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Sypris Solutions (SYPR)
Q4 2012 Earnings Call
March 12, 2013 9:00 am ET
Jeffrey T. Gill - Chief Executive Officer, President and Director
Brian A. Lutes - Chief Financial Officer and Vice President
James Ricchiuti - Needham & Company, LLC, Research Division
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Jeffrey T. Gill
Thank you, Rochelle, and good morning, everyone. Brian Lutes, Tony Allen and I would like to welcome you to this call. The purpose of which to review the trends reflected in the company's financial results for the fourth quarter and full year 2012. For those of you who have access to our PowerPoint presentation this morning, please advance to Slide 2 now.
We always begin these calls with a note that some of what we might discuss here today may include projections and other forward-looking statements. No assurance can be given that these projections and statements will be achieved, and actual results could differ materially from those projected as a result of several factors. These factors are included in the company's filings with the Securities and Exchange Commission. And in compliance with Regulation G, you can access our website at sypris.com to review the definitions of any non-GAAP financial measures that may be discussed during this call. With these qualifications in mind, we'd now like to proceed with the business discussion.
Please advance to Slide 3. I will lead you through the first half of our presentation this morning, starting with an overview of the highlights for the year, to be followed by a brief discussion of each of our 2 business segments. Brian will then provide you with a more detailed review of our financial results for the quarter and year. Now let's begin with the overview on Slide 4.
We're pleased to report that 2012 represented another year of accomplishment for Sypris Solutions, one in which the company's margins and earnings continued to expand at a rate in excess of its top line growth.
The company's profit performance reflected the impact of these extensive efforts to expand international sales, introduce new technologies, increase productivity and eliminate inefficiencies during the year. The results were encouraging. While revenue for the year increased 2% to $342 million from $336 million the prior year, gross profit increased 24% to $44 million, up from $35 million in 2011.
Gross margin increased 230 basis points to 12.8%, up from 10.5% in 2011. The company's financial results from continuing operations reflected these strong improvements, with income climbing 22% to exceed $10 million while earnings increased 16% to $0.50 per diluted share, up from 43% -- $0.43 per diluted share in 2011.
In March of 2012, the company's Board of Directors voted to reinstate the cash dividend of its common stock at an annual rate of $0.08 per diluted share, which approximated a 2% yield based upon the share price at that time.
In June of 2012, the company was added to the Russell 2000 index as part of the annual reconstitution of the index, thereby increasing the company's visibility with investors and institutions that rely upon the Russell indices as part of their investment strategy.
And in July of last year, Bob Lentz was selected to our Board of Directors. Bob is currently the President of Cyber Securities Strategies and is the former Deputy Assistant Secretary of Defense for cyber, identity and information assurance.
The year was certainly not without its challenges, however. The North American production of heavy-duty trucks declined by 26% from the second quarter to the fourth quarter of 2012, resulting in a $45 million reduction in second half revenue from customers in our Industrial Group. In our Aerospace & Defense segment, budgetary and funding uncertainties with the U.S. Department of Defense impacted the flow and timing of orders, the result of which affected shipments form quarter-to-quarter during the year. And finally, the financial results for the second half of the year reflected both the impact of an unfavorable arbitration settlement and a noncash charge related to increased uncertainties associated with sequestration. Yet despite these challenges, the company's ability to increase margins during the year in both businesses served as important testimony to the underlying strength and nature of the advancements that have been made and continue to be made in both business segments.
Now let's take a moment to review each of our business segments beginning with our Aerospace & Defense business on Slide 5.
Revenue declined 11% to $56 million through the year, reflecting the impact of DoD budgetary issues mentioned a moment ago.
More importantly, however, gross profit jumps 62% to $13 million, as a result of improved product mix, up from $8 million in 2011, while gross margin almost doubled to 23%, up from 12.7% in 2011.
The business was successful with it's effort to increase product sales internationally and thereby reduce its dependency on U.S. DoD purchases.
The arms services of Australia, New Zealand, Japan and India were important customers during the year, and with the recent approval to sell certain of our products to NATO countries, we expect to add additional new international customers during the coming year. Initiatives to expand our electronic manufacturing services business made important headway during 2012, with the business successfully passing the extensive qualification testing requirements of several new customers.