Net Income Increases 137.5% to $3.8 Million; Diluted EPS Increases to $0.45 From $0.17; Cash and Investments of $79.2 Million Exceeds Total Debt by $2.1 Million; Company Raises Revenue and Earnings Guidance for Balance of 2010
CLEVELAND, OH, May 4, 2010 (Marketwire) --
CLEVELAND, OH -- (Marketwire) -- 05/04/10 -- Hawk Corporation (NYSE Amex: HWK) announced today that net sales for the first quarter ended March 31, 2010 were $53.4 million, an increase of $9.1 million or 20.5%, from $44.3 million in the comparable prior year period. The Company's first quarter 2010 net sales were positively impacted by the economic improvements in most of the end-markets served by the Company. All of the Company's global operating facilities reported improved results.
Income from operations for the first quarter ended March 31, 2010 was $8.2 million, an increase of $3.8 million, or 86.4%, from $4.4 million in the prior year. Income from operations was positively impacted by increased sales and production volumes and favorable absorption of fixed manufacturing costs.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased to report our first quarter results as well as an improved outlook for the full-year 2010. We have seen a turn in the global economy during the quarter and expect this trend to continue through the balance of the year. As a result of cost cutting actions taken in 2009 and our continued focus on lean manufacturing techniques, we were able to improve our gross margins in the first quarter of 2010 compared to 2009."
For the quarter ended March 31, 2010, the Company reported net income of $3.8 million, or $0.45 per diluted share, an increase of $2.2 million, or 137.5%, compared to $1.6 million, or $0.17 per diluted share, in the comparable prior year period.
Working Capital and Liquidity
Cash and short-term investments were $79.2 million as of March 31, 2010, compared to $83.1 million as of December 31, 2009. During the quarter, the Company spent $3.9 million to repurchase stock under its buy-back programs, paid semi-annual accrued interest of $3.4 million on its senior notes and spent $2.1 million in consent fees and expenses to gain consent from its bondholders to allow for additional repurchases of the Company's common stock. During the first quarter of 2010, the Company also used cash for its annual incentive compensation and deferred compensation awards. The Company generated $2.7 million of cash flow from operations during the first quarter of 2010.
As of March 31, 2010, the Company had no borrowings under its credit facilities, and $18.5 million was available under the Company's domestic revolving credit facility based on eligible collateral. Additionally, as of March 31, 2010, the Company had $3.1 million available to borrow under its foreign short-term line of credit.
During the first quarter ended March 31, 2010, the Company spent $1.1 million on capital expenditures compared to $2.9 million during the comparable period of 2009. During the 2009 period, the Company was completing an expansion of one of its U.S.-based facilities which resulted in the higher level of capital spending in the first quarter of 2009. Depreciation and amortization was $2.1 million in the first quarter of 2010 compared to $1.9 million in 2009.
Business Outlook
During the first quarter of 2010, the Company experienced strength in virtually all of its markets. Sales volumes increased as overall demand improved and multinational customers replenished inventory levels during the quarter. Based on the Company's first quarter results and its view for the balance of the year, the Company is increasing its guidance range for 2010 net sales to between $200.0 million and $210.0 million from its prior guidance range of between $190.0 million and $200.0 million. This new guidance range represents an increase of between 16.0% and 21.8% over 2009 revenues of $172.4 million.
Mr. Weinberg said, "While we judge the signs of the economy and our business to be favorable, we are raising our guidance with some degree of caution. The global economies have benefitted from enormous stimulus programs from governments and from a very supportive monetary environment, and the assumptions that these conditions will continue underlie our view for the balance of the year. Nevertheless, we have positioned ourselves to benefit from the improved economy and have launched a number of solid growth initiatives over the last year and one-half."
The Company is also increasing its range of operating income guidance for 2010 to between $23.0 million and $25.0 million. This new operating income guidance range represents an increase of between 37.7% and 49.7% over 2009 operating income of $16.7 million, and replaces its prior guidance range of between $18.0 million and $19.0 million.
The Company is maintaining its guidance for capital spending of between $8.0 million and $10.0 million for 2010 and approximately $8.5 million of depreciation and amortization for the year. Due to the revised earnings forecast, and the expected mix of earnings between its domestic and foreign operations, the Company is lowering its effective tax rate guidance for 2010 to approximately 36% from its previous guidance of approximately 40%.
Stock Repurchase Program
On November 24, 2008, the Company, approved by its Board of Directors, initiated a plan to repurchase up to $15.0 million of its shares of Class A common stock. The Company spent $0.3 million in the first quarter of 2010 under this plan to purchase its common stock. Through January 11, 2010, the Company repurchased a total $15.0 million of its common stock from the inception of the plan, and the plan expired.
On February 19, 2010, the Company's Board of Directors approved a new plan to repurchase up to $25.0 million of its shares of Class A common stock in the open market, through privately negotiated transactions or otherwise in accordance with securities laws and regulations. The new plan is subject to the provisions of the senior note indenture and supplemental indenture and the Company's credit facility. Through March 31, 2010, the Company purchased $3.6 million of its common stock under the new plan.
The Company
Hawk Corporation is a leading supplier of friction materials for brakes, clutches and transmissions used in airplanes, trucks, construction and mining equipment, farm equipment, recreational and performance automotive vehicles. The Company also operates a fuel cell components business and intends to continue developing this alternative energy product line. Headquartered in Cleveland, Ohio, Hawk has approximately 1,100 employees at 12 manufacturing, research and development, sourcing, sales and administrative functions in 6 countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning sales, operating earnings and effective tax rates. 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 effect of regional and global economic and industrial market conditions, including the Company's expectations concerning the impact on the markets it serves; the effect of conditions in the financial and credit markets and their impact on the Company and its customers and suppliers; the Company's ability to execute its business plan to meet its sales, operating income, cash flow and capital expenditure guidance; the costs and outcome of the ongoing SEC and DOJ investigations; the Company's ability to utilize its cash and short-term investments; the impact on the Company's gross profit margins as a result of changes in product mix; the Company's vulnerability to industry conditions and competition; the effect of any interruption in the Company's supply of raw materials, including steel, or a substantial increase in the price of raw materials; work stoppages by union employees; ongoing capital expenditures and investment in research and development; compliance with government regulations; compliance with environmental and health and safety laws and regulations; 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 on the Company's non-U.S. sales; reliance for a significant portion of the Company's total revenues on a limited number of large organizations and the continuity of business relationships with major customers; the loss of key personnel; significant changes in discount rates and actual investment return on the Company's pension assets and control by existing preferred stockholders.
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, 2009, 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 (www.hawkcorp.com) on Tuesday, May 4, 2010 at 11:00 a.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 March 31
----------------------------
2010 2009
------------- -------------
Net sales $ 53,409 $ 44,285
Cost of sales 36,187 32,287
------------- -------------
Gross profit 17,222 11,998
Operating expenses:
Selling, technical and administrative
expenses 8,854 7,452
Amortization of finite-lived intangible
assets 139 138
------------- -------------
Total operating expenses 8,993 7,590
------------- -------------
Income from operations 8,229 4,408
Interest expense (1,847) (2,013)
Interest income 68 163
Other income (expense), net (532) (44)
------------- -------------
Income from continuing operations, before
income taxes 5,918 2,514
Income tax provision 2,113 930
------------- -------------
Income from continuing operations, after
income taxes 3,805 1,584
Loss from discontinued operations, after
income taxes (28) (10)
------------- -------------
Net income $ 3,777 $ 1,574
============= =============
Earnings per share:
Diluted earnings per share:
Income from continuing operations,
after income taxes $ 0.46 $ 0.17
Discontinued operations, after income
taxes - -
------------- -------------
Net earnings per diluted share (1) $ 0.45 $ 0.17
============= =============
Average shares and equivalents outstanding -
diluted 8,246 8,996
============= =============
(1) The summation to net earnings per diluted share does not mathematically
work due to rounding.
HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31 December 31
2010 2009
-------------- --------------
(Unaudited) (Note A)
ASSETS
Current assets:
Cash and cash equivalents $ 39,211 $ 47,206
Short-term investments 39,966 35,930
Accounts receivable, net 33,119 27,578
Inventories 29,893 27,495
Deferred income taxes 1,264 1,305
Other current assets 4,802 5,686
-------------- --------------
Total current assets 148,255 145,200
Property, plant and equipment, net 45,700 47,096
Other intangible assets 5,876 6,015
Other assets 7,050 6,181
-------------- --------------
Total assets $ 206,881 $ 204,492
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,507 $ 16,861
Other accrued expenses 13,943 15,033
-------------- --------------
Total current liabilities 36,450 31,894
Long-term debt, net 75,605 77,090
Deferred income taxes 2,791 2,873
Other liabilities 15,486 15,165
Shareholders' equity 76,549 77,470
-------------- --------------
Total liabilities and shareholders' equity $ 206,881 $ 204,492
============== ==============
Note A: The consolidated balance sheet at December 31, 2009 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. See notes
to consolidated financial statements (unaudited).
Contact Information
Thomas A. Gilbride
Vice President - Finance
(216) 861-3553
Investor Relations Contact Information
John Baldissera
BPC Financial Marketing
(800) 368-1217
