Sun Hydraulics Corporation reported better-than-expected results for the fourth quarter of 2017. This was the fourth consecutive quarter of a positive earnings surprise.

The quarter’s non-GAAP adjusted earnings of 27 cents per share surpassed the Zacks Consensus Estimate of 24 cents by 12.5%. On a year-over-year basis, the bottom line grew 49% from the year-ago tally of 18 cents.

For 2017, the company’s non-GAAP adjusted earnings were $1.60 per share, up 72% from the year-ago tally of 93 cents. Also, the results surpassed the Zacks Consensus Estimate of $1.57.

Organic, Forex and Buyout Gains Drive Revenues

In the quarter, net sales were $84.2 million, increasing 69% year over year. The improvement was driven by solid organic growth of 31%, $24.3 million sales contribution from acquired assets of Enovation Controls (completed in December 2016) and a positive impact of $1.1 million from favorable movements in foreign currencies.

Also, the top line surpassed the Zacks Consensus Estimate of $83.7 million by 0.6%.

On a geographical basis, sales from the Americas increased 84.6% year over year to $46.7 million, representing 56% of net sales. Sales from Europe/Middle East/Africa comprising roughly 22% of net sales were $18.8 million, up 41.4% year over year. Sales from the Asia Pacific grew 64.6% to $18.6 million, representing 22% of net sales.

For 2017, the company’s net sales were at $342.8 million, up 74% year over year. The results marginally surpassed the Zacks Consensus Estimate of $342.4 million.

The company reports its quarterly sales under two segmental heads. Details for these segments are provided below:

Hydraulics: Revenues totaled $59.1 million, increasing 31.2% year over year. It represented 70.2% of net sales.

The segment’s sales in the year grew 21.7% year over year to $230.7 million. Strengthening foothold in new markets and investments in field application specialists were prime drivers.

Electronics: Revenues totaled $25.1 million, significantly above $4.8 million generated in the year-ago quarter. It represented 29.8% of net sales.

The segment’s sales in the year were $112.2 million versus $7.4 million generated in 2016. The performance was driven by benefits derived from new products, solid demand in the power controls and recreational vehicle markets and gains from sales initiatives.

Margin Profile Mixed

In the quarter, Sun Hydraulics’ cost of sales increased 70% year over year to $55.3 million. It represented 65.7% of net sales versus 65.3% in the year-ago quarter. Gross profit increased 67% year over year to $28.9 million, while gross margin came in at 34.3% versus 34.7% in the year-ago quarter. Selling, engineering and administrative expenses grew 61% year over year to $18.2 million, while as a percentage of revenues, it was 21.6% compared with 22.7% in the year-ago quarter.

Non-GAAP adjusted operating income grew 75.5% year over year to $15 million, while the margin was at 17.9%, above the year-ago tally of 17.2%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Sun Hydraulics had cash and cash equivalents of $63.9 million, down from $81.2 million in the preceding quarter.

In 2017, the company’s net cash generated from operating activities totaled $49.4 million, roughly 28.5% year over year. Capital spending was $22.2 million versus $6.2 million in 2016. During the period, the company paid dividends amounting to $10.3 million.

Outlook

Sun Hydraulics is working diligently toward product development and market penetration. It anticipates revenues to be within $370-$385 million in 2018, reflecting the year-over-year growth of 8-12%. Sales from the Hydraulics segment are predicted to be $250-$258 million while that from the Electronics segment is anticipated to be $120-$127 million.

Operating margin is projected at 22.7-24% while capital spending is estimated to range of $15-$20 million. The effective tax rate will be 24.5-26.5%, down roughly 710-910 basis points from the year-ago tally of 33.6%.

Sun Hydraulics Corporation Price, Consensus and EPS Surprise