Sypris Reports Double-Digit Revenue and Margin Growth Forecast for 2019
Sypris Solutions, Inc. reported financial results for its fourth quarter and full year ended December 31, 2018. Net revenue for the full year 2018 increased 6.9% over 2017 and gross margin improved 460 basis points. These improvements continue to reflect the successful implementation of strategic initiatives to better align the Company's revenue and cost structure and diversify the Company’s book of business, both in terms of customers and markets.
- The Company’s fourth quarter revenue increased 11.5% over the prior-year quarter and 13.5% sequentially, with both segments contributing to the improvements.
- Full-year revenue increased 9.0% for Sypris Technologies and 2.7% for Sypris Electronics, underscoring favorable market conditions and strong customer relationships.
- Gross margin for Sypris Technologies increased to 14.3% of revenue for the quarter, up from 11.3% in the prior-year period and up from 8.9% sequentially, reflecting mix and productivity improvements.
- Gross margin for Sypris Technologies increased to 12.6% in 2018, up from 1.4% in 2017, primarily attributable to the full-year impact of cost structure reductions, revenue growth and operational improvements.
- Company gross margin for the full year more than doubled in 2018, reaching 8.6% compared with 4.0% for the prior-year.
- During the fourth quarter, the Company entered into a series of supply agreements with Sistemas Automotrices de Mexico, S.A. de C.V. (“Sisamex”), to supply Sisamex with a variety of driveline components for use in the commercial vehicle, agricultural and all-terrain markets.
- The Company’s outlook for 2019 includes revenue of $100-$110 million, representing 19% year-over-year growth at the midpoint, and gross margin of 14%-16%, with both business segments forecasted to register solid profitability for the year.
“We were pleased with the year-over-year revenue growth and margin expansion at Sypris Technologies,” commented Jeffrey T. Gill, president and chief executive officer. “Shipment volumes remained strong in the quarter to support demand coming from the automotive and commercial vehicle markets, which experienced a 17% increase in shipments on a year-over-year basis.
“We also experienced strengthening demand for our energy-related products, which resulted in a 22% increase sequentially in revenue. A number of production, supply and other constraints that we experienced in the previous quarter were mitigated in the current period.
“During the fourth quarter, the Company entered into a series of agreements to continue to supply axle shafts to Sisamex, in addition to the introduction of new driveline products for use in the commercial vehicle, agricultural and all-terrain markets. Sisamex is a long-term strategic partner, and expanding the range of products we supply further strengthens this relationship. We expect to begin production on the new products during 2019,” he continued.
“While shipments at Sypris Electronics were generally on plan for the quarter, its results were adversely affected by operational challenges as we neared completion on an engineering manufacturing development program that included numerous design and material changes, and the ramp-up on a new program on which we incurred an unexpected level of inefficiencies. Aside from operational challenges during the fourth quarter, we recognized charges totaling approximately $0.9 million for a physical inventory adjustment, which we performed at year-end concurrent with our implementation of a new ERP system, and an increase to our reserve for excess and obsolete inventory on certain specific programs.”
Concluding, Gill said, “We continue to see strong demand in each of our primary markets to support our revenue outlook for 2019. Our customer base and the markets we serve remain resilient and are considerably more diversified than at any point in our recent history. We are confident that the combination of our forecasted revenue growth and lower fixed manufacturing overhead costs, driven by effective cost-reduction actions, will contribute to our expected return to profitability in 2019.”
Fourth Quarter and Full-Year Results
The Company reported revenue of $24.0 million for the fourth quarter compared with $21.5 million for the prior-year period. The Company reported a net loss of $0.2 million, or $0.01 per share, compared with a loss of $1.2 million, or $0.06 per share, for the prior-year quarter. The results for the quarter ended December 31, 2018, include a benefit in selling, general and administrative expense of $1.9 million for the favorable resolution of a legal fee.
For the full-year ended December 31, 2018, the Company reported revenue of $88.0 million compared with $82.3 million for the prior-year. The Company reported a net loss of $3.5 million, or $0.17 per share, compared with a net loss of $10.8 million, or $0.53 per share, for 2017. In addition to the $1.9 million legal fee benefit recorded in the fourth quarter, results for the year ended December 31, 2018, included an insurance recovery gain of $2.3 million, which was partially offset by a net loss of $0.2 million on the sale of excess equipment and costs of $1.4 million related to preparing the Broadway facility for sale or other use. Results for the year ended December 31, 2017, included net gains of $2.7 million related to the sale of excess equipment, which was partially offset by severance, relocation and other costs of $2.4 million.
Revenue for Sypris Technologies was $15.1 million in the fourth quarter compared with $14.5 million for the prior-year period, primarily reflecting an increase in demand from customers in the automotive and commercial vehicle markets that was partially offset by lower energy product sales. Gross profit for the quarter was $2.2 million, or 14.3% of revenue, compared with $1.6 million, or 11.3% of revenue, for the same period in 2017. Gross profit benefitted from the increase in volume as well as cost improvements realized following the transfer of production from our Broadway Plant, which was completed as of the end of 2017.
Revenue for Sypris Electronics was $8.8 million in the fourth quarter of 2018 compared with $7.0 million for the prior-year period. The increase in revenue over the prior-year was primarily due to the launch of a new program beginning late in the third quarter of 2018 that ramped up during the fourth quarter. Additionally, certain new smaller programs and the expansion of programs with existing customers offset demand reductions on legacy programs. However, electronic component availability and labor inefficiencies dampened our margins during the period. Gross profit was further affected during the fourth quarter of 2018 by a $0.4 million physical inventory adjustment and additional excess and obsolete inventory reserves of $0.5 million.
Commenting on the future, Gill added, “Buoyed by current volume growth, we expect to capitalize on additional opportunities across our markets for healthy revenue expansion in 2019. We also anticipate new contract awards and market expansion in each of our targeted markets for energy, automotive, commercial vehicle, and aerospace and defense products, as well as new electronics programs.
“Third-party forecasts for the Class 8 commercial vehicle market indicate that freight volumes will remain strong well into the second half of 2019, albeit off from record-breaking 2018 levels. The energy market continues to benefit from increased demand and higher oil prices. The National Defense Authorization Act for Fiscal Year 2019 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.
“Our revenue outlook for 2019 is in the range of $100-$110 million, which primarily reflects strong market conditions for the commercial vehicle and energy markets that is partially offset by the impact of delayed electronic component receipts for the aerospace and defense market. We expect the second half of 2019 to improve sequentially as we are targeting to benefit from a normalization of these receipts and new program launches.
"We expect to see meaningful improvements in gross margin, up to 14.0%-16.0% for the year as a whole, with sequential improvements from the first to second half periods.”
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.