GUELPH, ONTARIO--(Marketwired - July 28, 2016) -

(Dollar amounts are in thousands unless otherwise specified)

Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A), a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the second quarter of 2016.

SECOND QUARTER RESULTS

Sales for the quarter-ended July 2, 2016 were $69,138, an increase of $3,754 or 5.7% from Quarter 2, 2015 sales of $65,384. Year-to-date 2016 sales increased $9,339 or 7.3% and were $137,860 compared to $128,521 in 2015.Sales in the United States ("U.S.") decreased by $1,858 or 5.0%, finishing at $39,167 for Quarter 2, 2016 compared to $37,309 in Quarter 2, 2015. Year-to-date U.S. sales were $77,857 in 2016 and $76,432 in 2015, an increase of $1,425 or 1.9%. Canadian sales were $22,496 for the quarter, an increase of $3,330 or 17.4% from Quarter 2, 2015 sales of $19,166. Year-to-date Canadian sales were $40,421 in 2016 compared to $35,844 in 2015, an increase of $4,577 or 12.8%. International sales for Quarter 2, 2016 finished at $7,475 versus $8,909 in Quarter 2, 2015, a decrease of $1,434 or 16.1%. Year-to-date international sales were $19,582 in 2016 compared to $16,245 in 2015, an increase of $3,337 or 20.5%.

The Company increased bookings 12.7% over Quarter 2, 2015 due to stronger bookings in both the distributor and direct channels in North America. Booking rates in the distributor channel increased 16.5% over Quarter 2, 2015. On a direct channel basis, bookings were higher than Quarter 2, 2015 by 9.2%. Backlog increased 15.1% over Quarter 4, 2015. This change was primarily due to order mix and an increased level of energy efficient transformer orders for the U.S. distributor market. 

Gross margin rates for Quarter 2, 2016 were 24.2% comparable to Quarter 2, 2015 margin rate of 24.1%, an improvement of 0.1% of sales. Year-to-date, the gross margin rate was 24.3% in 2016 versus 23.2% in 2015, an improvement of 1.1% The Company's gross margin rates were favourably impacted by customer and market mix, and geographic blend.

Bill Hammond commented, "Despite these challenging times, we increased our sales over the same quarter a year ago and held on to our gross margins rates."

Total selling and distribution expenses were $7,901 in Quarter 2, 2016 or 11.3% of sales versus $7,076 in Quarter 2, 2015 or 10.8% of sales, an increase of $825 or 0.5% of sales. Year-to-date selling and distribution expenses were $15,538 or 11.3% of sales in 2016 compared to $13,822 or 10.8% in 2015, an increase of $1,716 or 0.5% of sales.  

General and administrative expenses for Quarter 2, 2016 totaled $6,283 or 9.1% of sales, compared to Quarter 2, 2015 expenses of $6,045 or 9.3% of sales, an increase of $238 and a decrease of 0.2% of sales. Year-to-date general and administrative expenses were $12,694 or 9.2% of sales in 2016, compared to $11,867 or 9.2% of sales in 2015, an increase of $827.

Quarter 2, 2016 earnings from operations were $2,560, a slight decrease of $63 or 2.4% from $2,623 for the same quarter last year. The year-to-date earnings from operations were $5,237 in 2016 compared to $4,069 in 2015, an increase of $1,168 or 28.7%. 

Interest expense for Quarter 2, 2016 was $326, an increase of $62 or 23.5% compared to the Quarter 2, 2015 expense of $264. Year-to-date interest cost was $527, an increase of $147 or 38.7% when compared to the 2015 year-to-date expense of $380. Interest expense in 2016 was a result of higher operating debt levels due to the joint venture investment and working capital requirements.

The foreign exchange loss in Quarter 2, 2016 was $19 compared to a foreign exchange loss of $476 in Quarter 2, 2015 a decrease of $457 or 9.6%. The year-to-date foreign exchange loss for 2016 was $340, compared to a loss of $186 for the same quarter last year. 

Net earnings for Quarter 2, 2016 finished at $517 compared to net earnings of $1,096 in Quarter 2, 2015, a decrease of $579 or 52.8%. This decline in the quarter earnings is a result of higher loss on investment in the joint venture, additional interest and income tax expenses, partially offset by higher sales and increased gross margin. Year-to-date net earnings were $1,401 in 2016 compared to $1,877 in 2015, a decrease of $476 or 25.3%.

Net cash used in operating activities for Quarter 2, 2016 was $4,941 versus cash provided by operating activities of $460 in Quarter 2, 2015, a decrease of $4,987. Year-to-date net cash used in operating activities was $8,321 compared to $881 cash generated by operating activities in 2015, a decrease of $9,202.

The Company's overall operating debt balance net of cash was $27,404 in Quarter 2, 2016 compared to $17,949 in Quarter 2, 2015, an increase in debt position of $9,455 primarily reflecting funding of the joint venture, the purchase of an additional 15% equity ownership in PETE-Hammond Power Solutions Private Limited and working capital requirements.

"The new agreement better aligns our Canadian, U.S. and European banking requirements, supports our hedging strategies, and provides financing for our operational requirements and capital for our strategic initiatives," Bill Hammond commented.

The Company continued with its regular quarterly dividend program, paying six cents ($0.06) per Class A Subordinate Voting Share of HPS and six cents ($0.06) per Class B Common Share of HPS on June 17, 2016.

Mr. Hammond concluded, "Going forward, we expect the current slow market conditions to continue over the summer months with our business momentum escalating in the last quarter of 2016. We are working hard to grow our sales wherever opportunities arise, while conservatively managing our business in these uncertain and volatile times."

FINANCIAL RESULTS

THREE MONTHS ENDED: (dollars in thousands)

SIX MONTHS ENDED: (dollars in thousands)

Caution Regarding Forward-Looking Information

This press release contains forward-looking statements that involve a number of risks and uncertainties, including statements that relate to among other things, HPS' strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "expect", "intend", "estimate", "anticipate", "believe", "plan", "objective" and "continue" and words and expressions of similar import. Although HPS believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to currency rates); changes in laws and regulations; legal and regulatory proceedings; and the ability to execute strategic plans. HPS does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT HAMMOND POWER SOLUTIONS INC.

Hammond Power Solutions Inc. (TSX:HPS.A) is a North American leader for the design and manufacture of dry-type custom electrical engineered magnetics, electrical dry-type and cast resin transformers. Leading edge engineering capabilities, high quality products, and responsive service to customers' needs have all served to establish HPS as a technical and innovative leader in the electrical and electronic industries.

HPS has operations in Canada, the United States, Mexico, India and Italy.