Sauer-Danfoss Inc. Reports Third Quarter 2012 Results - Revenues and Earnings Down, Reflecting Declining Markets

- Maintaining High Operating Margins

- Strong Cash Flow; $20 Million Prepayment on Danfoss Loan

- Outlook Range Narrowed for 2012

AMES, Iowa, Oct. 24, 2012 /PRNewswire/ -- Sauer-Danfoss Inc. (NYSE: SHS) today announced its financial results for the third quarter ended September 30, 2012.

Third Quarter Review

Net sales for the quarter declined 15 percent to $410.3 million, compared to net sales of $483.3 million for the third quarter of 2011.  Excluding the impact of changes in currency translation rates, sales in the third quarter declined 10 percent over the same quarter last year.  Sales for the third quarter declined 2 percent in the Americas, 18 percent in Europe and 14 percent in the Asia-Pacific region, excluding the impact of changes in currency translation rates.  Sales declined 17 percent in the Work Function segment, 10 percent in both the Controls and Propel segments, and 5 percent in the Stand-Alone Businesses segment, excluding the impact of changes in currency translation rates.

The Company reported net income of $40.6 million, or $0.84 per share, for the third quarter of 2012, compared to net income of $57.0 million, or $1.18 per share, for the third quarter of 2011. 

Eric Alstrom, President and Chief Executive Officer, commented, "Our third quarter results reflect the declining global markets.  Sales in all three major regions are now down compared to a year ago, with the Americas now recording a slight decline.  Given the drop in sales, I am very impressed that the team has been able to maintain the high level of operating margin, even improving the gross margin slightly over last year.  This demonstrates the organization's ability to react quickly to market changes."   

Orders and Backlog Decline

The Company received new orders of $379.7 million for the third quarter of 2012, a 31 percent decline compared to third quarter 2011 new orders of $551.9 million.  Excluding the impact of changes in currency translation rates, new orders declined 27 percent.

Total backlog at September 30, 2012, was $867.5 million, an 8 percent decline compared to the same period last year of $942.3 million.  Excluding the impact of changes in currency translation rates, backlog declined 7 percent.

Nine Month Review

The Company reported net sales for the nine months ended September 30, 2012, of $1,503.1 million, a decline of 7 percent compared to net sales of $1,611.4 million for the first nine months of 2011.  Net sales for the first nine months of 2012 were down 3 percent compared to the prior year period, excluding the impact of currency translation rate changes.

Net income for the first nine months of 2012 was $161.8 million, or $3.34 per share, compared to net income of $202.4 million, or $4.18 per share, for the same period last year.  2011 results were favorably impacted by $13.7 million, or $0.28 per share, relating to the reversal of deferred tax asset valuation allowances.

Continued Strong Cash Flow; $20 Million Prepayment on Danfoss Loan

Cash flow from operations for the first nine months of 2012 was $264.6 million, compared to $283.2 million for 2011.  Capital expenditures for the first nine months of 2012 were $23.2 million compared to $22.8 million for the same period last year. 

"We generated $227 million of free cash flow for the first nine months, compared to the $250 million of record free cash flow of last year.  Given our strong cash flow and balance sheet, we prepaid approximately $20 million on our long-term loan agreement with Danfoss as allowed under the agreement," stated Alstrom.

Outlook Range Narrowed for 2012

Alstrom concluded, "We continue to manage our costs aggressively in response to the further weakening in the global markets.  While we believe our sales will still come in within our previous range of guidance, it is now more likely to be at the lower end of the range. This will put additional pressure on our earnings, and we are therefore narrowing our earnings guidance by reducing the upper end of our guidance range." 

The outlook for 2012 has been revised as follows:

  • Annual sales decline of 5 to 10 percent from 2011 levels (unchanged)
  • Expected earnings in the range of $3.50 to $4.00 per share (previously $3.50 to $4.25 per share)
  • Capital expenditures of approximately $50.0 to $60.0 million (previously $60.0 to $70.0 million)

Webcast Information

Members of Sauer-Danfoss' management team will host a webcast on October 25 at 10 AM Eastern Time to discuss 2012 third quarter results.  The call is open to all interested parties on listen-only mode via an audio webcast and can be accessed through the Investor Relations page of the Company's website at http://ir.sauer-danfoss.com. A replay of the call will be available at that site through November 8, 2012.

About Sauer-Danfoss

Sauer-Danfoss Inc. is a worldwide leader in the design, manufacture, and sale of engineered hydraulic and electronic systems and components for use primarily in applications of mobile equipment.  Sauer-Danfoss, with 2011 revenues of approximately $2.1 billion, has sales, manufacturing, and engineering capabilities in Europe, the Americas, and the Asia-Pacific region.      

More details online at www.sauer-danfoss.com.

This press release contains certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. All statements regarding future performance, growth, sales and earnings projections, conditions or developments are forward-looking statements. Words such as "anticipates," "in the opinion," "believes," "intends," "expects," "may," "will," "should," "could," "plans," "forecasts," "estimates," "predicts," "projects," "potential," "continue," and similar expressions may be intended to identify forward-looking statements.

Actual future results may differ materially from those described in the forward-looking statements due to a variety of factors. Readers should bear in mind that past experience is never a perfect guide to anticipating actual future results. Risk factors affecting the Company's forward-looking statements include, but are not limited to, the following: general, worldwide economic conditions, the level of interest rates, crude oil prices, commercial and consumer confidence, and currency exchange rates; specific economic conditions in the agriculture, construction, road building, turf care, material handling and specialty vehicle markets and the impact of such conditions on the Company's customers in such markets; the cyclical nature of some of the Company's businesses; the ability of the Company to win new programs and maintain existing programs with its original equipment manufacturer (OEM) customers; the highly competitive nature of the markets for the Company's products as well as pricing pressures that may result from such competitive conditions; the continued operation and viability of the Company's significant customers; the Company's execution of internal performance plans; difficulties or delays in manufacturing; the effectiveness of the Company's cost-management and productivity improvement efforts; the Company's ability to manage its business effectively in a period of slowing growth in sales and its capacity to make necessary adjustments to changes in demand for its products; competing technologies and difficulties entering and growing in new and expanding markets, both domestic and foreign; changes in the Company's product mix; future levels of indebtedness and capital spending; the availability of sufficient levels of cash flow from operations and credit on favorable terms, whether from Danfoss A/S, the Company's majority stockholder, or from the capital markets or traditional credit sources to enable the Company to meet its capital needs; claims, including, without limitation, warranty claims, field recall claims, product liability claims, charges or dispute resolutions; the ability of suppliers to provide materials as needed and the Company's ability to recover any price increases for materials in product pricing; the Company's ability to attract and retain key technical and other personnel; labor relations; the failure of customers to make timely payment, especially in light of the persistence of tight credit markets; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; credit market disruptions and significant changes in capital market liquidity and funding costs affecting the Company and its customers and suppliers; sovereign debt crises, in Europe and elsewhere, and the reaction of other nations to such crises; energy prices; the impact of new or changed tax and other legislation and regulations in jurisdictions in which the Company and its affiliates operate, including regulations affecting retirement and health care benefits provided to Company employees; actions by the U.S. Federal Reserve Board and the central banks of other nations, including heightened capital requirements imposed on Chinese banks; actions by other regulatory agencies, including those taken in response to the global credit crisis; actions by credit rating agencies; changes in accounting standards; worldwide political stability, including developments in the Middle East; the effects of terrorist activities and resulting political or economic instability; natural catastrophes; U.S. and NATO military action overseas; and the effect of acquisitions, divestitures, restructurings, product withdrawals, and other unusual events.

The Company cautions the reader that this list of cautionary statements and risk factors is not exhaustive. The Company's outlook is based upon assumptions and projections arising in connection with the foregoing factors, the evaluation of which is often based on estimates and data prepared by government and other third-party sources.  Those estimates and data are frequently revised.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or changes to these forward-looking statements to reflect future events or circumstances.  The foregoing risks and uncertainties are further described in Item 1A (Risk Factors) in the Company's latest annual report on Form 10-K filed with the SEC, which should be reviewed in considering the forward-looking statements contained in this press release. 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



Three Months Ended


Nine Months Ended


(Dollars and shares in thousands


September 30,


September 30,


September 30,


September 30,


except per share data)


2012


2011


2012


2011


Net sales                                                                        


410,307


483,297


1,503,087


1,611,356


Cost of sales


277,594


328,482


1,008,123


1,076,699


Gross profit


132,713


154,815


494,964


534,657


Selling, general and administrative


56,772


54,790


175,777


166,709


Research and development


15,180


16,176


47,843


45,826


Other


138


(88)


121


(349)


Total operating expenses


72,090


70,878


223,741


212,186


Income from operations


60,623


83,937


271,223


322,471


Nonoperating income (expense):










   Interest expense, net


(3,592)


(5,479)


(12,010)


(17,354)


   Loss on early retirement of debt


(1,254)


(277)


(1,254)


(1,176)


   Other, net


1,689


1,270


2,897


(2,867)


Income before income taxes


57,466


79,451


260,856


301,074


Income tax expense


(13,559)


(19,944)


(73,263)


(71,079)


Net income


43,907


59,507


187,593


229,995


Net income attributable to noncontrolling

   interest, net of tax


 

(3,274)


 

(2,510)


 

(25,758)


 

(27,569)


Net income attributable to Sauer-Danfoss Inc.


40,633


56,997


161,835


202,426


Net income per share:










   Basic and diluted net income per common share


0.84


1.18


3.34


4.18


Weighted average shares outstanding:










   Basic


48,417


48,406


48,412


48,401


   Diluted


48,480


48,478


48,481


48,479



 

BUSINESS SEGMENT INFORMATION



Three Months Ended


Nine Months Ended



September 30,


September 30,


September 30,


September 30,

(Dollars in thousands)


2012


2011


2012


2011

Net sales









   Propel


204,759


235,123


694,458


735,313

   Work Function


67,361


89,328


242,669


294,810

   Controls


69,668


82,703


239,135


250,705

   Stand-Alone Businesses


68,519


76,143


326,825


330,528

Total


410,307


483,297


1,503,087


1,611,356

Segment Income (Loss)









   Propel


42,825


51,513


147,623


178,164

   Work Function


8,368


13,379


40,018


50,118

   Controls


17,538


23,303


63,131


71,629

   Stand-Alone Businesses


5,734


5,322


56,380


51,735

   Global Services and Other Expenses, net


(12,153)


(8,310)


(33,032)


(32,042)

Total


62,312


85,207


274,120


319,604

   Interest expense, net


(3,592)


(5,479)


(12,010)


(17,354)

   Loss on early retirement of debt


(1,254)


(277)


(1,254)


(1,176)

   Income before income taxes


57,466


79,451


260,856


301,074


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS











Nine Months Ended



September 30,



September 30,

(Dollars in thousands)


2012



2011

Cash Flows from Operating Activities:






Net income


187,593



229,995

Depreciation and amortization


60,682



67,106

Net change in receivables, inventories, and payables


8,769



(49,182)

Other, net


7,601



35,325

Net cash provided by operating activities


264,645



283,244

Cash Flows from Investing Activities:






Purchases of property, plant and equipment


(23,188)



(22,839)

Proceeds from sale of property, plant and equipment


1,275



1,203

Advances to related persons


(160,405)



(139,295)

Net cash used in investing activities


(182,318)



(160,931)

Cash Flows from Financing Activities:






Net repayments on notes payable and debt facilities


(20,727)



(83,264)

Payment of prepayment penalty


(803)



--

Cash dividends


(33,911)



--

Distributions to noncontrolling interest partners


(15,004)



(12,040)

Net cash used in financing activities


(70,445)



(95,304)

Effect of exchange rate changes


(1,361)



(4,144)

Cash and Cash Equivalents:






Net increase in cash and cash equivalents


10,521



22,865

Cash and cash equivalents at beginning of year


72,560



44,039

Cash and cash equivalents at end of period


83,081



66,904







Free cash flow (1)


226,925



249,568

(1) Free cash flow is calculated by summing net cash provided by operating activities, net cash used in investing activities, excluding advances to related persons, and net cash used in financing activities, excluding net repayments on notes payable and debt facilities and cash dividends. 

 

CONDENSED CONSOLIDATED BALANCE SHEETS









  September 30,



December 31,

(Dollars in thousands)                                


2012



2011

ASSETS






Current Assets:






Cash and cash equivalents (1)


421,647



251,287

Accounts receivable, net


226,814



215,978

Inventories


185,341



217,710

Other current assets


85,185



75,868

Total current assets


918,987



760,843

Property, plant and equipment, net


331,958



367,844

Other assets


150,709



149,569

Total Assets


1,401,654



1,278,256







LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:






Long-term debt due within one year


948



955

Accounts payable


165,064



177,996

Other accrued liabilities


189,665



149,240

Total current liabilities


355,677



328,191

Long-term debt


178,158



199,502

Long-term pension liability


73,185



79,717

Deferred income taxes


34,591



35,184

Other liabilities


56,119



57,836

Noncontrolling interest

101,708



90,408

Stockholders' equity of Sauer-Danfoss Inc.


602,216



487,418

Total Liabilities and Stockholders' Equity


1,401,654



1,278,256







Debt to Total Capital Ratio (2)


20%



26%

(1) Includes cash deposited with related persons of $338,566 at September 30, 2012 and $178,727 at December 31, 2011.

(2) The debt to total capital ratio is calculated by dividing total interest bearing debt by total capital.  Total interest bearing debt is the sum of long-term debt due within one year  and long-term debt.  Total capital is the sum of total interest bearing debt, noncontrolling interest, and stockholders' equity.

SOURCE Sauer-Danfoss Inc.



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