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Hawk Corp. Reports Operating Results (10-Q)

August 05, 2010 | About:
10qk

10qk

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Hawk Corp. (HWK) filed Quarterly Report for the period ended 2010-06-30.

Hawk Corp. has a market cap of $244.2 million; its shares were traded at around $31.24 with a P/E ratio of 29.8 and P/S ratio of 1.4. Hawk Corp. had an annual average earning growth of 6.2% over the past 10 years.HWK is in the portfolios of HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Our sales to the construction and mining market, our largest, were up 126.2% in the second quarter of 2010 compared to the second quarter of 2009 as a result of an expansion of activity primarily in the mining market as customers continued to replenish inventory levels. Sales to our agriculture market were up 58.2% in the second quarter of 2010 compared to the second quarter of 2009, primarily as a result of improved market conditions, especially in Europe. Sales to our truck market increased 48.2% in the second quarter of 2010 compared to the second quarter of 2009, due to increased freight volumes being shipped with existing vehicles and the impact of new truck builds. Sales in our friction direct aftermarket that we service through the VelveTouch® and Hawk Performance® brand names increased 16.7% in the second quarter of 2010 compared to the second quarter of 2009. Although a small percentage of our total net sales, sales to the alternative energy market were up 299.4% in the second quarter of 2010 compared to the second quarter of 2009 as shipments of units in this product line continued to increase. Our aircraft and defense markets were down 7.1% in the second quarter of 2010 compared to the second quarter of 2009, as one of our primary defense customers aligned its inventory levels, partially offset by an increase in our aircraft market.

Net sales from our foreign facilities represented 30.8% of our total net sales in the second quarter of 2010 compared to 24.6% for the comparable period of 2009. The increase in our foreign facility revenues as a percent of total revenues was due primarily to the improvements in the end markets that we serve in the European and Asian markets. Sales at our Italian operation, on a local currency basis, were up 111.8% in the second quarter of 2010 compared to the second quarter of 2009, and sales at our Chinese operation, on a local currency basis, were up 164.1% in the second quarter of 2010, primarily due to improvements in the construction and agriculture markets served by those facilities.

Cost of Sales. Cost of sales was $41.3 million in the second quarter of 2010, an increase of $10.6 million, or 34.5%, compared to cost of sales of $30.7 million in the second quarter of 2009. As a percent of sales, our cost of sales represented 66.9% of our net sales in the second quarter of 2010 compared to 78.5% of net sales in the second quarter of 2009. The decrease in our cost of sales percentage was driven primarily by the positive impact that higher production volumes in the second quarter of 2010 had on our absorption of manufacturing costs, and by overall cost improvements, partially offset by a less favorable product mix than in the second quarter of 2009. Of our total cost of sales increase of 34.5% in 2010, the impact of our increased sales volumes represented approximately 53.6 percentage points and the shift in product mix represented 13.5 percentage points. Offsetting these increases, our higher absorption of manufacturing overhead and overall cost improvements and foreign exchange favorably impacted the total cost of sales increase by approximately 29.5 and 3.1 percentage points, respectively.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses increased $2.0 million, or 28.6%, to $9.0 million in the second quarter of 2010 from $7.0 million during the second quarter of 2009. As a percentage of net sales, ST&A was 14.6% in the second quarter of 2010 compared to 17.9% in the second quarter of 2009. The decrease in ST&A as a percentage of net sales primarily resulted from our continued successful efforts to control discretionary costs in 2010, which are increasing at lower rates than our overall sales volume increases. Of our total ST&A increase of 28.6%, higher incentive compensation expense as a result of our improved profitability level in the second quarter of 2010 compared to the second quarter of 2009 represented approximately 29.0 percentage points.

Our sales to the construction and mining market, our largest, were up 86.5% in the first six months of 2010 compared to 2009, primarily as a result of new product introductions and an expansion of activity as customers replenished inventory levels. Sales to our agriculture market were up 32.6% in the first six months of 2010 compared to 2009, primarily as a result of improved market conditions, especially in Europe. Sales to our heavy truck market increased 36.4% during the first six months of 2010 compared to the first six months of 2009, due to increased freight volumes being shipped with existing vehicles and new truck builds. Sales in our friction direct aftermarket that we service through the VelveTouch® and Hawk Performance® brand names increased 13.8% in the first six months of 2010 compared to the first six months of 2009. Although a small percentage of our total net sales, sales to the alternative energy market were up 354.6% in the first six months of 2010 compared to the first six months of 2009 as shipments of units in this product line continued to increase. Our aggregate aircraft and defense markets were down 19.5% in the first six months of 2010 compared to the first six months of 2009 as one of our primary defense customers aligned its inventory levels, partially offset by an increase in aircraft demand.

Net sales from our foreign facilities represented 30.9% of our total net sales in the first six months of 2010 compared to 26.3% for the comparable period of 2009. The increase in our foreign facility revenues as a percent of total revenue was due primarily to improvements in the end markets that we serve in the European and Asian markets. Sales at our Italian operation, on a local currency basis, were up 60.6% in the first six months of 2010, compared to the first six months of 2009, and sales at our Chinese operation, on a local currency basis, were up 128.9% during the same period

Read the The complete Report

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