Continued Momentum on Core North American Sales and Bookings

GUELPH, Ontario, Oct. 25, 2018 (GLOBE NEWSWIRE) — Hammond Power Solutions Inc. (“HPS”) (TSX: HPS.A) a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the Third Quarter of 2018.

THIRD QUARTER RESULTS
(Dollar amounts are in thousands unless otherwise specified)

Sales for the quarter-ended September 29, 2018 were $83,153, a significant increase of $8,468 or 11.3% from Quarter 3, 2017 sales of $74,685. Year-to-date 2018 sales increased $7,698 or 3.4% to $233,619 compared to $225,921 in 2017. Sales in the United States (“U.S.”) increased by $9,901 or 23.7%, finishing at $51,592 for Quarter 3, 2018 compared to $41,691 in Quarter 3, 2017. Year-to-date U.S. sales were $144,447 in 2018 and $129,442 in 2017, an increase of $15,005 or 11.6%. U.S. sales, when stated in U.S. dollars were $39,468 in Quarter 3, 2018, compared to Quarter 3, 2017 of $33,271, growing by $6,197 or 18.6%. Year-to-date U.S. sales stated in U.S. dollars were $112,664 in 2018 compared to $99,008 in 2017, an escalation of $13,656 or 13.8%. Canadian sales were $23,806 for the quarter, as compared to Quarter 3, 2017 sales of $25,308, a decrease of $1,502 or 5.9%. Year-to-date Canadian sales were $67,118 in 2018 compared to $61,973 in 2017, an increase of $5,145 or 8.3%. International sales for Quarter 3, 2018 finished at $7,755 versus $7,686 in Quarter 3, 2017, a slight increase of $69 or 0.9%. Year-to-date international sales were $22,054 in 2018 compared to $34,506 in 2017, a decrease of $12,452 or 36.1%.

Booking rates in the distributor channel increased 11.2% over Quarter 3, 2017. On a direct channel basis, bookings were higher than Quarter 3, 2017 by 3.7%. On a year-to-date basis Company bookings have increased 6.1% over the same period as last fiscal year. The distributor channel bookings increased 13.6% and the direct channel bookings are slightly lower by 0.2%.

Bill Hammond commented, “Overall our backlog continues to rise to unprecedented levels supported by strong bookings.”

The gross margin rate for Quarter 3, 2018 was 22.1% compared to a Quarter 3, 2017 gross margin rate of 23.9%, a decline of 1.8% of sales. Year-to-date the gross margin rate was 22.6% in 2018 versus 24.4% in 2017, a decrease of 1.8%.

“As expected in the third quarter, our consolidated margins continued to be affected by competitive price pressure. We gained traction in North America as we realized a rebound in our North American gross margin rate and sales,” Bill Hammond stated.

Total selling and distribution expenses were $9,537 in Quarter 3, 2018 or 11.5% of sales versus $8,238 in Quarter 3, 2017 or 11.0% of sales, an increase of $1,299 and an increase 0.5% of sales. Year-to-date selling and distribution expenses were $26,783 or 11.5% of sales in 2018 compared to $25,070 or 11.1% in 2017, an increase of $1,713 and 0.4% of sales.

General and administrative expenses for Quarter 3, 2018 totaled $6,510 or 7.8% of sales, compared to Quarter 3, 2017 expenses of $6,269 or 8.4% of sales, a decrease of 0.6% of sales although an increase of $241. Year-to-date general and administrative expenses were $19,685 or 8.4% of sales in 2018, compared to $18,635 or 8.2% of sales in 2017, an increase of $1,050 or 0.2% of sales.

Quarter 3, 2018 earnings from operations were $2,296 a decrease of $1,042 or 31.2% from $3,338 for the same quarter last year. The change in the quarter is due to lower margin rates. The year-to-date earnings from operations were $5,830 in 2018 compared to $10,696 in 2017, a decrease of $4,866 or 45.5%. The year-to-date change is a result of restructuring charges and non-recurring operating expenses associated with our Italian operation, decreased sales which were negatively impacted by the sales loss attributed to the sale of the Italian VPI portion of the business, a reduced gross margin rate and higher selling and administrative expenses.

Interest expense for Quarter 3, 2018 was $339, a slight increase of $9 or 2.7% compared to the Quarter 3, 2017 expense of $330. Year-to-date interest cost was $1,023, an increase of $91 or 9.8% when compared to the 2017 year-to-date expense of $932.
The foreign exchange gain in Quarter 3, 2018 was $125 compared to a foreign exchange gain of $97 in Quarter 3, 2017. The year-to-date foreign exchange gain for 2018 was $32, compared to $52 for the same period last year.

Net earnings for Quarter 3, 2018 finished at $1,391 compared to net earnings of $1,563 in Quarter 3, 2017, a decrease of $172 or 11.0%. Year-to-date net earnings were $1,916 in 2018 compared to $5,489 in 2017, a decrease of $3,573 or 65.1%. The change in the quarter is a result of a reduced gross margin rate and higher selling and administrative expenses, partially offset by increased profitability on investment in the joint venture and a decrease in the effective tax rate. The decline in year-to-date earnings is a result of non-recurring operational expenses associated with the Italian operation, lower gross margin rate, higher selling and administrative expenses and a higher effective tax rate.

The basic earnings per share for the quarter was $0.12 for Quarter 3, 2018, a decrease of $0.02 from prior year basic earnings per share of $0.14. Year-to-date the basic earnings per share was $0.17 in 2018 and $0.48 in 2017.

Net cash generated by operating activities for Quarter 3, 2018 was $2,468 versus $5,918 in Quarter 3, 2017, a decline of $3,450. Year-to-date net cash generated by operating activities was $1,533 compared to $611 in 2017, an increase of $922. This change is a result of a decrease in income tax payments and a decrease in the cash used for working capital.

During the quarter, non-cash working capital generated cash of $428 compared to $886 for the same quarter last year. The year-to-date change in non-cash working capital was a usage of cash of $5,542 in 2018 compared to $12,315 in 2017.

The Company’s overall operating debt balance net of cash was $20,502 in Quarter 3, 2018 compared to $16,407 in Quarter 3, 2017, an increase in debt position of $4,095 primarily reflective of reduced earnings.

Mr. Hammond concluded, “We are forecasting strong momentum for the rest of the year and carrying into 2019. On top of our current growth rate, we are beginning to see certain industrial and Original Equipment Manufacturer markets surge back to levels of activity not seen in many years.”

 
FINANCIAL RESULTS
 
THREE MONTHS ENDED:
(dollars in thousands)
  September 29, 2018
  September 30, 2017
  Change
 
Sales $ 83,153   $ 74,685   $ 8,468  
Earnings from Operations $ 2,296   $ 3,338   $ (1,042 )
Exchange Gain $ 125   $ 97   $ 28  
Share of (income) loss of investment in joint venture $ (345 ) $ 188   $ 533  
Net Earnings $ 1,391   $ 1,563   $ (172 )
Earnings per share                  
Basic $ 0.12   $ 0.14   $ (0.02 )
Diluted $ 0.12   $ 0.14   $ (0.02 )
Cash provided by operations $ 2,468   $ 5,918   $ (3,450 )

NINE MONTHS ENDED:
(dollars in thousands)
 
  September 29, 2018
  September 30, 2017
  Change
 
Sales $ 233,619   $ 225,921   $ 7,698  
Restructuring Charges $ 560   $ 816   $ (256 )
Earnings from Operations $ 5,830   $ 10,696   $ (4,866 )
Exchange Gain $ 32   $ 52   $ (20 )
Share of loss of investment in joint venture $ 413   $ 700   $ (287 )
Net Earnings $ 1,916   $ 5,489   $ (3,573 )
Earnings per share                  
Basic $ 0.17   $ 0.48   $ (0.31 )
Diluted $ 0.17   $ 0.48   $ (0.31 )
Cash generated by operations $ 1,533   $ 611   $ 922  
                   

Caution Regarding Forward-Looking Information

This press release contains forward-looking statements that involve a number of risks and uncertainties, including statements that relate to among other things, HPS’ strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “likely”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “objective” and “continue” and words and expressions of similar import. Although HPS believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to currency rates); changes in laws and regulations; legal and regulatory proceedings; and the ability to execute strategic plans. HPS does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT HAMMOND POWER SOLUTIONS INC.

Hammond Power Solutions Inc. (TSX: HPS.A) is a North American leader for the design and manufacture of dry-type custom electrical engineered magnetics, electrical dry-type and cast resin transformers. Leading edge engineering capabilities, high quality products, and responsive service to customers’ needs have all served to establish HPS as a technical and innovative leader in the electrical and electronic industries.

HPS has operations in Canada, the United States, Mexico, India and Italy.

CONTACT: For further information please contact:

Dawn Henderson
Manager Investor Relations
(519) 822-2441 x414
ir@hammondpowersolutions.com