision 1,853 800 2,973 1,128
Income from continuing
operations 1,467 1,206 3,222 1,601
Income (loss) from
discontinued
operations, net of tax 4 (737) 9 (1,013)
Net income $1,471 $469 $3,231 $588
Diluted earnings
per share:
Earnings from
continuing operations $.16 $.14 $.36 $.18
Discontinued operations,
net of tax .00 (.09) .00 (.12)
Earnings per diluted
share $.16 $.05 $.36 $.06
Diluted shares
outstanding 8,806 8,578 8,782 8,578
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Other data:
Depreciation and
amortization:
Continuing
operations $2,632 $2,675 $5,448 $5,381
Discontinued
operations $- $259 $- $459
Segment data:
Net sales
Friction products $39,523 $31,872 $75,011 $63,171
Precision components 19,841 16,993 40,439 36,359
Racing 4,012 3,328 8,221 7,324
Total $63,376 $52,193 $123,671 $106,854
Gross profit
Friction products $10,240 $8,705 $19,827 $16,290
Precision components 4,477 3,274 9,314 7,418
Racing 1,044 894 2,344 2,151
Total $15,761 $12,873 $31,485 $25,859
Income from operations:
Friction products $4,609 $3,805 $8,483 $6,405
Precision components 1,139 523 2,379 1,247
Racing 306 126 904 523
Total $6,054 $4,454 $11,766 $8,175
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
June 30, December 31,
2004 2003
ASSETS
Current assets
Cash and cash equivalents $2,880 $3,365
Accounts receivable 41,990 32,272
Inventories 37,900 35,424
Taxes receivable 496 521
Deferred tax asset 3,537 3,551
Other current assets 5,032 4,032
Assets of discontinued operations 5,557 4,302
Total current assets 97,392 83,467
Property, plant and equipment, net 65,549 63,136
Goodwill 32,495 32,495
Other intangible assets 9,538 9,904
Other assets 4,248 4,547
Total assets $209,222 $193,549
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $25,465 $21,569
Other accrued expenses 21,458 18,185
Short-term debt 980 1,326
Bank facility 29,071 24,059
Current portion of long-term debt 693 1,148
Liabilities of discontinued operations 5,216 3,652
Total current liabilities 82,883 69,939
Long-term debt 68,013 68,443
Deferred income taxes 4,345 4,360
Other 9,191 9,102
Shareholders' equity 44,790 41,705
Total liabilities and shareholders' equity $209,222 $193,549
SOURCE Hawk Corporation
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CONTACT:
Ronald E. Weinberg, Chairman, CEO and
President, +1-216-861-3553, or Thomas A. Gilbride, Vice President
- Finance, +1-216-861-3553, both of Hawk Corporation; or Investor
Relations, John Baldissera, BPC Financial Marketing,
1-800-368-1217, for Hawk Corporation
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