GUELPH, Ontario — Hammond Power Solutions Inc. announced its financial results for the fourth quarter of 2015.
(Dollar amounts are in thousands unless otherwise specified)
FOURTH QUARTER RESULTS
Sales for the quarter ended December 31, 2015 were $80,740, an increase of $16,211 or 25.1% from the comparative quarter last year. Year-to-date sales in 2015 were $274,639 as compared to sales of $247,756 in 2014, an increase of $26,883 or 10.9%. U.S. sales grew $11,495 or 29.3% and were $50,704 for Quarter 4, 2015 compared to $39,209 in Quarter 4, 2014. Year-to-date U.S. sales were $165,750 in 2015 compared to $143,500 in 2014, an increase of $22,250, or 15.5%.
2015 financial results were impacted by the new Department of Energy regulations effective January 1, 2016. This new legislation resulted in abnormally stronger Quarter 4, 2015 sales demand, as there was a cost advantage to U.S. customers to increase their inventory levels in 2015 for the product manufactured and inventoried pre 2016. This favourably impacted the Company’s Quarter 4, 2015 sales by approximately $7,000 and will have a negative effect on the first quarter sales of 2016 as customer demand will soften until their inventory levels normalize.
Canadian sales were $20,545 for the quarter, an improvement of $2,385 or 13.1% from Quarter 4, 2014 sales of $18,160. Year-to-date Canadian sales were $76,064, an increase of $3,021 or 4.1% as compared to sales of $73,043 in 2014. International sales increased in Quarter 4, 2015 finishing at $9,491 versus $7,160 in Quarter 4, 2014, an increase of $2,331 or 32.6%. On a year-to-date basis, the Company realized sales growth internationally of $1,612 or 5.2%, finishing at $32,825 for the year versus sales of $31,213 in 2014.
The Company’s Quarter 4 2015 bookings increased by 6.5% over Quarter 4 2014 and 12.0% year-to-date due to higher bookings in the Original Equipment Manufacturer (“OEM”) market and the impact of a stronger U.S. dollar. During the quarter, direct sales bookings increased 6.3% and 6.7% through our distributor channel. Year-to-date, direct sales bookings increased by 13.6% and the distributor channel grew by 10.5%.
Bill Hammond commented, “I am pleased to report that despite continuing volatility in many of our markets as well as the global economy, HPS delivered increased sales.”
Gross margin rates increased to 25.5% in Quarter 4, 2015 versus 24.1% in Quarter 4, 2014. Year- to-date, the Company achieved increased gross margin rates of 24.0% in 2015 versus 23.2% in 2014, an improvement of .8% of sales. The change in margin rates are attributed to product and customer mix, pricing gains, cost reduction, and lift in manufacturing throughput due to the increased sales levels.
Total selling and distribution expenses amounted to $8,806 in Quarter 4, 2015 versus $7,202 in Quarter 4, 2014, an increase of $1,604 or 22.3%. Year to date selling and distribution expenses were $29,914 for 2015 versus $28,247 in 2014, an increase of $1,667 or 5.9%. On a percentage-of-sales basis these costs decreased from 11.4% in 2014 to 10.9% in 2015.
The general and administrative expenses for Quarter 4, 2015 totaled $5,663, a decrease of $201 or 3.4% when compared to Quarter 4, 2014 costs of $5,864. General and administrative expenses in 2015 were higher by $546 or 2.4%, totaling $23,324 when compared to $22,778 for 2014. On a percentage-of-sales basis these costs decreased from 9.2% in 2014 to 8.5% in 2015.
Quarter 4, 2015 earnings from operations improved $3,628 or 146.8%, finishing at $6,100 in the quarter as compared to $2,472 in Quarter 4, 2014. Earnings from operations were $12,644 in 2015, as compared to $6,460 in 2014, a significant increase of $6,184 or 95.7%. The improvement in earnings from operations is a result of the increase in sales and improved gross margin rates.
The interest expense for Quarter 4, 2014 finished at $371, an increase of $109 or 41.6% compared to Quarter 4, 2014 expense of $262. The interest expense for the year-ended December 31, 2015, finished at $1,047 as compared to $1,029 in 2014, an increase of $18 or 1.7%. The interest expense is comparable to prior year and is a result of similar operating debt levels in the year as the prior year.
The foreign exchange gain in Quarter 4, 2015 was $113 compared to a foreign exchange loss of $381 in Quarter 4, 2014. The majority of the Quarter 4, 2015 foreign exchange gain was a result of transactional losses in Canada due to the strengthening of the U.S. dollar relative to the Canadian dollar in the quarter being offset by gains on settlements of foreign exchange contracts. The foreign exchange loss in 2015 of $4 related primarily to the transactional exchange loss pertaining to the Company’s U.S. dollar trade accounts payable in Canada, compared to a foreign exchange loss of $621 in 2014.
Net earnings for Quarter 4, 2015 were $3,351 compared to $804 in Quarter 4, 2014, an increase of $2,547 or 316.8%. 2015 earnings before income taxes increased to $10,657 as compared to $4,743 in 2014, an increase of $5,914 or 124.7%. The higher net earnings are due to the increased sales, improved gross margin and a reduction in foreign exchange losses partially offset by a $848 loss on investment in joint venture primarily due to the startup costs of the new company.
Net cash provided by operations for Quarter 4, 2015 was $8,887 versus $4,788 in Quarter 4, 2014, an increase of $4,099. Net cash provided from operating activities during 2015 was $16,065 versus $18,450 in 2014, a decrease in cash generated from operations of $2,385. This decrease is primarily due to a working capital decrease offset by higher net earnings.
Operating lines of credit, net of cash, finished the year in a net operating debt position of $9,175 as at December 31 2015, a decrease of $1,547 as compared to a net debt balance of $10,722 as at December 31, 2014, primarily reflecting cash generated from operations during the year.
The Company continued with its regular quarterly dividend program, paying six cents ($0.06) per Class A Subordinate Voting Share of HPS and six cents ($0.06) per Class B Common Share of HPS on December 18, 2015.
Hammond concluded, “We are very proud of our accomplishments in 2015, especially given the most prolonged challenging economic environment HPS has experienced in over 30 years. We remain both cautious and mindful of the current uncertainty surrounding the global economy, while at the same time looking for opportunities to grow our sales and improve our profitability further by taking advantage of our broad market and business diversification.”
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