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John N. Langrick
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Sauer-Danfoss INC. reports 2007 fourth quarter and full-year results
- 23% Increase in Fourth Quarter Sales Leads to Strong
Improvement in Earnings
- 13% Net Sales Growth for the Year 2007
- Continued Reinvestment into Operating Improvements and
- New Orders and Backlog Remain Strong Reflecting Continued
High Demand in Europe and Asia
- Restatement Reducing 2005 Earnings per Share by $0.08 to
Correct Deferred Taxes Recorded
Sauer-Danfoss Inc. (NYSE:SHS) today announced net sales rose 23 percent to $494.2 million for the fourth quarter ended December 31, 2007 compared to net sales of $403.4 million for the fourth quarter 2006. Net income for the quarter improved to $8.7 million, or $0.18 per share, compared to a net loss of $4.9 million, or a loss of $0.10 per share for the fourth quarter 2006.
David Anderson, President and Chief Executive Officer, stated, "Our operating results and bottom line earnings were a significant improvement over the previous year s quarter. We were able to achieve this improvement even though the strong European currencies and our capacity constraints in that region continue to pressure margins. We remain intensely focused on increasing capacity and improving margins in the Controls and Work Function divisions. During 2007, we made further progress on our lean initiatives tied into supply chain improvements supported by our common company-wide business system. We are in the final phase of installing this system globally and we also brought to completion our multi-year restructuring program, an integral part of our reinvestment in the Company for future profitable growth."
Fourth quarter 2007 earnings were impacted by plant restructuring costs of $1.6 million pre-tax, or approximately $0.02 per share, and implementation costs of the common company-wide business system of $2.4 million pre-tax, or approximately $0.03 per share, reflecting a quarter-over-quarter decline in each of these costs as well as a significant decline compared to fourth quarter 2006. Additionally, Sauer-Danfoss recorded a one-time charge of $2.3 million pre-tax, or $0.03 per share, related to obligations pertaining to the sale of our DC motor business earlier in 2007. Management does not expect additional related charges.
Net sales for the fourth quarter increased 23 percent to $494.2 million, compared to sales of $403.4 million for the same period last year. Excluding the impact of currency rate changes and divestitures, sales increased 18 percent over the prior year period. Regionally, sales increased 17 percent in the Americas, while European and Asia-Pacific sales rose 19 percent and 20 percent during the quarter, respectively, excluding the impact of currency rate changes and divestitures.
Sauer-Danfoss reported strong sales growth in all segments. The Propel segment led with a 21 percent sales increase over the fourth quarter in 2006, the Controls segment followed with an 18 percent increase and the Work Function segment increased 15 percent. All numbers exclude the impact of currency rate changes and divestitures.
Twelve month review
Net sales for the twelve months ended December 31, 2007 were $1,972.5 million, an increase of 13 percent over sales of $1,739.1 million for 2006. Sales for 2007 increased 10 percent over the previous year, excluding the impact of currency rate changes and divestitures. Regionally, sales increased 5 percent in the Americas, while European and Asia-Pacific sales rose 14 percent and 13 percent, respectively, excluding the impact of currency rate changes and divestitures. For the operating segments, excluding the impact of currency rate changes and divestitures, sales increased 17 percent in the Controls segment, and 8 percent in both the Propel and Work Function segments.
Income from operations was nearly level with last year at $114 million, yet net income for the full year 2007 was $47.2 million, or $0.98 per share, compared to net income of $54.0 million, or $1.12 per share for 2006. Factors influencing the decline in earnings for 2007 included the plant restructuring costs of $19.4 million pre-tax, or $0.32 per share, compared to 2006 costs of $15.5 million pretax, or $0.21 per share. Costs relating to the implementation of a common company-wide business system platform were $11.2 million pre-tax, or $0.15 per share for 2007, compared to $13.7 million pre-tax, or $0.19 per share for 2006. Change in the tax rate from 24.0% in 2006 to 28.5% in 2007 accounted for a difference of $0.06 per share.
Cash flow from operations for the full year of 2007 remained strong at $98.1 million. Capital expenditures for the full year were $135.6 million, up from $116.2 million for the comparable period in 2006. The increase primarily relates to new capacity brought on to meet the heavy demand situation in Europe. Debt to total capital ratio, or leverage ratio, was 43 percent at the end of 2007.
Orders und backlog
Orders received for the 2007 fourth quarter were $648.1 million, up 32 percent from the same period last year, and up 23 percent excluding currency translation rate changes.
Total backlog at the end of the fourth quarter of 2007 was $921.4 million, an increase of 46 percent from the fourth quarter of 2006. Excluding currency translation rate changes, backlog rose 38 percent compared with the fourth quarter of 2006.
"Our significant increase in backlog is noteworthy because it continues to be a clear indicator of future sales growth and strength in our markets," added Anderson. "However, a portion of this increase is due to customers in Europe ordering ahead of their needs to ensure their minimum requirements are met for the year as a result of their strong demand for our products."
"Current sales trends are similar to this time last year, with continued strength going into 2008 and sales at record levels," said Anderson. "Modest growth in the U.S. is again being offset by strength in both the European and Asian regions validating our strategy of global diversity specifically among the American and European markets, including our increasing market share in the Asia-Pacific region.
"We are proud of the progress we made in 2007 towards our goals of providing innovative technology for our markets and in achieving one of the strongest growth rates in the industry," said Anderson. "Our existing advanced technology and new product introductions across key applications continue to attract new business. We are focused on pursuing our growth strategy with additional capacity to be installed over the course of 2008 while increasing profitability as we benefit from the integration of the common company-wide business system and realize the benefits of the recently completed restructuring program."
"Based on our strong sales trends, orders and backlog, and lean and cost improvement initiatives, we expect earnings per share for the full year 2008 to be $1.40 to $1.55 based on a sales increase expectation of 7 to 9 percent and capital expenditures of 7 to 8 percent of sales," Anderson concluded.
Sauer-Danfoss announced today that it will restate its 2005 financial results to record an additional $3.9 million of deferred tax liabilities and a corresponding increase in income tax expense for the correct application of branch accounting under Statement of Financial Accounting Standards No. 109 in connection with deferred tax assets relating to its German branch operations. The restatement did not impact operating income or cash flows for any period. The restatement, which will be included in Sauer-Danfoss 2007 Form 10-K to be filed with the SEC in March 2008, reduces 2005 earnings per share from the reported level of $0.81 to a corrected $0.73.
Members of Sauer-Danfoss’ management team will host a conference call on February 28th at 10 AM Eastern Time to discuss 2007 fourth quarter and year end 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 March 28, 2008.
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