Hurco Reports Third Quarter Results for Fiscal 2018

INDIANAPOLIS, Sept. 07, 2018 (GLOBE NEWSWIRE) -- Hurco Companies, Inc. (Nasdaq Global Select Market: HURC) today reported results for the third fiscal quarter ended July 31, 2018. Hurco recorded net income of $6,500,000, or $0.95 per diluted share, for the third quarter of fiscal 2018 compared to net income of $3,888,000, or $0.58 per diluted share, for the corresponding period in fiscal 2017. For the nine months of fiscal 2018, Hurco reported net income of $13,188,000, or $1.93 per diluted share, compared to $8,414,000, or $1.25 per diluted share, for the corresponding period in fiscal 2017.

Sales and service fees for the third quarter of fiscal 2018 were $78,752,000, an increase of $17,982,000, or 30%, compared to the corresponding prior year period and included a favorable currency impact of $1,780,000, or 3%, when translating foreign sales to U.S. dollars for financial reporting purposes.  Sales and service fees for the nine months of fiscal 2018 were $217,620,000, an increase of $49,884,000, or 30%, compared to the corresponding period in fiscal 2017, and included a favorable currency impact of $11,083,000, or 7%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Michael Doar, Chief Executive Officer, stated, "A record sales quarter with growth in each of our three geographic regions is a good way to transition into the fourth quarter of our fiscal year. The European and Asian machine tool markets have continued to be particularly strong and have been the largest contributing factors to our year-over-year surge in demand for Hurco machines. For the quarter, the 30% increase in sales year-over-year and a 64% increase in diluted earnings per share year-over-year translate to a meaningful return for our shareholders. In September 2018, we will be celebrating our 50th Anniversary at the 2018 International Manufacturing Technology Show ("IMTS") at the McCormick Place in Chicago. At the exhibition, we plan to showcase our 5-axis and 3-axis vertical milling machines, our turning machines, as well as our capabilities in automation. In addition, we will headline our latest control software, which streamlines turning and milling, introduces new 3D import features with 3D DXF and demonstrates our next generation 3D print head adapter. IMTS is a great venue to celebrate both the history and future of Hurco."

The following table sets forth net sales and service fees by geographic region for the third quarter and nine months ended July 31, 2018 and 2017 (dollars in thousands):

  Three Months Ended   Nine Months Ended
  July 31,   July 31,
          $ %           $ %
  2018 2017 Change Change    2018 2017 Change Change
Americas $ 19,478 $ 17,184 $ 2,294 13 %   $ 62,161 $ 51,943 $ 10,218 20 %
Europe   44,146   33,813   10,333 31 %     120,710   90,957    29,753 33 %
Asia Pacific   15,128   9,773   5,355 55 %     34,749   24,836   9,913 40 %
Total $ 78,752 $ 60,770 $ 17,982 30 %   $ 217,620 $ 167,736 $ 49,884 30 %

Sales in the Americas for the third quarter and nine months of fiscal 2018 increased by 13% and 20%, respectively, compared to the corresponding periods in fiscal 2017, due primarily to improved U.S. market conditions and demand from U.S. customers for the Hurco and Milltronics product lines.  The increase in sales was mainly attributable to an increased sales volume of vertical milling and lathe machines from the Hurco, Milltronics and Takumi product lines.

European sales for the third quarter of fiscal 2018 increased by 31%, compared to the corresponding period in fiscal 2017, and included a favorable currency impact of 4%, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase in European sales for the third quarter of fiscal 2018 resulted mainly from increased customer demand for Hurco vertical milling and lathe machines in Germany, the United Kingdom and France.  European sales for the nine months of fiscal 2018 increased by 33%, compared to the corresponding period in fiscal 2017, and included a favorable currency impact of 11%, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase in European sales for the nine months of fiscal 2018 was primarily due to increased customer demand for Hurco vertical milling and lathe machines in Germany, the United Kingdom and Italy.

Asian Pacific sales for the third quarter and nine months of fiscal 2018 increased by 55% and 40%, respectively, compared to the corresponding periods in fiscal 2017, and included a favorable currency impact of 3% and 6%, respectively, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase in Asian Pacific sales for the third quarter and nine months of fiscal 2018 was primarily attributable to increased customer demand for Hurco and Takumi vertical milling and lathe machines in China and India. 

Orders for the third quarter of fiscal 2018 were $75,991,000, an increase of $13,446,000, or 21%, compared to the corresponding period in fiscal 2017, and included a favorable currency impact of $1,955,000, or 3%, when translating foreign orders to U.S. dollars. Orders for the nine months of fiscal 2018 were $232,822,000, an increase of $45,893,000, or 25%, compared to the corresponding period in fiscal 2017, and included a favorable currency impact of $12,301,000, or 7%, when translating foreign orders to U.S. dollars.

The following table sets forth new orders booked by geographic region for the third quarter and nine months ended July 31, 2018 and 2017 (dollars in thousands):

  Three Months Ended   Nine Months Ended
  July 31,   July 31,
          $ %           $ %
  2018 2017 Change Change   2018 2017 Change Change
Americas $ 21,522 $ 19,728 $ 1,794 9 %   $ 62,905 $ 58,544 $ 4,361 7 %
Europe   44,635   35,821   8,814 25 %     134,945   100,741   34,204 34 %
Asia Pacific   9,834   6,996   2,838 41 %     34,972   27,644   7,328 27 %
Total $ 75,991 $ 62,545 $ 13,446 21 %   $ 232,822 $ 186,929 $ 45,893 25 %

Orders in the Americas for the third quarter and nine months of fiscal 2018 increased by 9% and 7%, respectively, compared to the corresponding periods in fiscal 2017.  These increases were largely attributable to increased customer demand for Hurco and Takumi vertical milling machines.

European orders for the third quarter of fiscal 2018 increased by 25%, compared to the corresponding prior year period, and included a favorable currency impact of 5%, when translating foreign orders to U.S. dollars. This increase in orders resulted mainly from increased customer demand for Hurco vertical milling and lathe machines in Germany, France and the United Kingdom, as well as increased customer demand for machine tool components and accessories manufactured by our wholly-owned subsidiary, LCM Precision Technology S.r.l. ("LCM").  For the nine months of fiscal 2018, European orders increased by 34%, compared to the corresponding prior year period, and included a favorable currency impact of 11%, when translating foreign orders to U.S. dollars. The year-over-year increase in European orders in the nine months ended July 31, 2018 was driven predominantly by increased customer demand for Hurco vertical milling and lathe machines in Germany, France, Italy and the United Kingdom, and increased demand for LCM machine tool components and accessories.

Asian Pacific orders for the third quarter of fiscal 2018 increased by 41%, compared to the corresponding prior year period, and included a slight unfavorable currency impact of less than 1%, when translating foreign orders to U.S. dollars.  This increase in Asian Pacific orders was due primarily to increased customer demand for Hurco vertical milling machines in India and Southeast Asia, as well as increased customer demand for Takumi vertical milling machines in China.  Asian Pacific orders for the nine months of fiscal 2018 increased by 27%, compared to the corresponding prior year period, and included a favorable currency impact of 5%, when translating foreign orders to U.S. dollars.  The year-over-year increase in orders was mostly due to increased customer demand for Hurco vertical milling machines in China, India and Southeast Asia, partially offset by a reduction in customer demand for Takumi vertical milling machines in China.

Gross profit for the third quarter of fiscal 2018 was $24,521,000, or 31% of sales, compared to $17,540,000, or 29% of sales, for the corresponding prior year period.  For the nine months of fiscal 2018, gross profit was $63,955,000, or 29% of sales, compared to $47,195,000, or 28% of sales, for the corresponding prior year period.  The year-over-year increase in gross profit as a percentage of sales in both periods reflected the increased volume of sales of Hurco machines, particularly in Europe, and the favorable impact of foreign currency translation compared to the corresponding prior year period.

Selling, general and administrative expenses for the third quarter of fiscal 2018 were $15,160,000, or 19% of sales, compared to $12,395,000, or 20% of sales, in the corresponding period in fiscal 2017.  For the nine months of fiscal 2018, selling, general and administrative expenses were $41,446,000, or 19% of sales, compared to $35,276,000, or 21% of sales, in the corresponding period in fiscal 2017.  The year-over-year increases in selling, general and administrative expenses for the third quarter and nine months of fiscal 2018 were driven by unfavorable currency impacts of $91,000 and $1,540,000, respectively, when translating foreign expenses to U.S. dollars for financial reporting purposes, as well as increased expenses for global marketing and employee incentive compensation.

The effective tax rates for the third quarter and nine months of fiscal 2018 were 28% and 40%, respectively, compared to 26% and 29%, respectively, in the corresponding prior year periods. The year-over-year increase in the effective tax rate for the third quarter principally resulted from a shift in geographic mix of income and loss among tax jurisdictions. The year-over-year increase in the effective tax rate for the nine months of fiscal 2018 was primarily attributable to one-time charges of $2,894,000 related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017. The impact of these one-time charges increased the effective tax rate by approximately 39% for the first quarter of fiscal 2018.  Excluding the impact of these charges, earnings per diluted share would have been $0.43 higher than the earnings per diluted share we reported for the nine months of fiscal 2018. 

Cash and cash equivalents totaled $77,011,000 at July 31, 2018, compared to $66,307,000 at October 31, 2017.  Working capital was $189,488,000 at July 31, 2018, compared to $175,526,000 at October 31, 2017.  The increase in working capital was mostly driven by an increase in cash and inventories, partially offset by a reduction in accounts receivable and an increase in accounts payable.

Hurco Companies, Inc. is an international, industrial technology company that sells its three brands of computer numeric control (CNC) machine tools to the worldwide metal cutting and metal forming industry. Two of the Company's brands of machine tools, Hurco and Milltronics, are equipped with interactive controls that include software that is proprietary to each respective brand. The Company designs these controls and develops the software. The third brand of CNC machine tools, Takumi, is equipped with industrial controls that are produced by third parties, which allows the customer to decide the type of control added to the Takumi CNC machine tool. The end markets for the Company's products are independent job shops, short-run manufacturing operations within large corporations, and manufacturers with production-oriented operations. The Company's customers manufacture precision parts, tools, dies, and/or molds for industries such as aerospace, defense, medical equipment, energy, transportation and computer equipment. The Company is based in Indianapolis, Indiana, with manufacturing operations in Taiwan, Italy, the U.S. and China, and sells its products through direct and indirect sales forces throughout the Americas, Europe, and Asia. The Company has sales, application engineering support and service subsidiaries in China, England, France, Germany, India, Italy, Poland, Singapore, South Africa, the U.S., and Taiwan. Web Site: www.hurco.com

Certain statements in this news release are forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the cyclical nature of the machine tool industry, changes in general economic and business conditions that affect demand for our products, the risks of our international operations, changes in manufacturing markets, innovations by competitors, the ability to protect our intellectual property, breaches of our network and system security measures, fluctuations in foreign currency exchange rates, increases in prices of raw materials, quality and delivery performance by our vendors, our ability to effectively integrate acquisitions, negative or unforeseen tax consequences and governmental actions and initiatives, including import and export restrictions and tariffs.

Contact:             Sonja K. McClelland
              Executive Vice President, Secretary, Treasurer, & Chief Financial Officer
              317-293-5309
Hurco Companies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
               
  Three Months Ended   Nine Months Ended
  July 31,   July 31,
   2018    2017    2018    2017
   (unaudited)     (unaudited) 
Sales and service fees $   78,752     $   60,770     $   217,620     $   167,736  
Cost of sales and service     54,231         43,230         153,665         120,541  
Gross profit     24,521         17,540         63,955         47,195  
Selling, general and administrative expenses     15,160         12,395         41,446         35,276  
Operating income     9,361         5,145         22,509         11,919  
Interest expense     29         21         74         66  
Interest income     78         14         108         32  
Investment income     58         5         180         85  
Other (income) expense, net     457         (98 )       868         193  
Income before taxes     9,011         5,241         21,855         11,777  
Provision for income taxes     2,511         1,353         8,667         3,363  
Net income $   6,500     $   3,888     $   13,188     $   8,414  
Income per common share              
Basic $   0.96     $   0.58     $   1.95     $   1.26  
Diluted $   0.95     $   0.58     $   1.93     $   1.25  
Weighted average common shares outstanding              
Basic     6,717         6,624         6,694         6,608  
Diluted     6,788         6,695         6,774         6,674  
               
OTHER CONSOLIDATED FINANCIAL DATA Three Months Ended   Nine Months Ended
  July 31,   July 31,
Operating Data:  2018    2017    2018    2017
   (unaudited)     (unaudited) 
Gross margin   31 %     29 %     29 %     28 %
SG&A expense as a percentage of sales   19 %     20 %     19 %     21 %
Operating income as a percentage of sales   12 %     8 %     10 %     7 %
Pre-tax income as a percentage of sales    11 %     9 %     10 %     7 %
Effective tax rate   28 %     26 %     40 %     29 %
Depreciation and amortization $   937     $   936     $   2,848     $   2,718  
Capital expenditures $   1,678     $   1,261     $   4,574     $   3,367  
               
Balance Sheet Data: 7/31/2018   10/31/2017        
  (unaudited)   (audited)        
Working capital $   189,488     $   175,526          
Days sales outstanding (unaudited)     46         46          
Inventory turns (unaudited)     1.6         1.5          
Capitalization              
Total debt $   1,468     $   1,507          
Shareholders' equity     216,075         203,085          
Total $   217,543     $   204,592          

 

Hurco Companies, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
  July 31,   October 31,
   2018    2017
ASSETS  (unaudited)     (audited) 
Current assets:      
Cash and cash equivalents $   77,011     $   66,307  
Accounts receivable, net     45,814         50,094  
Inventories, net     135,931         119,948  
Derivative assets     2,157         596  
Prepaid expenses     9,956         7,913  
Other     2,153         1,557  
Total current assets     273,022         246,415  
Property and equipment:      
Land     868         841  
Building     7,352         7,352  
Machinery and equipment     27,147         25,652  
Leasehold improvements     3,815         3,503  
      39,182         37,348  
Less accumulated depreciation and amortization     (26,101 )       (25,167 )
Total property and equipment     13,081         12,181  
Non-current assets:      
Software development costs, less accumulated amortization     7,059         6,226  
Goodwill     2,449         2,440  
Intangible assets, net     988         1,076  
Deferred income taxes     4,088         6,176  
Investments and other assets, net     7,500         7,131  
Total non-current assets     22,084         23,049  
Total assets $   308,187     $   281,645  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $   58,957     $   47,638  
Accrued expenses     20,998         20,012  
Derivative liabilities     2,111         1,732  
Short-term debt     1,468         1,507  
Total current liabilities     83,534         70,889  
Non-current liabilities:      
Deferred income taxes     2,560         3,821  
Accrued tax liability     2,445         133  
Deferred credits and other obligations     3,573         3,717  
Total non-current liabilities     8,578         7,671  
Shareholders' equity:      
Preferred stock:  no par value per share; 1,000,000 shares authorized; no shares issued     -         -  
Common stock:  no par value; $.10 stated value per share; 12,500,000 shares authorized;      
6,885,246 and 6,799,006 shares issued and 6,716,898 and 6,641,197 shares outstanding,      
as of July 31, 2018 and October 31, 2017, respectively     672         664  
Additional paid-in capital     63,854         61,344  
Retained earnings     160,303         149,267  
Accumulated other comprehensive loss     (8,754 )       (8,190 )
Total shareholders' equity     216,075         203,085  
Total liabilities and shareholders' equity $   308,187     $   281,645  

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