Sauer-Danfoss Inc. announced its financial results for the third quarter ended September 30, 2010.
- Earnings Exceed Expectations
- Sales Increase by 59%
- Strong Cash Flow and Significant Debt Reduction
- 2010 Outlook for Sales and Earnings Raised
Third Quarter Review
Net sales for the quarter increased 55% to $392.6 million, compared to net sales of $253.1 million for the third quarter of 2009. Excluding the impact of changes in currency translation rates, sales in the third quarter increased 59% over the same quarter last year. Sales for the third quarter increased 67% in the Americas, 45% in Europe, and 76% in the Asia-Pacific region, excluding the impact of changes in currency translation rates. Sales increased 64% in the Propel segment, 61% in the Work Function segment, and 49% in the Controls segment, excluding the impact of changes in currency translation rates.
The Company reported net income of $32.1 million, or $0.66 per share, for the third quarter of 2010, compared to a net loss of $70.8 million, or $1.46 per share, for the third quarter of 2009. Third quarter 2010 results include 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, relating to the net reversal of deferred tax asset valuation allowances. Results for third quarter 2009 were negatively impacted by restructuring and severance costs of $13.2 million, or $0.25 per share, and by a charge of $28.5 million, or $0.59 per share, to establish non-cash deferred tax asset valuation allowances relating to operating losses which could not be tax benefited.
Sven Ruder, President and Chief Executive Officer, commented, "We are pleased with our third quarter results, which clearly exceeded our expectations. Historically, our third quarter margins have dropped significantly with the seasonal drop in sales. This year we have been able to hold our operating margins level with the second quarter in spite of the seasonally lower sales. This is driven by the favorable market environment and by the completion of our restructuring activities during the second quarter which allowed us to realize the full impact of the resulting savings along with a drop in restructuring costs."
Continued Strong Orders and Backlog
The Company received new orders of $406.8 million for the third quarter of 2010, a 33% increase compared to third quarter 2009 orders of $305.4 million.
Total backlog at September 30, 2010, was $669.9 million, a 42% increase compared to the same period last year of $470.4 million. Excluding the impact of changes in currency translation rates, backlog increased 45%.
Nine Month Review
The Company reported net sales for the nine months ended September 30, 2010, of $1,211.6 million, compared to net sales of $880.2 million for the first nine months of 2009. Net sales for the first nine months of 2010 increased 37% over the prior year period, excluding the impact of changes in currency translation rates.
Net income for the first nine months of 2010 was $87.4 million, or $1.80 per share, compared to a net loss of $271.0 million, or $5.61 per share, for the same period last year. 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 net reversal of deferred tax asset valuation allowances. Results for the first nine months of 2009 include restructuring costs of $42.0 million, or $0.82 per share, valuation allowances on deferred tax assets of $109.2 million, or $2.26 per share, and a non-cash charge related to goodwill impairment of $50.8 million, or $1.05 per share.
Strong Cash Flow and Debt Reduction
Cash flow from operations for the first nine months of 2010 was $188.0 million, compared to $75.6 million for 2009. Capital expenditures for the first nine months of 2010 were $12.7 million compared to $37.0 million for the same period last year. The Company's debt to total capital ratio, or leverage ratio, was 60% at September 30, 2010, compared to 78% at December 31, 2009.
"Our continued strong operating cash flow, driven by our earnings and emphasis on reduction of working capital, along with the reduction in our capital expenditures, have now generated $151 million of free cash flow in the first nine months. This has driven a significant reduction in our debt levels and leverage ratio since the beginning of the year. We are continuing our focus on reducing working capital and capital expenditures to strengthen our balance sheet and financial position. Our performance so far has allowed us to significantly lower our borrowing costs with our recently announced refinancing," stated Ruder.
2010 Outlook Increased
Ruder continued, "We have been cautious as we moved through the year. We wanted to confirm over time our new higher operating margins as a result of our completed restructuring activities, and we were concerned with the uncertainty in the external environment. Our strong third quarter results have given us confidence in our ability to end the year at a new higher operating margin level. In addition, we are seeing continued strength in our markets reflected in our orders and backlog. We are, therefore, increasing our outlook for full year 2010."
The new outlook for 2010 is as follows:
- Annual sales increasing 35 to 40% from 2009 levels
- Expected earnings in the range of $1.85 per share to $2.35 per share
- Capital expenditures of approximately $30.0 million (unchanged)
Webcast Information
Members of Sauer-Danfoss' management team will host a webcast on November 4 at 10 AM Eastern Time to discuss 2010 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 18, 2010.
