Sypris Solutions (NASDAQ: SYPR) reported Q1 EPS of ($0.01), $0.03 better than the analyst estimate of ($0.04). Revenue for the quarter came in at $22.43 million versus the consensus estimate of $20.7 million.

HIGHLIGHTS

• The Company’s first quarter revenue increased 14.6% compared to the prior-year quarter and increased 3.7% sequentially as shipments from new programs increased for both segments of the business.
• The Company’s gross margin increased to 16.0% of revenue, up from 4.4% in the first quarter of 2019 and up 350 basis points sequentially.
• The Company’s operating income was positive for the quarter, driven by a 317.6% increase in gross profit and a 6.7% decrease in SG&A when compared to the prior-year period. Sequentially, gross profit increased 32.6% while SG&A decreased 7.2%.
• For Sypris Technologies, gross margin increased 390 basis points to 18.2% compared to the prior-year quarter despite lower revenue, while operating income increased 7.0%. Operating margin increased to 8.2% of sales, up from 6.5% for the same period in 2019 and up from 5.4% sequentially.
• For Sypris Electronics, revenue increased 154.4% during the quarter compared to the prior-year period, reflecting the improved availability of electronic components. Gross margin increased to 12.6% of sales, while operating margin increased to 4.7% of revenue. Orders increased 132.6% year-over-year, resulting in a 45.1% increase in backlog.
• During the quarter, Sypris Electronics announced that it had received a new contract award from BAE Systems to manufacture and test electronic power supply modules for a large, mission-critical military program, with production to begin this year.
• Subsequent to quarter end, the Company completed the sale of its 90-year-old former manufacturing facility that was located on approximately 20 acres of land in Louisville, Kentucky, for $1.7 million. The facility had been closed and unoccupied since the fourth quarter of 2017.
• Additionally, the Company secured a $3.6 million loan in May under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Securities Act, which will be used to cover payroll costs, rent and utility costs in accordance with the terms and conditions of the loan.

“While the economic headwinds and disruptions in the quarter had an impact on our results, we are pleased with our performance during the period,” commented Jeffrey T. Gill, President and Chief Executive Officer. “Gross margin for Sypris Technologies increased 390 basis points for the first quarter, despite the reduced demand in the commercial vehicle market and lower energy product sales. We believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to be of benefit to the Company going forward.

“Revenue for Sypris Electronics increased 154.4% from the prior-year first quarter, reflecting the resolution of some of the challenges we faced during the prior year with shortages of certain electronic components. As shipments rebounded to normal run rates, we continued to focus on improving operational performance.”

Concluding, Mr. Gill said, “Our customer base and the markets we serve are considerably more diversified than at any point in our recent history. With that said, the global macroeconomic environment is experiencing uncertainty and volatility as a result of the COVID-19 outbreak. We are closely monitoring the developments and will act promptly to mitigate the risks to our business as we navigate through these uncertain times.”

Outlook

Commenting on the future, Mr. Gill added, “Our performance in the first quarter of 2020 improved on both a year-over-year and sequential basis in terms of gross margin and operating income, and our business was not materially impacted by COVID-19 during the period until very late in the quarter. However, the environment is changing rapidly with regard to customers, suppliers and public policy, and we are paying close attention to developments on a daily basis.

“First and foremost, we are focused on the health and safety of our employees, their families and our customers. We are closely monitoring local, state and federal government agencies and will follow all recommendations. The extent and duration of the impacts that COVID-19 may have on our business are not known at this time, but we are monitoring developments in order to be in a position to take appropriate action.

“Our operations have remained open to meet the important needs of our customers who serve defense, energy, transportation and other critical infrastructure industries. We expect the road back for the economy to be a potentially uncertain journey. If accurate, we would anticipate the impact to be felt less on customers in defense-related markets and more on those who serve industrial, consumer and travel-related markets.”

Sypris Solutions is a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. The Company performs a wide range of manufacturing services, often under multi-year, sole-source contracts.

For earnings history and earnings-related data on Sypris Solutions (SYPR) click here.