Sauer-Danfoss Inc. Reports Third Quarter 2010 Results

AMES, Iowa, Nov. 3, 2010 /PRNewswire-FirstCall/ --

• Earnings Exceed Expectations
• Sales Increase by 59%
• Strong Cash Flow and Significant Debt Reduction
• 2010 Outlook for Sales and Earnings Raised

Sauer-Danfoss Inc. (NYSE: SHS) today announced its financial results for the third quarter ended September 30, 2010.

Third Quarter Review

Net sales for the quarter increased 55 percent to $392.6 million, compared to net sales of $253.1 million for the third quarter of 2009.  Excluding the impact of changes in currency translation rates, sales in the third quarter increased 59 percent over the same quarter last year.  Sales for the third quarter increased 67 percent in the Americas, 45 percent in Europe, and 76 percent in the Asia-Pacific region, excluding the impact of changes in currency translation rates.  Sales increased 64 percent in the Propel segment, 61 percent in the Work Function segment, and 49 percent in the Controls segment, excluding the impact of changes in currency translation rates.

The Company reported net income of $32.1 million, or $0.66 per share, for the third quarter of 2010, compared to a net loss of $70.8 million, or $1.46 per share, for the third quarter of 2009.  Third quarter 2010 results include restructuring costs of $1.1 million, or $0.02 per share.  In addition, third quarter 2010 results were favorably impacted by $4.1 million, or $0.08 per share, relating to the net reversal of deferred tax asset valuation allowances.  Results for third quarter 2009 were negatively impacted by restructuring and severance costs of $13.2 million, or $0.25 per share, and by a charge of $28.5 million, or $0.59 per share, to establish non-cash deferred tax asset valuation allowances relating to operating losses which could not be tax benefited.  

Sven Ruder, President and Chief Executive Officer, commented, "We are pleased with our third quarter results, which clearly exceeded our expectations.  Historically, our third quarter margins have dropped significantly with the seasonal drop in sales.  This year we have been able to hold our operating margins level with the second quarter in spite of the seasonally lower sales.  This is driven by the favorable market environment and by the completion of our restructuring activities during the second quarter which allowed us to realize the full impact of the resulting savings along with a drop in restructuring costs."  

Continued Strong Orders and Backlog

The Company received new orders of $406.8 million for the third quarter of 2010, a 33 percent increase compared to third quarter 2009 orders of $305.4 million.  

Total backlog at September 30, 2010, was $669.9 million, a 42 percent increase compared to the same period last year of $470.4 million.  Excluding the impact of changes in currency translation rates, backlog increased 45 percent.

Nine Month Review

The Company reported net sales for the nine months ended September 30, 2010, of $1,211.6 million, compared to net sales of $880.2 million for the first nine months of 2009.  Net sales for the first nine months of 2010 increased 37 percent over the prior year period, excluding the impact of changes in currency translation rates.

Net income for the first nine months of 2010 was $87.4 million, or $1.80 per share, compared to a net loss of $271.0 million, or $5.61 per share, for the same period last year.  Results for the first nine months of 2010 include restructuring costs of $8.0 million, or $0.17 per share.  In addition, 2010 results were favorably impacted by $18.8 million, or $0.39 per share, relating to the net reversal of deferred tax asset valuation allowances.  Results for the first nine months of 2009 include restructuring costs of $42.0 million, or $0.82 per share, valuation allowances on deferred tax assets of $109.2 million, or $2.26 per share, and a non-cash charge related to goodwill impairment of $50.8 million, or $1.05 per share.

Strong Cash Flow and Debt Reduction

Cash flow from operations for the first nine months of 2010 was $188.0 million, compared to $75.6 million for 2009. Capital expenditures for the first nine months of 2010 were $12.7 million compared to $37.0 million for the same period last year.  The Company's debt to total capital ratio, or leverage ratio, was 60 percent at September 30, 2010, compared to 78 percent at December 31, 2009.

"Our continued strong operating cash flow, driven by our earnings and emphasis on reduction of working capital, along with the reduction in our capital expenditures, have now generated $151 million of free cash flow in the first nine months.  This has driven a significant reduction in our debt levels and leverage ratio since the beginning of the year.  We are continuing our focus on reducing working capital and capital expenditures to strengthen our balance sheet and financial position.  Our performance so far has allowed us to significantly lower our borrowing costs with our recently announced refinancing," stated Ruder.

2010 Outlook Increased

Ruder continued, "We have been cautious as we moved through the year. We wanted to confirm over time our new higher operating margins as a result of our completed restructuring activities, and we were concerned with the uncertainty in the external environment.  Our strong third quarter results have given us confidence in our ability to end the year at a new higher operating margin level.   In addition, we are seeing continued strength in our markets reflected in our orders and backlog.  We are, therefore, increasing our outlook for full year 2010."        

The new outlook for 2010 is as follows:

• Annual sales increasing 35 to 40 percent from 2009 levels
• Expected earnings in the range of $1.85 per share to $2.35 per share
• Capital expenditures of approximately $30.0 million (unchanged)

Webcast Information

Members of Sauer-Danfoss' management team will host a webcast on November 4 at 10 AM Eastern Time to discuss 2010 third quarter results.  The call is open to all interested parties on listen-only mode via an audio webcast and can be accessed through the Investor Relations page of the Company's website at http://ir.sauer-danfoss.com. A replay of the call will be available at that site through November 18, 2010.

About Sauer-Danfoss

Sauer-Danfoss Inc. is a worldwide leader in the design, manufacture, and sale of engineered hydraulic and electronic systems and components for use primarily in applications of mobile equipment.  Sauer-Danfoss, with 2009 revenues of approximately $1.2 billion, has sales, manufacturing, and engineering capabilities in Europe, the Americas, and the Asia-Pacific region.      

More details online at www.sauer-danfoss.com.

This press release contains certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.  All statements regarding future performance, growth, sales and earnings projections, conditions or developments are forward-looking statements.  Words such as "anticipates," "in the opinion," "believes," "intends," "expects," "may," "will," "should," "could," "plans," "forecasts," "estimates," "predicts," "projects," "potential," "continue," and similar expressions may be intended to identify forward-looking statements.  

Actual future results may differ materially from those described in the forward-looking statements due to a variety of factors.  Readers should bear in mind that past experience may not be a good guide to anticipating actual future results.  Risk factors affecting the Company's forward-looking statements include, but are not limited to, the following: general, worldwide economic conditions, including the relative strength or weakness of the commercial and public-sector construction markets, the level of interest rates, and crude oil prices; specific economic conditions in the agriculture, construction, road building, turf care, material handling and specialty vehicle markets and the impact of such conditions on the Company's customers in such markets; the cyclical nature of some of the Company's businesses; the ability of the Company to win new programs and maintain existing programs with its original equipment manufacturer (OEM) customers; the highly competitive nature of the markets for the Company's products as well as pricing pressures that may result from such competitive conditions; the continued operation and viability of the Company's significant customers; the Company's execution of internal performance plans; difficulties or delays in manufacturing; the effectiveness of the Company's cost-reduction and productivity improvement efforts; competing technologies and difficulties entering new markets, both domestic and foreign; changes in the Company's product mix; future levels of indebtedness and capital spending; the ability and willingness of Danfoss A/S, the Company's majority stockholder, to lend money to the Company at sufficient levels and on terms favorable enough to enable the Company to meet its capital needs; the Company's ability to access the capital markets or traditional credit sources to supplement or replace the Company's borrowings from Danfoss A/S if the need should arise; the Company's ability over time to reduce the relative level of debt compared to equity on its balance sheet; claims, including, without limitation, warranty claims, field recall claims, product liability claims, charges or dispute resolutions; the ability of suppliers to provide materials as needed and the Company's ability to recover any price increases for materials in product pricing; the Company's ability to attract and retain key technical and other personnel; labor relations; the failure of customers to make timely payment, especially in light of the recent credit crisis; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; global economic factors, including currency exchange rates, credit market disruptions and significant changes in capital market liquidity and funding costs affecting the Company and its customers; general economic conditions, including interest rates, the rate of inflation, and commercial and consumer confidence; sovereign debt crises, in Europe or elsewhere, and the reaction of other nations to such crises; energy prices; the impact of new or changed tax and other legislation and regulations in jurisdictions in which the Company and its affiliates operate; actions by the U.S. Federal Reserve Board and the central banks of other nations; actions by other regulatory agencies, including those taken in response to the global credit crisis; actions by rating agencies; changes in accounting standards; worldwide political stability; the effects of terrorist activities and resulting political or economic instability; natural catastrophes; U.S. military action overseas; and the effect of acquisitions, divestitures, restructurings, product withdrawals, and other unusual events.

The Company cautions the reader that this list of cautionary statements and risk factors is not exhaustive.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or changes to these forward-looking statements to reflect future events or circumstances. The foregoing risks and uncertainties are further described in Item 1A (Risk Factors) in the Company's latest annual report on Form 10-K filed with the SEC, which should be reviewed in considering the forward-looking statements contained in this press release.

SOURCE Sauer-Danfoss Inc.