Sauer-Danfoss Inc. has announced its financial results for the third quarter ended September 30, 2011.
Third Quarter Review
Net sales for the third quarter increased 23% to $483.3 million, compared to net sales of $392.6 million for the third quarter of 2010. Excluding the impact of changes in currency translation rates, sales in the third quarter increased 17% over the same quarter last year. Sales for the third quarter increased 23% in the Americas, 22% in Europe, but declined 7% in the Asia-Pacific region, excluding the impact of changes in currency translation rates. Sales increased 28% in the Controls segment, 22% in the Propel segment, 9% in the Stand-Alone Businesses segment, and 2% in the Work Function segment, excluding the impact of changes in currency translation rates.
The company reported net income of $57.0 million, or $1.18 per share, for the third quarter of 2011, compared to net income of $32.1 million, or $0.66 per share, for the third quarter of 2010. Third quarter 2011 results were favorably impacted by $2.6 million, or $0.05 per share, related to the reversal of deferred tax asset valuation allowances. Results for third quarter 2010 were negatively impacted by restructuring costs of $1.1 million, or $0.02 per share. In addition, third quarter 2010 results were favorably impacted by $4.1 million, or $0.08 per share, related to the reversal of deferred tax asset valuation allowances.
Sven Ruder, President and Chief Executive Officer, comments, "We are pleased with our record third quarter earnings and cash flow. Sales growth is slowing from prior quarters, however at 17%, it remains strong in the face of tougher comparables of a year ago. Sales growth in the Americas and in Europe was good, but sales in the Asia-Pacific region were down from last year, primarily from a decline in sales in China. This slowdown in demand was driven by the Chinese government continuing to tighten monetary policy to rein in inflation. We believe the underlying, long-term growth drivers in China are compelling and the current sales decline is temporary."
Strengthening Orders and Backlog
The company received new orders of $551.9 million for the third quarter of 2011, a 36% increase compared to third quarter 2010 orders of $406.8 million. Excluding the impact of changes in currency translation rates, orders increased 29%.
Total backlog at September 30, 2011, was $942.3 million, a 41% increase compared to the same period last year of $669.9 million. Excluding the impact of changes in currency translation rates, backlog increased 40%.
Nine Month Review
The company reported net sales for the nine months ended September 30, 2011, of $1,611.4 million, compared to net sales of $1,211.6 million for the first nine months of 2010. Net sales for the first nine months of 2011 increased 28% over the prior year period, excluding the impact of currency translation rate changes.
Net income for the first nine months of 2011 was $202.4 million, or $4.18 per share, compared to net income of $87.4 million, or $1.80 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. Results for the first nine months of 2010 include restructuring costs of $8.0 million, or $0.17 per share. In addition, 2010 results were favorably impacted by $18.8 million, or $0.39 per share, relating to the reversal of deferred tax asset valuation allowances.
Record Cash Flow
Cash flow from operations for the first nine months of 2011 was a record $283.2 million compared to $188.0 million for the first nine months of 2010. Capital expenditures for the first nine months of 2011 were $22.8 million compared to $12.7 million for the same period last year. The company is now in a net cash position of $4.1 million at September 30, 2011, having reduced its debt, net of cash, by $240.6 million during the first nine months of 2011. The debt to total capital ratio, or leverage ratio, was 25% at September 30, 2011, compared to 43% at December 31, 2010.
"Having generated $250 million of free cash flow in the first nine months of 2011, we have now crossed over to being in a net creditor position on our balance sheet, or having more cash than debt," states Ruder.
Outlook Reaffirmed for 2011
Ruder concludes, "As our third quarter results confirm, our business remains strong and we expect to end 2011 within the ranges we reported last quarter. Nonetheless, global macroeconomic issues may begin to impact our business. We expect China to be weak into the first quarter of 2012. While many customers in the Americas are upbeat, some customers in Europe are more cautious than they were just a few months ago. Sales growth in the fourth quarter will be low compared to the strong fourth quarter of 2010. We now believe our sales increase for the year will be in the lower part of our previously forecasted range of 25 to 30%. In addition, we are narrowing our range for the earnings per share outlook."
The outlook for 2011 is reaffirmed as follows:
- Annual sales increasing approximately 25% from 2010 levels (previously 25 to 30%)
- Expected earnings in the range of $4.50 to $5.00 per share (previously $4.25 to $5.00 per share)
- Capital expenditures of approximately $60.0 to $65.0 million (unchanged)
