Sypris Solutions (NASDAQ: SYPR) reported Q4 EPS of ($0.01), $0.01 better than the analyst estimate of ($0.02). Revenue for the quarter came in at $24 million versus the consensus estimate of $23.5 million.

“We were pleased with the year-over-year revenue growth and margin expansion at Sypris Technologies,” commented Jeffrey T. Gill, president and chief executive officer. “Shipment volumes remained strong in the quarter to support demand coming from the automotive and commercial vehicle markets, which experienced a 17% increase in shipments on a year-over-year basis.

“We also experienced strengthening demand for our energy-related products, which resulted in a 22% increase sequentially in revenue. A number of production, supply and other constraints that we experienced in the previous quarter were mitigated in the current period.

“During the fourth quarter, the Company entered into a series of agreements to continue to supply axle shafts to Sisamex, in addition to the introduction of new driveline products for use in the commercial vehicle, agricultural and all-terrain markets. Sisamex is a long-term strategic partner, and expanding the range of products we supply further strengthens this relationship. We expect to begin production on the new products during 2019,” he continued.

“While shipments at Sypris Electronics were generally on plan for the quarter, its results were adversely affected by operational challenges as we neared completion on an engineering manufacturing development program that included numerous design and material changes, and the ramp-up on a new program on which we incurred an unexpected level of inefficiencies. Aside from operational challenges during the fourth quarter, we recognized charges totaling approximately $0.9 million for a physical inventory adjustment, which we performed at year-end concurrent with our implementation of a new ERP system, and an increase to our reserve for excess and obsolete inventory on certain specific programs.”

Concluding, Mr. Gill said, “We continue to see strong demand in each of our primary markets to support our revenue outlook for 2019. Our customer base and the markets we serve remain resilient and are considerably more diversified than at any point in our recent history. We are confident that the combination of our forecasted revenue growth and lower fixed manufacturing overhead costs, driven by effective cost-reduction actions, will contribute to our expected return to profitability in 2019.”

Outlook

Commenting on the future, Mr. Gill added, “Buoyed by current volume growth, we expect to capitalize on additional opportunities across our markets for healthy revenue expansion in 2019. We also anticipate new contract awards and market expansion in each of our targeted markets for energy, automotive, commercial vehicle, and aerospace and defense products, as well as new electronics programs.

“Third-party forecasts for the Class 8 commercial vehicle market indicate that freight volumes will remain strong well into the second half of 2019, albeit off from record-breaking 2018 levels. The energy market continues to benefit from increased demand and higher oil prices. The National Defense Authorization Act for Fiscal Year 2019 provides nearly $700 billion in funding for the U.S. Department of Defense, which is expected to support program growth and market expansion for Aerospace and Defense participants during the coming year.

“Our revenue outlook for 2019 is in the range of $100-$110 million, which primarily reflects strong market conditions for the commercial vehicle and energy markets that is partially offset by the impact of delayed electronic component receipts for the aerospace and defense market. We expect the second half of 2019 to improve sequentially as we are targeting to benefit from a normalization of these receipts and new program launches.

"We expect to see meaningful improvements in gross margin, up to 14.0%-16.0% for the year as a whole, with sequential improvements from the first to second half periods.”

GUIDANCE:

Sypris Solutions sees FY2019 revenue of $100-110 million, versus the consensus of $100.95 million.

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