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Sun Hydraulics (SNHY) Q3 Earnings Miss, Outlook Positive

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Sun Hydraulics Corporation (SNHY - Free Report) reported weak third-quarter 2016 results. The company claimed that the soft global demand and a stronger U.S. dollar have primarily weighed over the quarterly top- and bottom-line results.

The company’s adjusted earnings came in at 19 cents per share, a penny below the Zacks Consensus Estimate. A stronger U.S. currency lowered the quarterly earnings by 2 cents per share.

The bottom line also declined 40.6% from the year-ago tally of 32 cents per share.

Revenues

In the reported quarter, Sun Hydraulics generated net sales of $45.2 million, lower than the Zacks Consensus Estimate of $47 million. The company claimed that the year-over-year decline was experienced due to weak end-market conditions prevailing in Europe and Americas.

The top line also missed the year-ago tally by 5.8%.  

Margins

Sun Hydraulics’ gross margin in third-quarter 2016 was 34.4%, down 480 basis points year over year.

Selling, engineering and administrative expenses was $8.3 million, up 11.2% year over year. Operating income came in at $7.2 million, down 34.4% year over year.  

Balance Sheet & Cash Flow

Exiting third-quarter 2016, Sun Hydraulics had cash and cash equivalents of $110 million, up from $81.9 million recorded in 2015-end.

In the first nine months of 2016, the company generated $31.3 million cash from operating activities, down 23.7% year over year. Capital expenditure for the first nine months of 2016 was $4.5 million, down 4% year over year.

Latest Acquisition

On Nov 7, 2016, Sun Hydraulics inked a definitive agreement with Enovation Controls, LLC, for acquiring the latter’s Vehicle Technologies (VT) and Power Controls (PC) lines of business. The buyout is expected to close within the next 30 days and is subject to various regulatory approvals. The initial considered value of acquisition is $200 million, however it has an additional earn-out potential of $50 million over the upcoming 27 months.  

The inclusion of the new business lines would reinforce Sun Hydraulics’ existing product portfolio, thus enhancing its competency within the market in the near term.

The acquisition is expected to boost Sun Hydraulics’ 2017 earnings by 25-35 cents per share. Notably, the deal is likely to bring about roughly $5 million annual profit synergies for the company by 2020.

Outlook

Amid all headwinds, Sun Hydraulics intends to boost its revenues with superior customer relationships. Moreover, acquisitions within the industrial sector are also estimated to contribute to sales in the near term. The company aims to generate about $1 billion in sales by 2025. Sun Hydraulics perceives that its strategic lean initiatives would support margin expansion in the quarters ahead.  

For fourth-quarter 2016, the company projects to accrue revenues of $46 million, up 4% year over year. Adjusted earnings are expected to lie within 13-15 cents per share, compared to 19 cents recorded in fourth-quarter 2015.

For full-year 2016, the company anticipates to generate revenues of $193 million, down 4% year over year. Adjusted earnings for 2016 are expected to lie within 88-90 cents, below $1.24 recorded for full-year 2015.  

SUN HYDRAULICS Price, Consensus and EPS Surprise

 

SUN HYDRAULICS Price, Consensus and EPS Surprise | SUN HYDRAULICS Quote

Zacks Rank and Other Stocks

Sun Hydraulics currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks within the industry that warrant a look include:

ACCO Brands Corp. (ACCO - Free Report) currently carries a Zacks Rank #1 and has an average positive earnings surprise of 23.93% over the four trailing quarters.

Applied Industrial Technologies, Inc. (AIT - Free Report) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 4.93% over the last four quarters.

AO Smith Corp. (AOS - Free Report) currently carries a Zacks Rank #2 and has an average positive earnings surprise of 6.45% over the trailing four quarters.

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