Sypris Reaffirms 2018 Growth and Margin Expansion Guidance

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Sypris Solutions, Inc. has reported financial results for its first quarter ended April 1, 2018. Sypris Solutions has completed several strategic initiatives in order to better align its cost structure and diversify the company’s book of business, both in terms of customers and markets. As a result, the Company has stabilized its revenue base and is positioned to achieve attractive top-line growth in 2018, along with higher gross profit and a return to profitable operations.

Highlights:

• The Company’s first quarter revenue increased 9.7% compared to the prior-year quarter, while gross margin improved to 10.2%, up from a negative 3.0% last year.
• Revenue for Sypris Technologies increased 13.7% during the quarter compared to the prior-year period, reflecting the impact of new contract awards and positive market conditions.
• Gross margin for Sypris Technologies improved to 14.5% for the quarter, up from a negative 5.0% for the prior-year period, and increased 320 basis points sequentially from the fourth quarter of 2017, reflecting significantly lower operating costs and improved mix.
• Orders for Sypris Electronics increased 84.1% during the quarter compared to the same period in 2017. Revenue was unchanged on a year-over-year basis and down sequentially, reflecting the short-term impact on sales from the delay in the receipt of certain electronic components.
• During the quarter, the Company announced new contract awards for Sypris Electronics for the production of electronic assemblies for use in munition dispensing systems and global undersea communications projects.
• The Company reaffirmed its financial guidance for the year, with revenue forecast to be in the range of $90.0-$96.0 million for 2018, representing top-line growth of 13.0% at the midpoint on a year-over-year basis, with gross profit forecast to be in the range of 15.0%-17.0% of revenue. As a result, the Company expects to be profitable for the year.

“We are pleased to report that the gross margin and adjusted operating income of Sypris Technologies increased for the second consecutive quarter, reflecting the benefits of our previously announced cost reduction efforts and our work to target more strategic marketing opportunities,” commented Jeffrey T. Gill, president and chief executive officer. “With all of our cost reduction programs now complete, we can look forward to the full impact of these actions rolling into our 2018 results, with further meaningful improvements in gross margin expected to be reported during the balance of the year.

“The financial results of Sypris Electronics continued to be affected during the first quarter by materials availability, which resulted in lower shipment levels than were otherwise planned. Importantly, we expect to see progressively higher levels of shipments sequentially through 2018, with a full recovery to normal deliveries during the second half of the year.

“As noted in our fourth quarter update, electronic component shortages and extensive lead-time issues are currently prevalent in the electronics manufacturing industry. We are continuing to work with our customers to qualify alternative components and/or suppliers to mitigate the impact on our business and expedite shipments to our customers. The majority of our aerospace and defense programs require specific components or components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products.

“We continue to see strong demand in each of our primary markets to support our revenue outlook for the balance of the year. The combination of our expected revenue growth and lower fixed manufacturing overhead costs, driven by our cost reduction actions, will contribute to our return to profitability for 2018,” Mr. Gill added.

Concluding, Mr. Gill said, “With the closure of the Broadway Plant, we have taken 450,000 square feet out of our operating footprint, our SG&A expense will continue to decline as a percentage of revenue, and our customer base and markets served are resilient, growing and are considerably more diversified than at any point in our history. We have substantially improved the Company’s competitiveness.”

First Quarter Results

The Company reported revenue of $19.9 million for the first quarter compared to $18.2 million for the prior-year period. Additionally, the Company reported a net loss of $1.8 million, or $0.09 per share, compared to a loss of $3.3 million, or $0.16 per share, for the prior-year period. The results for the quarter ended April 1, 2018, include a gain of $0.3 million from the sale of excess equipment by Sypris Technologies and costs of $0.5 million related to preparing the Broadway facility for sale or other use. Results for the quarter ended April 2, 2017, include a gain of $2.4 million from the sale of excess equipment by Sypris Technologies, a foreign exchange translation loss of $0.4 million and severance and relocation costs of $1.0 million related to the Broadway transition. Excluding the gains on sales of equipment, severance and relocation costs and foreign exchange translation loss, the net loss for the quarter ended April 1, 2018 and April 2, 2017, would have been $1.6 million and $4.3 million, respectively.

Sypris Technologies

Revenue for Sypris Technologies was $14.5 million in the first quarter compared to $12.8 million for the prior-year period, primarily reflecting an increase in demand from customers in the oil and gas, automotive and commercial vehicle industries. Gross profit for the quarter was $2.2 million, or 14.5% of revenue, compared to a loss of $0.6 million, or a negative 5.0% of revenue, for the same period in 2017. Gross profit was positively affected by the increase in volume and productivity improvements realized following the transfer of production from our Broadway Plant, which was completed as of the end of 2017.

Sypris Electronics

Revenue for Sypris Electronics was flat at $5.4 million in the first quarter of 2018 compared to the prior year-period. Revenue for the quarter was affected by shortages of certain electronic components and extensive lead-time issues in the electronics manufacturing industry. Gross profit for the quarter was a loss of $0.1 million, compared to a profit of $0.1 million for the prior-year period, primarily reflecting changes in revenue mix.

Outlook

Commenting on the future, Gill added, “Our markets are poised to provide Sypris with the opportunity for healthy, double-digit revenue growth during 2018. New contract awards and market expansion are expected to occur in each of our targeted markets for energy, automotive, commercial vehicle and aerospace and defense products.

“Third-party forecasts for the Class 8 commercial vehicle market indicate production will be up over 30% in 2018 compared to 2017. The energy market continues to benefit from increased demand and higher oil prices. The National Defense Authorization Act for Fiscal Year 2018 provides nearly $700 billion in funding for the U.S. Department of Defense, which is expected to support program growth and market expansion for Aerospace and Defense participants during the coming year. And from a cost standpoint, we expect to benefit from significantly lower fixed overhead and production costs at Sypris Technologies, as well as from the elimination of severance and other expenses.

“As a result, we are pleased to reaffirm our guidance for 2018, with full-year revenue and gross margin expected to be in the range of $90.0-$96.0 million and 15.0%-17.0%, respectively. Revenue and gross margin for the first six months of 2018 are forecast to be in the range of $43.0-$45.0 million and 13.0%-15.0%, respectively, while revenue and gross margin for the second half of the year are forecast to be in the range of $47.0-$51.0 million and 16.0%-18.0%, respectively.

“Taking a closer look at the first half of 2018, we are forecasting consolidated revenue and gross margin for the second quarter of $23.0-$25.0 million and 16.0%-18.0%, respectively. Sypris Technologies is expected to generate revenue and gross margin of $16.0-$17.0 million and 18.0%-21.0%, respectively, for the quarter, while revenue and gross margin for Sypris Electronics is forecast to be in the range of $7.0-$8.0 million and 10.0%-12.0%, respectively.

“We expect selling, general and administrative spending to be in the range of 13.0%-14.5% of revenue for the full year, subject to actual top line performance. The net result is that we expect to return to profitability on a consolidated basis for 2018.”

About Sypris Solutions

Sypris Solutions is a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. The Company performs a wide range of manufacturing services, often under multi-year, sole-source contracts. For more information click here.