-- Net Sales Increase 23%
-- Income from Operations up 14%
CLEVELAND, Nov. 11 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales for the third quarter of 2004 increased by
23.2% to $59.4 million from $48.2 million in the comparable prior year period.
Increases were posted in each of the Company's business segments, led by the
Company's friction products segment.
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Income from continuing operations, after taxes was $1.1 million or
$.11 per diluted share in the third quarter of 2004 compared to $0.1 million
or $.01 per diluted share in the comparable prior year period.
The Company's net sales benefited from improved economic conditions during
the quarter in most of the Company's end markets, including construction,
agriculture, heavy truck, specialty friction, fluid power and aerospace and
new business awards. The effect of foreign currency exchange rates accounted
for only 1.6% of the 23.2% net sales increase during the quarter.
Income from operations in the third quarter of 2004 increased 14.3% to
$4.0 million compared to $3.5 million in the prior year period. As a
percentage of net sales, the Company's operating margin declined to 6.7% in
the third quarter of 2004 from 7.3% in the comparable quarter of 2003. The
unfavorable operating leverage was primarily the result of surcharges and
price increases on raw materials, increased labor and incentive compensation
costs and restructuring costs of approximately $0.3 million relating to the
Company's new facility in Oklahoma. This decline was partially offset by
margins associated with increased sales volumes and continued implementation
of lean manufacturing and cost-out programs throughout the organization.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
the third quarter results particularly because we have been able to work with
our customer base in sharing the impact of increased raw material costs." Mr.
Weinberg continued, "We anticipate continued strength in our sales activity
for the balance of 2004 as a result of the upward momentum in most of our end-
markets and new product introductions to our industrial and aftermarket sales
channels. We feel that this momentum will allow us to achieve our previously
disclosed guidance related to income from operations for the full year 2004."
For the nine month period ended September 30, 2004, net sales were
$183.0 million, an increase of $28.0 million or 18.1%, from $155.0 million in
the comparable prior year period. Income from operations for the 2004 nine
month period increased $4.1 million, or 35.0%, to $15.8 million from
$11.7 million in the comparable prior year period despite increases in our raw
material costs. As a percent of net sales, income from operations increased
to 8.6% for the first nine months of 2004 compared to 7.5% in the comparable
period of 2003.
The Company reported income from continuing operations, after taxes of
$4.3 million, or $.47 per diluted share, for the first nine months of 2004
compared to $1.7 million, or $.19 per diluted share in the comparable prior
year period, an increase of 152.9%.
Business Segment Results
In the friction products segment, third quarter net sales increased
$7.3 million or 24.6%, to $37.0 million in 2004 from $29.7 million in the
year-ago period. Primary drivers of the sales increase were market share
gains 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, and to a lesser extent, favorable foreign
currency exchange rates. The effect of foreign currency exchange rates on net
sales accounted for 2.6% of the 26.4% increase during the quarter. Net sales
in the friction segment for the nine months ended September 30, 2004 increased
20.6% to $112.0 million from $92.9 million in the comparable prior year
period.
Net sales at the Company's Italian facility, on a local currency basis,
increased 7.7% in the third 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. For the nine month period ended September 30,
2004, net sales, on a local currency basis, increased 16.6% compared to the
same period in 2003.
Income from operations in the friction products segment during the third
quarter of 2004 increased 25.0%, to $3.5 million compared to $2.8 million in
the prior year period. The increase was the result of improved sales volumes
in all of the markets served by the segment which provided a higher absorption
of fixed manufacturing costs and the continued implementation of cost-out
programs. The gains were partially offset by higher material costs due to raw
material surcharges and price increases, increased operating costs to support
the higher sales activity, increased labor and incentive compensation costs
and restructuring costs associated with the Company's new manufacturing
facility in Oklahoma. As a percentage of net sales, the segment's operating
margin improved to 9.5% during the third quarter of 2004 from 9.4% in the
comparable period of 2003. For the nine months ended September 30, 2004,
income from operations increased $2.7 million, or 29.3%, to $11.9 million from
$9.2 million in the comparable prior year period. As a percentage of net
sales, the segment's operating margin improved to 10.6% during the first nine
months of 2004 from 9.9% in the comparable period of 2003.
In the Company's precision components segment, net sales increased 23.5%
to $18.9 million in the third quarter of 2004 from $15.3 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 and the lawn and garden markets during the quarter. Net sales for
the nine months ended September 30, 2004, were up $7.7 million, or 14.9%, to
$59.3 million from $51.6 million in the comparable prior year period.
Income from operations in the precision components segment in the third
quarter of 2004 was $0.5 million compared to $0.4 million during the
comparable quarter of 2003, an increase of 25.0%. The increase was primarily
due to the increased sales volumes as well as product mix partially offset by
higher material costs due to raw material surcharges and continued start-up
costs at the Company's China powder metal facility. As a percentage of net
sales, the segment's operating margin remained flat at 2.6% in the third
quarter of 2004 and 2003. For the nine months ended September 30, 2004,
income from operations increased 70.6% to $2.9 million from $1.7 million in
the prior year. As a percentage of net sales, the segment's operating margin
improved to 4.9% for the nine month period ended September 30, 2004 from 3.3%
in the comparable prior year period.
Net sales in the Company's performance racing segment increased 9.4%, to
$3.5 million in the third quarter of 2004 from $3.2 million in the comparable
prior year period. The increase in net sales was primarily the result of the
introduction of new products during the quarter. Net sales for the nine
months ended September 30, 2004 increased 11.4% to $11.7 million from
$10.5 million in the prior year.
Income from operations in the performance racing segment decreased to
breakeven in the third quarter of 2004 compared to $0.3 million in the
comparable prior year period. The decrease was primarily the result of a
voluntary product recall and replacement cost of approximately $0.1 million
during the quarter, increased employee benefit costs, and product mix. For
the nine month period ended September 30, 2004, income from operations was
$1.0 million compared to $0.8 million in the prior year, an increase of 25.0%.
Working Capital and Liquidity
As of September 30, 2004 working capital, exclusive of the Company's
existing bank facility, increased by $10.9 million from December 31, 2003
levels. The increase was largely the result of growth in the Company's
accounts receivable levels as a result of the higher sales volumes and
expanded inventory levels to support the increased production volumes and the
move to the Company's new facility in Oklahoma. Principal amounts outstanding
under the Company's existing bank facility increased by $8.9 million, to
$33.0 million at September 30, 2004, compared to $24.1 million at December 31,
2003. The increase was primarily to support the growth of the Company's
working capital assets as well as capital expenditures during the period.
On November 1, 2004, the Company entered into a Credit and Security
Agreement with KeyBank National Association, as a replacement for its existing
bank facility. The new credit facility has a maximum revolving credit
commitment of $30.0 million, including a $5.0 million letter of credit
subfacility. Also on November 1, 2004, the Company issued $110.0 million
83/4% Senior Notes due November 2014. The proceeds of these financings were
used to repay the Company's existing senior notes, repay the outstanding
amounts under its existing bank facility, pay fees and expenses associated
with the transactions, as well as to provide for general corporate purposes.
Business Outlook
"Our year to date results have benefited from the continuing economic
improvements and the sales demand increases from our customers as well as the
continued implementation of our technology initiatives and new business
awards. We expect this trend will continue for the remaining months of 2004
throughout our world-wide organization. As a result of this sales momentum,
we expect our sales estimate for the full year of 2004 will come in at the
high end of our previously published guidance of an increase of between 13%
and 16% compared to the full year of 2003," stated Mr. Weinberg. "We believe
that we are positioned to achieve our previously stated estimate of an
increase in income from continuing operations of 55% to 60% for the full year
2004, compared to the full year 2003, despite the pressures on our raw
material costs."
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 17 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 the Company's debt service
requirements on funds available for operations and future business
opportunities and 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 timely completion of the construction of
the new facility in the Company's 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; 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, 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 Thursday,
November 11, 2004 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
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net sales $59,367 $48,161 $183,038 $155,015
Cost of sales 45,728 36,599 137,914 117,594
Gross profit 13,639 11,562 45,124 37,421
Selling, technical and
administrative expenses 9,181 7,888 28,313 25,183
Restructuring costs 286 507
Amortization of finite-lived
intangibles 184 193 550 582
Total expenses 9,651 8,081 29,370 25,765
Income from operations 3,988 3,481 15,754 11,656
Interest expense (2,610) (2,601) (7,687) (8,083)
Interest income 8 16 33 43
Other (expense) income, net (101) 107 (620) 117
Income from continuing operations
before income taxes 1,285 1,003 7,480 3,733
Income tax provision 234 872 3,207 2,000
Income from continuing
operations, after taxes 1,051 131 4,273 1,733
Loss from discontinued
operations, net of tax (424) (48) (415) (1,062)
Net income $627 $83 $3,858 $671
Diluted earnings per share:
Earnings from continuing operations $.11 $.01 $.47 $.19
Discontinued operations, net of tax (.05) .00 (.05) (.12)
Earnings per diluted share $.06 $.01 $.42 $.07
Diluted shares outstanding 9,148 8,595 8,904 8,576
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Other data:
Depreciation and amortization:
Continuing operations $2,596 $2,682 $8,044 $8,062
Segment data:
Net sales
Friction products $36,982 $29,679 $111,993 $92,850
Precision components 18,902 15,282 59,341 51,641
Performance racing 3,483 3,200 11,704 10,524
Total $59,367 $48,161 $183,038 $155,015
Gross profit
Friction products $9,345 $7,364 $29,172 $23,654
Precision components 3,562 3,264 12,876 10,682
Performance racing 732 934 3,076 3,085
Total $13,639 $11,562 $45,124 $37,421
Income from operations:
Friction products $3,462 $2,835 $11,945 $9,240
Precision components 479 403 2,858 1,650
Performance racing 47 243 951 766
Total $3,988 $3,481 $15,754 $11,656
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
September 30, December 31,
2004 2003
ASSETS
Current assets
Cash and cash equivalents $4,219 $3,365
Accounts receivable 41,078 32,272
Inventories 40,305 35,424
Taxes receivable 465 521
Deferred tax asset 3,545 3,551
Other current assets 4,929 4,032
Assets of discontinued operations 5,444 4,302
Total current assets 99,985 83,467
Property, plant and equipment, net 67,135 63,136
Goodwill 32,495 32,495
Other intangible assets 9,354 9,904
Other assets 2,870 4,547
Total assets $211,839 $193,549
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $25,899 $21,569
Other accrued expenses 18,071 18,185
Short-term debt 980 1,326
Bank facility 33,007 24,059
Current portion of long-term debt 666 1,148
Liabilities of discontinued operations 5,884 3,652
Total current liabilities 84,507 69,939
Long-term debt 67,661 68,443
Deferred income taxes 4,354 4,360
Other 9,334 9,102
Shareholders' equity 45,983 41,705
Total liabilities and shareholders' equity $211,839 $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 of BPC Financial Marketing,
+1-800-368-1217
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