OREANDA-NEWS. Hurco Companies, Inc. (Nasdaq:HURC) today reported results for the second fiscal quarter ended April 30, 2016. Hurco recorded net income of $3,674,000, or $0.56 per diluted share, for the second quarter of fiscal 2016 compared to net income of $3,961,000, or $0.60 per diluted share, for the corresponding period in fiscal 2015. For the first six months of fiscal 2016, Hurco reported net income of $7,569,000, or $1.14 per diluted share, compared to $7,727,000, or $1.17 per diluted share, for the corresponding period in fiscal 2015. 

Sales and service fees for the second quarter of fiscal 2016 were $52,029,000, an increase of $1,846,000, or 4%, compared to the corresponding period in fiscal 2015. Excluding a negative currency impact of $733,000, sales and service fees for the second quarter of fiscal 2016 reflected growth of $2,579,000, or 5%, over the corresponding period in fiscal 2015. Sales for the second quarter of fiscal 2016 included $4,529,000 from the businesses of Milltronics and Takumi, which Hurco acquired in July 2015. Sales and service fees for the first six months of fiscal 2016 were $108,532,000, an increase of $7,377,000, or 7%, compared to the corresponding period in fiscal 2015.  Excluding a negative currency impact of $4,006,000, sales and service fees for the first six months of fiscal 2016 reflected growth of $11,383,000, or 11%, over the corresponding period in fiscal 2015. Sales for the first six months of fiscal 2016 included $15,490,000 from the Milltronics and Takumi businesses.

The following table sets forth net sales and service fees by geographic region for the second quarter and first six months of fiscal 2016 and 2015 (in thousands):

  Three Months Ended   Six Months Ended
  April 30,   April 30,
      $ %       $ %
    2016     2015   Change Change     2016     2015   Change Change
North America $ 14,933   $   13,735   $ 1,198     9 %   $   33,874   $   28,586   $ 5,288     18 %
Europe   32,006     32,113     (107 )   0 %     61,010     63,913     (2,903 )   -5 %
Asia Pacific   5,090     4,335     755     17 %     13,648     8,656     4,992     58 %
 Total $   52,029   $ 50,183   $ 1,846     4 %   $ 108,532   $ 101,155   $ 7,377     7 %
                                                   

North American sales for the second quarter of fiscal 2016 increased by 9% compared to the corresponding period in fiscal 2015, primarily due to sales from the acquired business of Milltronics Manufacturing Company.  Milltronics sales totaled $3,070,000 for the second quarter of fiscal 2016 and more than offset the decrease in non-Milltronics North American sales of $1,872,000, or 14%, year-over-year. Hurco acquired the assets of the Milltronics business in July 2015 and is operating it through its subsidiary Milltronics USA, Inc.  Milltronics manufactures and sells knee mills, tool room bed mills, vertical machining centers, combination lathes, slant-bed lathes, and horizontal machining centers. North American sales for the first six months of fiscal 2016 increased by 18% compared to the corresponding period in fiscal 2015, largely as a result of Milltronics sales of $9,154,000, which were partially offset by decreased non-Milltronics sales in North America of $3,866,000, or 14%. The year-over-year decreases in non-Milltronics North American sales in the second quarter and first six months of fiscal 2016 were due to a lower sales volume and lower sales mix of higher-performance machines.

European sales for the second quarter of fiscal 2016 were relatively unchanged compared to the corresponding period in fiscal 2015, reflecting sales growth of 2% offset by a negative currency impact of 2%.  European sales for the first six months of fiscal 2016 decreased by 5% compared to the corresponding period in fiscal 2015, reflecting sales growth of 1% that was more than offset by a negative currency impact of 6%.  The year-over-year growth in European sales, excluding the effect of the negative currency impact, was driven by increased shipments of higher-performance machines in Germany, France and Italy.

Asian Pacific sales for the second quarter of fiscal 2016 increased by 17% compared to the corresponding period in fiscal 2015, primarily due to sales from the acquired business of Takumi Machinery Co., Ltd. Takumi sales for the second quarter of fiscal 2016 totaled $1,459,000 and more than offset a negative currency impact of $149,000, or 3%, and a decrease in non-Takumi Asian Pacific sales of $555,000, or 13%.  Hurco acquired certain assets of Takumi, a Taiwan-based business, in July 2015 and is operating it through its subsidiary, Hurco Manufacturing Limited. Takumi designs and manufactures CNC vertical machining centers, double column machining centers, high speed bridge machines and other machine tools equipped with industrial controls.  Asian Pacific sales for the first six months of fiscal 2016 increased by 58% compared to the corresponding period in fiscal 2015 and reflected sales from Takumi of $6,336,000, which was partially offset by a negative currency impact of $337,000, or 4%, and decreased non-Takumi Asian Pacific sales of $1,007,000, or 12%.  The year-over-year reductions in non-Takumi Asian Pacific sales in the second quarter and first six months of fiscal 2016 were driven by a lower volume of sales in Southeast Asia.

Orders for the second quarter of fiscal 2016 were $53,220,000 compared to $53,101,000 in the corresponding period in fiscal 2015. Excluding a negative currency impact of $427,000, or 1%, orders increased by $546,000, or 1%, over the corresponding period in fiscal 2015. Orders for the first six months of fiscal 2016 were $104,510,000 compared to $98,110,000 in the corresponding period in fiscal 2015. Excluding a negative currency impact of $3,551,000, or 3%, orders increased by $9,951,000, or 10%, over the corresponding period in fiscal 2015.  Orders for the second quarter and first six months of fiscal 2016 included $7,210,000 and $13,439,000, respectively, of orders from the Milltronics and Takumi businesses. 

The following table sets forth new orders booked by geographic region for the second quarter and first six months of fiscal 2016 and 2015 (in thousands):

  Three Months Ended   Six Months Ended
  April 30,   April 30,
      $ %       $ %
    2016     2015   Change Change     2016     2015   Change Change
North America $ 12,106   $ 15,720   $   (3,614 )   -23 %   $   28,969   $ 29,631   $ (662 )   -2 %
Europe   33,290     33,666     (376 )   -1 %     61,908     59,645       2,263     4 %
Asia Pacific   7,824     3,715     4,109     111 %     13,633     8,834     4,799     54 %
Total $ 53,220   $ 53,101   $   119     0 %   $ 104,510   $ 98,110   $ 6,400     7 %
                                                   

North American orders for the second quarter and first six months of fiscal 2016 included $2,653,000 and $6,668,000, respectively, of orders from the business of Milltronics.  Excluding the increase in orders related to the Milltronics business, orders for North America decreased by 40% and 25% in the second quarter and first six months, respectively, of fiscal 2016 compared to the corresponding prior year periods.  The decreases in non-Milltronics North American orders year-over-year were due to decreased overall customer demand and decreased demand for our higher-performance machines.

European orders for the second quarter of fiscal 2016 decreased by 1% compared to the corresponding prior year period, due mainly to negative currency impact. For the first six months of fiscal 2016, orders increased by 4% compared to the corresponding prior year period, reflecting order growth of 9%, partially offset by a negative currency impact of 5%.  The year-over-year increase in orders in the first six months of fiscal 2016 was due to increased customer demand for our higher-performance machines in Germany, France and Italy.

Asian Pacific orders for the second quarter of fiscal 2016 included $4,557,000 of orders related to the Takumi business. Excluding the orders related to the Takumi business, Asian Pacific orders for the second quarter of fiscal 2016 decreased by 12% compared to the corresponding prior year period, primarily due to weaker market conditions in China and Southeast Asia. Asian Pacific orders for the first six months of fiscal 2016 increased by 54% compared to the corresponding period in fiscal 2015 and reflected orders from Takumi of $6,771,000, partially offset by a negative currency impact of $255,000, or 3%, and decreased non-Takumi Asian Pacific orders of $1,717,000, or 19%.  The year-over-year reduction in non-Takumi Asian Pacific orders was driven by a lower volume of customer demand in China and Southeast Asia.

Gross profit for the second quarter of fiscal 2016 was $16,610,000, or 32% of sales, compared to $16,559,000, or 33% of sales, for the corresponding prior year period. For the first six months of fiscal 2016, gross profit was $34,308,000, or 32% of sales, compared to $33,106,000, or 33% of sales, for the corresponding prior year period.  The year-over-year decrease in gross profit as a percentage of sales in each period was due to the new mix of value and industrial brand Milltronics and Takumi machines with the higher-performance Hurco machines.  In addition, pricing pressure and the negative impact of foreign currency also contributed to the slight decrease in gross profit as a percentage of sales.

Selling, general and administrative expenses for the second quarter of fiscal 2016 were $11,943,000, or 23% of sales, compared to $10,850,000, or 22% of sales, in the corresponding period in fiscal 2015.  For the first six months of fiscal 2016, selling, general and administrative expenses were $23,904,000, or 22% of sales, compared to $21,304,000, or 21% of sales, in the corresponding period in fiscal 2015.  Selling, general and administrative expenses for the second quarter and first six months of fiscal 2016 included approximately $1,213,000 and $2,401,000, respectively, of Milltronics and Takumi operating expenses. 

The effective tax rate for the second quarter and first six months of fiscal 2016 was 25% and 28%, respectively, compared to 32% and 34% in the corresponding prior year periods. The changes in the effective tax rates year-over-year were due to changes in geographic mix of income and loss among tax jurisdictions.

Cash and cash equivalents totaled $45,325,000 at April 30, 2016, compared to $55,237,000 at October 31, 2015. Working capital, excluding cash and cash equivalents, was $110,086,000 at April 30, 2016 compared to $95,789,000 at October 31, 2015. The increase in working capital, excluding cash and cash equivalents, was primarily due to increased inventories.

Michael Doar, Chief Executive Officer, stated, “While the negative impact of currency translation and the weaker than anticipated North American market affected our results for the second quarter, I am encouraged by our continued financial performance, which reflects solid European demand for our higher-performance Hurco machines and global demand for the recently acquired industrial brand CNC machines from Takumi.   This is an exciting year for Hurco as we will be exhibiting three CNC machine brands at IMTS, Milltronics, Takumi, and Hurco, showcasing the largest number of new machines in the company’s 48-year history. IMTS will be the official launch of the Takumi brand in North America and a relaunch of the Milltronics brand. IMTS attendees will see impressive product offerings exhibited by all three brands reflecting Hurco’s continued commitment and focus to deliver CNC machines and technologies that increase profits for our customers.”

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 North and South America, 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. 

Certain statements in this news release are forward-looking statements which 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.

               
Hurco Companies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
 
  Three Months Ended 
April 30,		   Six Months Ended 
April 30,
   
    2016       2015       2016       2015  
   (unaudited)     (unaudited) 
Sales and service fees $   52,029     $   50,183     $   108,532     $   101,155  
               
Cost of sales and service     35,419         33,624         74,224         68,049  
Gross profit     16,610         16,559         34,308         33,106  
               
Selling, general and administrative expenses     11,943         10,850         23,904         21,304  
Operating income     4,667         5,709         10,404         11,802  
               
Interest expense     25         57         49         126  
               
Interest income     7         22         22         43  
               
Investment income (expense)     4         6         106         71  
               
Other (income)  expense, net     (246 )       (159 )       (20 )       148  
               
Income before taxes     4,899         5,839         10,503         11,642  
               
Provision for income taxes     1,225         1,878         2,934         3,915  
               
Net income $   3,674     $   3,961     $   7,569     $   7,727  
               
Income per common share              
Basic $   0.56     $   0.60     $   1.15     $   1.17  
Diluted $   0.56     $   0.60     $   1.14     $   1.17  
               
Weighted average common shares outstanding              
Basic     6,570         6,547         6,564         6,535  
Diluted     6,641         6,589         6,630         6,578  
               
OTHER CONSOLIDATED FINANCIAL DATA Three Months Ended 
April 30,		   Six Months Ended 
April 30,
   
Operating Data:   2016       2015       2016       2015  
   (unaudited)     (unaudited) 
Gross margin   32 %     33 %     32 %     33 %
               
SG&A expense as a percentage of sales   23 %     22 %     22 %     21 %
               
Operating income as a percentage of sales   9 %     11 %     10 %     12 %
               
Pre-tax income as a percentage of sales    9 %     12 %     10 %     12 %
               
Effective tax rate   25 %     32 %     28 %     34 %
               
Depreciation and amortization     972         721         1,934         1,447  
               
Capital expenditures     1,155         1,091         2,267         1,615  
               
               
Balance Sheet Data: 4/30/2016   10/31/2015        
   (unaudited)             
Working capital (excluding cash) $   110,086     $   95,789          
               
Days sales outstanding (unaudited)     58         42          
               
Inventory turns (unaudited)     1.4         1.6          
               
Capitalization              
Total debt $   1,545     $   1,583          
Shareholders' equity     180,747         174,568          
  Total $   182,292     $   176,151          
               
Hurco Companies, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
       
  April 30,    October 31,
    2016       2015  
   (unaudited)     (audited) 
ASSETS      
Current assets:      
Cash and cash equivalents $   45,325     $   55,237  
Accounts receivable, net     40,302         41,766  
Inventories, net     122,736         106,308  
Derivative assets     588         1,228  
Prepaid expenses     10,599         9,769  
Other     1,695         1,804  
Total current assets     221,245         216,112  
       
Property and equipment:      
Land     841         841  
Building     7,352         7,314  
Machinery and equipment     24,115         24,026  
Leasehold improvements     3,404         3,323  
      35,712         35,504  
Less accumulated depreciation and amortization     (22,808 )       (22,362 )
Total property and equipment     12,904         13,142  
       
Non-current assets:      
Software development costs, less accumulated amortization     4,419         3,905  
Goodwill     2,403         2,319  
Intangible assets, net     1,241         1,289  
Deferred income taxes     4,724         4,721  
Investments and other assets, net     7,572         7,089  
Total non-current assets     20,359         19,323  
Total assets $   254,508     $   248,577  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
Current liabilities:      
Accounts payable $   46,073     $   43,458  
Derivative liabilities     2,258         1,071  
Accrued expenses     15,958         18,974  
Short-term debt     1,545         1,583  
Total current liabilities     65,834         65,086  
       
Non-current liabilities:      
Deferred income taxes     2,848         3,998  
Accrued tax liability     998         953  
Deferred credits and other obligations     4,081         3,972  
Total non-current liabilities     7,927         8,923  
       
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;      
6,720,453 and 6,650,517 shares issued; and 6,573,103 and 6,551,718 shares outstanding,      
as of April 30, 2016 and October 31, 2015, respectively     657         655  
Additional paid-in capital     58,296         57,539  
Retained earnings     132,209         125,760  
Accumulated other comprehensive loss     (10,415 )       (9,386 )
Total shareholders' equity     180,747         174,568  
Total liabilities and shareholders' equity $   254,508     $   248,577