OREANDA-NEWS. Hurco Companies, Inc. (Nasdaq:HURC) today reported results for the third fiscal quarter and nine months ended July 31, 2016. Hurco recorded net income of $2,720,000, or $0.40 per diluted share, for the third quarter of fiscal 2016 compared to net income of $3,683,000, or $0.55 per diluted share, for the corresponding period in fiscal 2015. For the nine months of fiscal 2016, Hurco reported net income of $10,289,000, or $1.54 per diluted share, compared to $11,410,000, or $1.72 per diluted share, for the corresponding period in fiscal 2015. 

Sales and service fees for the third quarter of fiscal 2016 were $52,403,000, which were relatively unchanged compared to $52,535,000 in the corresponding prior year period and included a negative currency impact of $1,127,000, or 2%, when translating foreign sales to U.S. dollars for financial reporting purposes.  Sales and service fees for the nine months of fiscal 2016 were $160,935,000, an increase of $7,245,000, or 5%, compared to the corresponding prior year period and included a negative currency impact of $5,133,000, or 3%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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

       
  Three Months Ended   Nine Months Ended
  July 31,   July 31,
      $ %       $ %
    2016     2015   Change Change     2016     2015   Change Change
North America $ 13,224   $ 16,238   $ (3,014 )   -19 %   $ 47,098   $ 44,824   $ 2,274     5 %
Europe   31,211     31,486     (275 )   -1 %     92,221     95,399     (3,178 )   -3 %
Asia Pacific   7,968     4,811     3,157     66 %     21,616     13,467     8,149     61 %
  Total $ 52,403   $ 52,535   $ (132 )   0 %   $ 160,935   $ 153,690   $ 7,245     5 %
                                                   

North American sales for the third quarter of fiscal 2016 decreased by 19% compared to the corresponding period in fiscal 2015, reflecting pricing pressure, overall reduced consumption levels of machine tools in this region, and some softening of sales leading up to the International Manufacturing Technology Show, which is held in September of even-numbered years.  North American sales for the nine months of fiscal 2016 increased by 5% compared to the corresponding period in fiscal 2015, reflecting the impact of nine months of Milltronics sales in fiscal 2016 compared to only approximately two weeks of sales activity from the acquisition date of the Milltronics product line in July 2015. North American sales for the third quarter and nine months of fiscal 2016 included $2,674,000 and $11,829,000 of sales from the Milltronics product line, compared to $930,000 in each of those periods in fiscal 2015.

European sales for the third quarter of fiscal 2016 decreased by 1% compared to the corresponding period in fiscal 2015 and included a negative currency impact of 3% when translating foreign sales to U.S. dollars for financial reporting purposes.  European sales for the nine months of fiscal 2016 decreased by 3% compared to the corresponding period in fiscal 2015 and included a negative currency impact of 4% when translating foreign sales to U.S. dollars for financial reporting purposes.  The slight 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 and France.

Asian Pacific sales for the third quarter and nine months of fiscal 2016 increased by 66% and 61%, respectively, compared to the corresponding periods in fiscal 2015, primarily due to increased sales from the Takumi product line.  Asian Pacific sales for the third quarter and nine months of fiscal 2016 included $3,819,000 and $10,156,000 of sales from the Takumi product line, compared to $73,000 in each of those periods in fiscal 2015.  The year-over-year increases in Takumi sales in the third quarter and nine months of fiscal 2016 compared to fiscal 2015 were attributable to three and nine months, respectively, of sales included in fiscal 2016 compared to only four days of sales activity from the acquisition date of the Takumi product line in July 2015.

Orders for the third quarter of fiscal 2016 were $47,570,000, a decrease of $15,205,000, or 24%, from the corresponding prior year period and included a negative currency impact of $1,330,000, or 2%, when translating foreign orders to U.S. dollars for financial reporting purposes. Orders for the nine months of fiscal 2016 were $152,080,000, a decrease of $8,805,000, or 5%, compared to the corresponding prior year period and included a negative currency impact of $4,881,000, or 3%, when translating foreign orders to U.S. dollars for financial reporting purposes.

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

       
  Three Months Ended   Nine Months Ended
  July 31,   July 31,
      $ %       $ %
    2016     2015   Change Change     2016     2015   Change Change
North America $ 13,449   $ 20,823   $ (7,374 )   -35 %   $ 42,418   $ 50,454   $ (8,036 )   -16 %
Europe   27,696     29,555     (1,859 )   -6 %     89,604     89,200     404     0 %
Asia Pacific   6,425     12,397     (5,972 )   -48 %     20,058     21,231     (1,173 )   -6 %
Total $ 47,570   $ 62,775   $ (15,205 )   -24 %   $ 152,080   $ 160,885   $ (8,805 )   -5 %
                                                   

North American orders for the third quarter and nine months of fiscal 2016 decreased by 35% and 16%, respectively, compared to the same periods in the prior year, reflecting a softer market and the impact of pricing pressures in this region. North American orders for the third quarter and nine months of fiscal 2016 included $2,323,000 and $9,354,000 of orders from the Milltronics product line, compared to $5,764,000 in each of those periods in fiscal 2015, of which approximately $3,947,000 of orders were existing backlog orders acquired with the Milltronics product line in July 2015.

European orders for the third quarter of fiscal 2016 decreased by 6% compared to the corresponding prior year period, reflecting a negative currency impact of 3% and a reduction in orders of 3%.  The year-over-year reduction in European orders was due to decreased demand for our higher-performance machines in Germany.  European orders for the nine months of fiscal 2016 were relatively unchanged compared to the corresponding period in fiscal 2015, reflecting orders growth of 5%, offset by a negative currency impact of 5% when translating foreign orders to U.S. dollars for financial reporting purposes.  The year-over-year increase in European orders, excluding the negative currency impact, in the nine months of fiscal 2016 was due to increased customer demand for our higher-performance machines in England and France and increased customer demand for electro-mechanical components and accessories manufactured by our Italian-based wholly-owned subsidiary, LCM Precision Technologies. 

Asian Pacific orders for the third quarter and nine months of fiscal 2016 decreased by 48% and 6%, respectively, compared to the same periods in the prior year, reflecting a reduction in customer demand in Southeast Asia and negative currency impacts of 5% and 4%, respectively, when translating foreign orders to U.S. dollars for financial reporting purposes. Asian Pacific orders for the third quarter and nine months of fiscal 2016 included $2,686,000 and $9,613,000 of orders from the Takumi product line, compared to $8,572,000 in each of those periods in fiscal 2015, all of which were existing backlog orders acquired with the Takumi product line in July 2015.

Gross profit for the third quarter of fiscal 2016 was $16,135,000, or 31% of sales, compared to $16,630,000, or 32% of sales, for the corresponding prior year period. For the nine months of fiscal 2016, gross profit was $50,443,000, or 31% of sales, compared to $49,736,000, or 32% of sales, for the corresponding prior year period.  The year-over-year decreases in gross profit as a percentage of sales reflect the reduction in volume of the higher-performance machines sales, pricing pressures and the negative impact of foreign currency translation to the U.S. dollar.

Selling, general and administrative expenses for the third quarter of fiscal 2016 were $12,042,000, or 23% of sales, compared to $11,351,000, or 22% of sales, in the corresponding prior year period.  For the nine months of fiscal 2016, selling, general and administrative expenses were $35,946,000, or 22% of sales, compared to $32,655,000, or 21% of sales, in the corresponding period in fiscal 2015.  The year-over-year increases in selling, general and administrative expenses were primarily due to incremental operating expenses associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.

The effective tax rates for the third quarter and nine months of fiscal 2016 were 29% and 28%, respectively, compared to 30% and 32% in the corresponding prior year periods. The decreases 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 $42,201,000 at July 31, 2016, compared to $55,237,000 at October 31, 2015. Working capital, excluding cash and cash equivalents, was $115,956,000 at July 31, 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 as a result of reduction in orders.

Michael Doar, Chief Executive Officer, stated, “The integration plan for Takumi and Milltronics has been efficiently executed in the last twelve months. We are well positioned commercially and financially to realize a meaningful return on these acquisitions over the next few years. We feel these two product lines have created some diversity and expansion to meet the needs of customers in both job shop and high production manufacturing environments.  The results for the quarter were good considering the market softness we have experienced in North America, especially since we know from historical data that it is typical for customers to delay purchases prior to the International Manufacturing Technology Show (IMTS).  Our global presence in Europe and Asia continues to provide strong contribution to our overall business, despite the negative impact of foreign currency translation.  At IMTS, we will exhibit the largest number of new machines in our 48 year history for the expected 100,000 attendees as we showcase the unique benefits of each of our three brands to illustrate our commitment to help customers increase profitability in today’s competitive manufacturing environment.”

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. 

 

               
Hurco Companies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
               
  Three Months Ended
July 31,		   Nine Months Ended
July 31,
   
    2016       2015       2016       2015  
  (unaudited)   (unaudited)
Sales and service fees $ 52,403     $ 52,535     $ 160,935     $ 153,690  
               
Cost of sales and service   36,268       35,905       110,492       103,954  
Gross profit   16,135       16,630       50,443       49,736  
               
Selling, general and administrative expenses   12,042       11,351       35,946       32,655  
Operating income   4,093       5,279       14,497       17,081  
               
Interest expense   23       48       72       174  
               
Interest income   12       32       34       75  
               
Investment income (expense)   4       4       110       75  
               
Other (income)  expense, net   246       11       226       159  
               
Income before taxes   3,840       5,256       14,343       16,898  
               
Provision for income taxes   1,120       1,573       4,054       5,488  
               
Net income $ 2,720     $ 3,683     $ 10,289     $ 11,410  
               
Income per common share              
               
Basic $ 0.41     $ 0.56     $ 1.56     $ 1.73  
Diluted $ 0.40     $ 0.55     $ 1.54     $ 1.72  
               
Weighted average common shares outstanding              
Basic   6,573       6,552       6,567       6,540  
Diluted   6,645       6,594       6,639       6,584  
               
OTHER CONSOLIDATED FINANCIAL DATA Three Months Ended
July 31,		   Nine Months Ended
July 31,
   
Operating Data:   2016       2015       2016       2015  
  (unaudited)   (unaudited)
Gross margin   31 %     32 %     31 %     32 %
               
SG&A expense as a percentage of sales   23 %     22 %     22 %     21 %
               
Operating income as a percentage of sales   8 %     10 %     9 %     11 %
               
Pre-tax income as a percentage of sales   7 %     10 %     9 %     11 %
               
Effective tax rate   29 %     30 %     28 %     32 %
               
Depreciation and amortization   962       809       2,896       2,256  
               
Capital expenditures   983       859       3,250       2,474  
               
               
Balance Sheet Data: 7/31/2016   10/31/2015        
  (unaudited)            
Working capital (excluding cash) $ 115,955     $ 95,789          
               
Days sales outstanding (unaudited)   52       42          
               
Inventory turns (unaudited)   1.3       1.6          
               
Capitalization              
Total debt $ 1,503     $ 1,583          
Shareholders' equity   182,919       174,568          
Total $ 184,422     $ 176,151          
               

 

       
Hurco Companies, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
  July 31,   October 31,
    2016       2015  
ASSETS (unaudited)   (audited)
Current assets:      
Cash and cash equivalents $ 42,201     $ 55,237  
Accounts receivable, net   37,099       41,766  
Inventories, net   126,170       106,308  
Derivative assets   2,019       1,228  
Prepaid expenses   10,032       9,769  
Other   1,793       1,804  
Total current assets   219,314       216,112  
Property and equipment:      
Land   841       841  
Building   7,352       7,314  
Machinery and equipment   23,722       24,026  
Leasehold improvements   3,419       3,323  
    35,334       35,504  
Less accumulated depreciation and amortization   (22,707 )     (22,362 )
Total property and equipment   12,627       13,142  
Non-current assets:      
Software development costs, less accumulated amortization   4,659       3,905  
Goodwill   2,351       2,319  
Intangible assets, net   1,192       1,289  
Deferred income taxes   5,122       4,721  
Investments and other assets, net   6,556       7,089  
Total non-current assets   19,880       19,323  
Total assets $ 251,821     $ 248,577  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 42,873     $ 43,458  
Derivative liabilities   776       1,071  
Accrued expenses   16,006       18,974  
Short-term debt   1,503       1,583  
Total current liabilities   61,158       65,086  
Non-current liabilities:      
Deferred income taxes   3,556       3,998  
Accrued tax liability   977       953  
Deferred credits and other obligations   3,211       3,972  
Total non-current liabilities   7,744       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 July 31, 2016 and October 31, 2015, respectively   657       655  
Additional paid-in capital   58,720       57,539  
Retained earnings   134,337       125,760  
Accumulated other comprehensive loss   (10,795 )     (9,386 )
Total shareholders' equity   182,919       174,568  
Total liabilities and shareholders' equity $ 251,821     $ 248,577