Sauer-Danfoss Inc. announces its financial results for the second quarter ended June 30, 2011.
Second Quarter Review
Net sales for the second quarter increased 30% to $563.3 million, compared to net sales of $432.2 million for the second quarter of 2010. Excluding the impact of changes in currency translation rates, sales in the second quarter increased 22% over the same quarter last year. Sales for the second quarter increased 21% in the Americas, 21% in Europe, and 28% in the Asia-Pacific region, excluding the impact of changes in currency translation rates. Sales increased 30% in the Propel segment, 26% in the Controls segment, 20% in the Work Function segment, and 9% in the Stand-Alone Businesses segment, excluding the impact of changes in currency translation rates.
The company reported net income of $74.9 million, or $1.54 per share, for the second quarter of 2011, compared to net income of $34.6 million, or $0.71 per share, for the second quarter of 2010. Second quarter 2011 results were favorably impacted by $6.2 million, or $0.13 per share, related to the reversal of deferred tax asset valuation allowances. Results for second quarter 2010 were negatively impacted by restructuring costs of $4.4 million, or $0.09 per share. In addition, second quarter 2010 results were favorably impacted by $10.2 million, or $0.21 per share, related to the reversal of deferred tax asset valuation allowances.
Sven Ruder, President and Chief Executive Officer, comments, "We are very pleased with our record second quarter results. Our sales growth was strong at 22% and our operational performance continued at the high level of last quarter with our operating margin at 20.8%. As you will see from our outlook, I believe it is unlikely that we will sustain this level of operating margin into the coming two quarters as we move into the historically slower business season and as the costs of adding resources in response to the higher sales levels catch up with us. In addition, we are investing substantially in Asia-Pacific to meet the growth opportunities in this dynamic region."
Continued Strong Orders and Backlog
The company received new orders of $485.6 million for the second quarter of 2011, a 5% increase compared to second quarter 2010 orders of $460.2 million.
Total backlog at June 30, 2011, was $895.1 million, a 41% increase compared to the same period last year of $633.1 million. Excluding the impact of changes in currency translation rates, backlog increased 33%.
Six Month Review
The company reported net sales for the six months ended June 30, 2011, of $1,128.1 million, compared to net sales of $819.0 million for the first six months of 2010. Net sales for the first six months of 2011 increased 33% over the prior year period, excluding the impact of currency translation rate changes.
Net income for the first six months of 2011 was $145.4 million, or $3.00 per share, compared to net income of $55.3 million, or $1.14 per share, for the same period last year. 2011 results were favorably impacted by $11.1 million, or $0.23 per share, relating to the reversal of deferred tax asset valuation allowances. Results for the first six months of 2010 include restructuring costs of $6.9 million, or $0.15 per share. In addition, 2010 results were favorably impacted by $14.7 million, or $0.30 per share, relating to the reversal of deferred tax asset valuation allowances.
Record Cash Flow
Cash flow from operations for the first six months of 2011 was a record $169.2 million compared to $104.7 million for the first six months of 2010. Capital expenditures for the first six months of 2011 were $14.1 million compared to $8.7 million for the same period last year. The company reduced its debt, net of cash, by $137.5 million, from $237.4 million at December 31, 2010, to $99.9 million at the close of June 2011. The debt to total capital ratio, or leverage ratio, was 27% at June 30, 2011, compared to 43% at December 31, 2010.
"After generating $42 million of free cash flow in the first quarter of 2011, we have generated an additional $100 million of free cash flow in the second quarter. We expect to continue to generate strong cash flow, and with our debt now at a comfortable level, management and the board are in discussions regarding the use of future cash being generated, as I mentioned last quarter. We expect to complete these discussions over the next couple of quarters," states Ruder.
Outlook Raised for 2011
Ruder concludes, "We expect 2011 to be the first year to follow a more 'normal' pattern of seasonality since 2007, and as such we will probably see slower sales in the second half when compared to the first six months of the year. Nonetheless, we are still seeing strength in our markets. While the overall economic situation in the developed economies is still uncertain and we are experiencing a temporary slowdown in China, our customers remain bullish. The agricultural machine market is strong given high agricultural commodity prices that we believe are here to stay for a while. The size of rental fleets continues to shrink and the average age of machines is older than what we have seen historically. As a result, we expect rental companies to replenish and renew their fleets. We also expect a pick-up in sales to customers who were impacted by the tsunami in Japan as material flows normalize. Finally, we expect to continue to see the positive impact of urbanization and infrastructure projects in the developing markets in the months and years ahead. Taking all of this into consideration, along with our strong first half year results, we are raising our outlook for 2011."
The outlook for 2011 is revised as follows:
- Annual sales increasing 25 to 30% from 2010 levels (previously 20 to 30%)
- Expected earnings in the range of $4.25 to $5.00 per share (previously $3.50 to $4.50 per share)
- Capital expenditures of approximately $60.0 to $65.0 million (previously $55.0 to $65.0 million)
Long-Term Plan Expectations
The Sauer-Danfoss board recently approved the company's long-term plan with expected revenues of $3.0 to $3.4 billion in 2015 and EBIT margins averaging 14% to 16% over the period. They expect sales in the APAC region to triple, from approximately $300 million in 2010 to $900 million in 2015.