Sauer-Danfoss Inc. announced its financial results for the fourth quarter ended December 31, 2010.
Fourth Quarter Review
Net sales for the quarter increased 54 percent to $428.9 million, compared to net sales of $278.9 million for the fourth quarter of 2009. Excluding the impact of changes in currency translation rates, sales in the fourth quarter increased 56% over the same quarter last year. Sales for the fourth quarter increased 53% in the Americas, 42% in Europe, and 100% in the Asia-Pacific region, excluding the impact of changes in currency translation rates. Sales increased 71% in the Propel segment, 49% in the Work Function segment, and 33% in the Controls segment, excluding the impact of changes in currency translation rates.
The Company reported net income of $126.0 million, or $2.60 per share, for the fourth quarter of 2010, compared to a net loss of $74.7 million, or $1.55 per share, for the fourth quarter of 2009. Fourth quarter 2010 results include restructuring costs of $2.8 million, or $0.06 per share. In addition, fourth quarter 2010 results were favorably impacted by $82.8 million, or $1.71 per share, relating to the net reversal of deferred tax asset valuation allowances. Results for fourth quarter 2009 were negatively impacted by restructuring and severance costs of $18.0 million, or $0.35 per share, and by a charge of $18.2 million, or $0.38 per share, to establish non-cash deferred tax asset valuation allowances relating to operating losses which could not be tax benefited. In addition, fourth quarter 2009 results were negatively impacted by unusually high costs of certain product field recall activities, primarily related to the Propel segment, of $9.3 million, or $0.19 per share.
Sven Ruder, President and Chief Executive Officer, comments, "We are pleased with our fourth quarter results, which clearly exceeded our expectations. Our year-over-year growth in sales continues to exceed 50%, as it has the past two quarters. We believe the mobile equipment market is still catching up to pre-crisis levels, which is driving much of this exceptional growth. While we are projecting continued strong growth, it will not be at these high levels. We are also pleased with the Company's operational performance that shows operating margins exceeding 15%, also for the third quarter in a row. Our restructuring and reorganization have allowed us to deliver new higher levels of return to the shareholders. We are transitioning from responding to the downturn to feeding our very sizable growth opportunities and will do so in a controlled and disciplined manner."
Continued Strong Orders and Backlog
The Company received new orders of $577.7 million for the fourth quarter of 2010, an 81% increase compared to fourth quarter 2009 orders of $319.4 million.
Total backlog at December 31, 2010, was $814.2 million, a 60% increase compared to the same period last year of $509.5 million. Excluding the impact of changes in currency translation rates, backlog increased 63%.
Twelve Month Review
The Company reported net sales for the twelve months ended December 31, 2010, of $1,640.6 million, compared to net sales of $1,159.0 million for the twelve months of 2009. Net sales for the twelve months of 2010 increased 42% over the prior year period, excluding the impact of changes in currency translation rates.
Net income for the full year 2010 was $213.4 million, or $4.40 per share, compared to a net loss of $345.8 million, or $7.15 per share, for the same period last year. Results for the twelve months of 2010 include restructuring costs of $10.8 million, or $0.23 per share. In addition, 2010 results were favorably impacted by $101.6 million, or $2.10 per share, relating to the net reversal of deferred tax asset valuation allowances. Results for the twelve months of 2009 include restructuring costs of $60.0 million, or $1.19 per share, product field recall activities of $15.5 million, or $0.31 per share, valuation allowances on deferred tax assets of $126.9 million, or $2.63 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 full year 2010 was $269.3 million, compared to $86.8 million for 2009. Capital expenditures for full year 2010 were $26.2 million compared to $43.0 million for the same period last year. The Company reduced its debt, net of cash, by $257.0 million, from $494.4 million on December 31, 2009, to $237.4 million at the close of 2010. The debt to total capital ratio, or leverage ratio, was 43% at December 31, 2010, compared to 78% at December 31, 2009.
"One clear goal we set ourselves at the outset of 2010 was to strengthen our balance sheet and reduce debt. As we progressed through the year we met our goals in controlling capital expenditures and reducing working capital, along with improving our operating performance. This has led to a significant reduction in our debt levels and improvement in our leverage ratio. I am very proud of all of our employees who worked very hard throughout the year to meet this challenge," states Ruder.
Ruder concludes, "As we move into 2011 we see a very different environment when compared to a year ago. Our backlogs have increased significantly from last year in all three regions, in total up 63%. This gives us confidence that we will continue to see strong sales growth, though not at the same growth levels as last year. As I mentioned earlier, we are increasing our spending and investing for future growth, but we are doing so in a controlled and disciplined way. Unless we experience unexpected softening in our markets, we expect our operating margins for the full year to end up in the 14 to 16% range."
The outlook for 2011 is as follows:
- Annual sales increasing 10 to 20% from 2010 levels
- Expected earnings in the range of $3.00 to $4.00 per share
- Capital expenditures of approximately $50.0 to $60.0 million
Members of Sauer-Danfoss' management team hosted a webcast on March 3 at 10 AM Eastern Time to discuss 2010 fourth quarter results. The call was 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 March 17, 2011.