Hurco Reports Second Quarter Results for Fiscal 2019

INDIANAPOLIS, June 07, 2019 (GLOBE NEWSWIRE) -- Hurco Companies, Inc. (Nasdaq Global Select Market: HURC) today reported results for the second fiscal quarter ended April 30, 2019. Hurco recorded net income of $5,252,000, or $0.76 per diluted share, for the second quarter of fiscal 2019 compared to net income of $3,751,000, or $0.55 per diluted share, for the corresponding period in fiscal 2018. For the first six months of fiscal 2019, Hurco reported net income of $11,906,000, or $1.73 per diluted share, compared to $6,688,000, or $0.98 per diluted share, for the corresponding period in fiscal 2018.

Sales and service fees for the second quarter of fiscal 2019 were $70,674,000, an increase of $250,000, or less than 1%, compared to the corresponding prior year period and included an unfavorable currency impact of $3,026,000, or 4%, when translating foreign sales to U.S. dollars for financial reporting purposes.  Sales and service fees for the first six months of fiscal 2019 were $144,887,000, an increase of $6,019,000, or 4%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $5,707,000, or 4%, 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 second quarter and six months ended April 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended										Six Months Ended
	April 30,										April 30,
		2019		2018	$ Change			% Change				2019		2018	$ Change			% Change
Americas	$	23,830	$	21,653	$	2,177		10	%		$	52,986	$	42,683	$	10,303		24	%
Europe		38,103		38,246		(143	)	(0	%)			73,815		76,564		(2,749	)	(4	%)
Asia Pacific		8,741		10,525		(1,784	)	(17	%)			18,086		19,621		(1,535	)	(8	%)
Total	$	70,674	$	70,424	$	250		0	%		$	144,887	$	138,868	$	6,019		4	%

Sales in the Americas for the second quarter and first six months of fiscal 2019 increased by 10% and 24%, respectively, compared to the corresponding periods in fiscal 2018.  The increases in sales for the second quarter and first six months of fiscal 2019 were primarily attributable to sales of vertical milling machines from a U.S. machine tool distributor acquired by Hurco in the fourth quarter of fiscal 2018 located in California, one of the largest machine tool markets in the U.S., and increased customer demand for Hurco and Takumi vertical milling machines in the U.S.

European sales for the second quarter of fiscal 2019 were relatively unchanged compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of 7%, when translating foreign sales to U.S. dollars for financial reporting purposes, which was largely offset by increased sales of Hurco vertical milling machines in Germany.  The 4% decrease in European sales for the first six months of fiscal 2019 was primarily attributable to an unfavorable currency impact of 6%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Asian Pacific sales for the second quarter and first six months of fiscal 2019 decreased by 17% and 8%, respectively, compared to the corresponding periods in fiscal 2018. The decrease in Asian Pacific sales for each of the second quarter and first six months of fiscal 2019 was primarily attributable to decreased shipments of Hurco vertical milling machines and Takumi bridge mill machines in China and an unfavorable currency impact of 2% and 5%, respectively, when translating foreign sales to U.S. dollars for financial reporting purposes.

Orders for the second quarter of fiscal 2019 were $67,207,000, a decrease of $12,717,000, or 16%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $2,550,000, or 3%, when translating foreign orders to U.S. dollars. Orders for the first six months of fiscal 2019 were $135,214,000, a decrease of $21,617,000, or 14%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $5,166,000, or 3%, when translating foreign orders to U.S. dollars.

The following table sets forth new orders booked by geographic region for the second quarter and six months ended April 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended										Six Months Ended
	April 30,										April 30,
		2019		2018	$ Change			% Change				2019		2018	$ Change			% Change
Americas	$	20,268	$	20,869	$	(601	)	(3	%)		$	44,998	$	41,383	$	3,615		9	%
Europe		36,840		46,084		(9,244	)	(20	%)			70,150		90,310		(20,160	)	(22	%)
Asia Pacific		10,099		12,971		(2,872	)	(22	%)			20,066		25,138		(5,072	)	(20	%)
Total	$	67,207	$	79,924	$	(12,717	)	(16	%)		$	135,214	$	156,831	$	(21,617	)	(14	%)

Michael Doar, Chief Executive Officer, stated, "Even though we are seeing some hesitation in customer demand in the European and Asia Pacific regions, the U.S. market has remained relatively stable.  During times like these, I realize how fortunate Hurco is to have multiple brands to reach a more diverse group of customers, a strong balance sheet, and an agile corporate structure that can quickly adjust as needed.  We know the machine tool business is cyclical and fluctuates from time to time, but we are able to manage our business with a long-term outlook and continue to advance the products and technologies we provide our customers around the world. While we are disciplined at managing costs, we know that investing in the future can preserve sustainable profitability.”

Orders in the Americas for the second quarter of fiscal 2019 decreased by 3%, compared to the corresponding period in fiscal 2018, due primarily to decreased customer demand in the U.S. for vertical milling machines, partially offset by an increase in orders for vertical milling machines by the newly acquired distributor.  Orders in the Americas for the first six months of fiscal 2019 increased by 9% and included orders for vertical milling machines by the newly acquired distributor, as well as increased customer demand for Hurco vertical milling machines in the U.S.

European orders for the second quarter and first six months of fiscal 2019 decreased by 20% and 22%, respectively, compared to the corresponding prior year periods, and included an unfavorable currency impact of 5% in each period when translating foreign orders to U.S. dollars. The year-over-year decreases in orders were driven primarily by decreased customer demand for Hurco and Takumi vertical milling machines, as well as, for the six month period, a decrease in customer demand for electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM Precision Technology S.r.l.    

Asian Pacific orders for the second quarter and first six months of fiscal 2019 decreased by 22% and 20%, respectively, compared to the corresponding prior year periods. The year-over-year decrease in orders for each period included an unfavorable currency impact of 2% and 4%, respectively, when translating foreign orders to U.S. dollars.  The year-over-year decreases in orders were mainly the result of decreased customer demand for Hurco and Takumi machines in China.  

Gross profit for the second quarter of fiscal 2019 was $21,637,000, or 31% of sales, compared to $19,313,000, or 27% of sales, for the corresponding prior year period.  Gross profit for the first six months of fiscal 2019 was $43,779,000, or 30% of sales, compared to $39,434,000, or 28% of sales, for the corresponding prior year period.  The year-over-year increases in gross profit as a percentage of sales reflected an increased mix of larger, higher-priced vertical milling machine sales and margin contribution from vertical milling machine sales from the newly acquired distributor.

Selling, general and administrative expenses for the second quarter of fiscal 2019 were $14,111,000, or 20% of sales, compared to $13,320,000, or 19% of sales, in the corresponding period in fiscal 2018, and included a favorable currency impact of $503,000 when translating foreign expenses to U.S. dollars for financial reporting purposes. Selling, general and administrative expenses for the first six months of fiscal 2019 were $28,025,000, or 19% of sales, compared to $26,286,000, or 19% of sales, in the prior year period and included a favorable currency impact of $958,000 when translating foreign expenses to U.S. dollars for financial reporting purposes.  The increase in year-over-year selling, general and administrative expenses in each period was primarily related to increased salaries and benefits, increased sales and marketing expenses and operating expenses associated with the newly acquired distributor.

The effective tax rate for the second quarter of fiscal 2019 was 32%, compared to 31% in the corresponding prior year period. The year-over-year increase in the effective tax rate for the second quarter was primarily due to a shift in taxable income and loss among the various geographic regions.  The effective tax rate for the first six months of fiscal 2019 was 29%, compared to 48% in the corresponding prior year period.  The year-over-year decrease in the effective tax rate for the first six months was primarily due to one-time charges of $2.9 million related to the U.S. Tax Cuts and Jobs Act of 2017 recorded in the first quarter of fiscal 2018. The impact of these one-time charges increased the effective tax rate by approximately 39% for the first quarter of fiscal 2018. 

Cash and cash equivalents totaled $70,180,000 at April 30, 2019, compared to $77,170,000 at October 31, 2018.  Working capital was $205,130,000 at April 30, 2019, compared to $194,632,000 at October 31, 2018.  The increase in working capital was primarily due to an increase in inventories and decreases in accounts payable and accrued payroll and employee benefits.

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 the Americas, 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. Web Site: www.hurco.com

Certain statements in this news release are forward-looking statements that 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, governmental actions and initiatives, including import and export restrictions and tariffs, 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 other risks and uncertainties discussed more fully under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, and in our subsequent filings with the Securities and Exchange Commission. We expressly disclaim any obligation to update or revise any forward–looking statements, whether as a result of new information, future events or otherwise.

Contact:		Sonja K. McClelland
		Executive Vice President, Secretary, Treasurer, & Chief Financial Officer
		317-293-5309

 

Hurco Companies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
	Three Months Ended April 30,								Six Months Ended  April 30,
		2019				2018				2019				2018
	(unaudited)								(unaudited)
Sales and service fees	$	70,674			$	70,424			$	144,887			$	138,868
Cost of sales and service		49,037				51,111				101,108				99,434
Gross profit		21,637				19,313				43,779				39,434
Selling, general and administrative expenses		14,111				13,320				28,025				26,286
Operating income		7,526				5,993				15,754				13,148
Interest expense		14				25				26				45
Interest income		99				12				181				30
Investment income		129				6				371				122
Other income (expense), net		(7	)			(579	)			560				(411	)
Income before taxes		7,733				5,407				16,840				12,844
Provision for income taxes		2,481				1,656				4,934				6,156
Net income	$	5,252			$	3,751			$	11,906			$	6,688
Income per common share
Basic	$	0.77			$	0.55			$	1.75			$	0.99
Diluted	$	0.76			$	0.55			$	1.73			$	0.98
Weighted average common shares outstanding
Basic		6,764				6,706				6,750				6,682
Diluted		6,824				6,784				6,816				6,763
Dividends per share	$	0.12			$	0.11			$	0.23			$	0.21
OTHER CONSOLIDATED FINANCIAL DATA	Three Months Ended April 30,								Six Months Ended  April 30,
Operating Data:		2019				2018				2019				2018
	(unaudited)								(unaudited)
Gross margin		31	%			27	%			30	%			28	%
SG&A expense as a percentage of sales		20	%			19	%			19	%			19	%
Operating income as a percentage of sales		11	%			9	%			11	%			9	%
Pre-tax income as a percentage of sales		11	%			8	%			12	%			9	%
Effective tax rate		32	%			31	%			29	%			48	%
Depreciation and amortization	$	906			$	1,023			$	1,845			$	1,911
Capital expenditures	$	1,007			$	1,416			$	2,250			$	2,896
Balance Sheet Data:	4/30/2019				10/31/2018
Working capital	$	205,130			$	194,632
Days sales outstanding (unaudited)		50				47
Inventory turns (unaudited)		1.5				1.6
Capitalization
Total debt	$	-			$	1,434
Shareholders' equity		234,034				222,853
Total	$	234,034			$	224,287

Hurco Companies, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
	April 30,				October 31,
		2019				2018
ASSETS	(unaudited)				(audited)
Current assets:
Cash and cash equivalents	$	70,180			$	77,170
Accounts receivable, net		44,255				54,414
Inventories, net		148,688				137,609
Derivative assets		1,514				3,085
Prepaid expenses		8,839				7,332
Other		2,197				1,825
Total current assets		275,673				281,435
Property and equipment:
Land		868				868
Building		7,352				7,352
Machinery and equipment		27,943				26,840
Leasehold improvements		4,028				3,801
		40,191				38,861
Less accumulated depreciation and amortization		(27,219	)			(25,902	)
Total property and equipment		12,972				12,959
Non-current assets:
Software development costs, less accumulated amortization		7,904				7,452
Goodwill		2,358				2,377
Intangible assets, net		881				938
Deferred income taxes		2,190				2,234
Investments and other assets, net		8,498				8,012
Total non-current assets		21,831				21,013
Total assets	$	310,476			$	315,407
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	50,109			$	57,518
Derivative liabilities		961				2,020
Accrued payroll and employee benefits		10,102				14,032
Accrued income taxes		2,440				5,180
Accrued expenses		4,586				4,122
Accrued warranty		2,345				2,497
Short-term debt		-				1,434
Total current liabilities		70,543				86,803
Non-current liabilities:
Accrued tax liability		2,058				2,194
Deferred credits and other obligations		3,841				3,557
Total non-current liabilities		5,899				5,751
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;
6,967,719 and 6,891,508 shares issued and 6,767,237 and 6,723,160 shares outstanding,
as of April 30, 2019 and October 31, 2018, respectively		677				672
Additional paid-in capital		65,114				64,185
Retained earnings		178,200				167,859
Accumulated other comprehensive loss		(9,957	)			(9,863	)
Total shareholders' equity		234,034				222,853
Total liabilities and shareholders' equity	$	310,476			$	315,407