Hutchinson: Fiscal 3Q13 Financial Results

Hutchinson Technology Incorporated reported suspension assembly shipments of 99.3 million for its fiscal third quarter ended June 30, 2013, up from 98.9 million in the preceding quarter and in line with the company’s expectations.

The company reported a net loss of $15.9 million, or $0.59 per share, on net sales of $61.3 million. The net loss for the quarter included a $3.4 million foreign currency loss, $750,000 of non-cash interest expense and $600,000 of site consolidation costs. Excluding these items, the company’s fiscal 2013 third quarter net loss totaled $11.1 million, or $0.41 per share.

In the preceding quarter, the company reported net income of $1.9 million, or $0.07 per diluted share, on net sales of $60.9 million. Results for the fiscal 2013 second quarter included a $5.0 million gain on debt extinguishment, a $2.0 million foreign currency gain, $800,000 of non-cash interest expense and $300,000 of severance and site consolidation costs. Excluding these items, the company’s second quarter net loss was $4.0 million, or $0.16 per share.

Rick Penn, Hutchinson Technology’s president and CEO, said the company’s third quarter results reflected an expected reduction in gross profit on lower production volume due to inventory usage but that the company also experienced some short-term manufacturing inefficiencies.

"We resolved the manufacturing issues by the end of the quarter and our operational indicators are now in line with our targets," said Penn. "We expect our efficiency and fixed cost leverage to improve in the fourth quarter on higher production volume."

Gross profit in the fiscal 2013 third quarter was $1.4 million, or 2% of net sales, compared with $8.0 million, or 13.1% of net sales, in the second quarter.

In the fiscal 2013 second quarter, gross profit benefited from higher levels of flexure and assembly production as the company built inventory to accommodate a product mix change and to ensure its ability to meet customer demand while transferring production capacity to its assembly operation in Thailand.

The component inventory built in the second quarter was largely consumed during the third quarter, resulting in lower fixed cost leverage and reduced gross profit. In addition, the company incurred higher variable costs during the third quarter because of the previously-mentioned operating issues that reduced efficiencies on certain suspension assemblies.

ASP in the fiscal 2013 third quarter was $0.594 compared to $0.595 in the second quarter. Dual-stage actuated (DSA) suspensions accounted for 20% of third quarter shipments, up from 12% in the preceding quarter.

Output from the company’s Thailand assembly operation accounted for 35% of assembly production in the fiscal 2013 third quarter and exceeded 40% of the company’s assembly production by the end of the quarter. The company expects about 50% of assembly production to come from its Thailand operation in the fiscal 2013 fourth quarter.

Cash and investments at the end of the 2013 third quarter totaled $37.5 million compared with $41.1 million at the end of the preceding quarter. During the quarter, the company repaid the $2.3 million balance on its revolving line of credit. Cash generated by operations in the third quarter totaled $1.0 million and capital spending in the quarter totaled $2.4 million.

Regarding the company’s outlook, Penn said the company expects its fiscal 2013 fourth quarter suspension assembly shipments to increase sequentially to 100 million to 110 million.

"We expect a modest sequential increase in shipments as we benefit from our positions on new customer programs that are beginning to transition to higher volumes," said Penn.

ASP in the fourth quarter is expected to be flat to up slightly as DSA suspensions increase to 25% to 30% of fourth quarter shipments. Fourth quarter gross profit is also expected to increase sequentially, benefiting from improved operating efficiency and fixed cost leverage on higher production volume.

"We expect to be back on the path to improved financial performance in our fiscal fourth quarter," said Penn. "As part of our ongoing effort to be the industry’s lowest cost producer of suspension assemblies, we will continue to reduce our costs by improving our manufacturing efficiency, transitioning more assembly production to Thailand and continuing to consolidate our U.S. operations."