Hutchinson: Fiscal 1Q14 Financial Results

Hutchinson Technology Incorporated reported net sales of $70.3 million for its fiscal 2014 first quarter ended December 29, 2013, up 10% from net sales of $63.7 million in the preceding quarter.

Suspension assembly shipments for the quarter totaled 115.7 million, up 13% from 102.6 million in the preceding quarter.

Gross profit in the fiscal 2014 first quarter was $5.5 million, or 8% of net sales, compared with a gross loss of $400,000 in the preceding quarter.

Rick Penn, Hutchinson Technology’s president and CEO, said first quarter gross profit benefited from the higher volume in the quarter and from improved manufacturing yields at the company’s Thailand assembly operation and in its components processes.

“We are making good progress in improving our operating performance and we’re encouraged by the stronger demand we saw in the quarter,” said Penn.

He said suspension assembly demand for 2.5″ mobile drives was particularly strong in the quarter and the company responded quickly to meet the higher than expected demand.

“We improved manufacturing yields at our Thailand assembly operation while increasing output there by nearly 20%,” said Penn. The Thailand plant accounted for more than half of the company’s assembly production in the first quarter and nearly 80% of its dual-stage actuated (DSA) suspension assembly volume.

“We will continue to shift more assembly production to Thailand while maintaining our focus on further improving manufacturing yields and efficiencies in all of our operations,” said Penn.

The company expects its Thailand operation will account for about 60% of second quarter assembly volume.

For its fiscal 2014 first quarter, the company reported a net loss of $15.3 million, or $0.55 per share.

The net loss for the quarter included:

• a $4.5 million asset impairment charge on the company’s assembly building in Eau Claire, Wisconsin and $600,000 of site consolidation costs related to the ongoing consolidation of its operations;
• a $3.2 million foreign currency loss primarily related to U.S. dollar-denominated inter-company liabilities owed to the company by its Thai subsidiary;
• a $900,000 tax benefit as reserves for certain tax refunds were released due to the statute of limitations expiring; and
• $800,000 of non-cash interest expense.

Excluding these items, the company’s fiscal 2014 first quarter net loss was $7.2 million, or $0.26 per share.

In the preceding quarter, the company reported a net loss of $14.6 million, or $0.53 per share. The net loss for the fiscal 2013 fourth quarter included a $1.7 million impairment of BioMeasurement inventory, $900,000 of site consolidation costs, $800,000 of non-cash interest expense and a $100,000 foreign currency loss. Excluding these items, the company’s fiscal 2013 fourth quarter net loss was $11.0 million or $0.40 per share.

ASP in the fiscal 2014 first quarter was $0.59, compared with $0.60 in the preceding quarter, as certain DSA suspensions transitioned to high-volume pricing. Shipments of DSA suspensions increased 12% sequentially and accounted for 23% of first quarter shipments.

Cash and investments at the end of the fiscal 2014 first quarter totaled $40.2 million, compared with $40.6 million at the end of the preceding quarter. Cash generated by operations in the quarter totaled $2.0 million and capital spending in the quarter totaled $7.4 million. Outstanding borrowings on the company’s revolving line of credit totaled $2.0 million at the end of the first quarter, compared with $4.0 million at the end of the preceding quarter. During the quarter, the company received $4.9 million of lease financing.

The company expects suspension assembly shipments in the historically weaker second quarter to be 105 million to 110 million. ASP is expected to be relatively flat over the course of the fiscal year as the transition to high-volume pricing on DSA suspensions continues and DSA suspensions become a larger percentage of the product mix. DSA suspensions are expected to account for 25% to 30% of second quarter shipments.

“Despite some near-term softness in demand, we are optimistic about our outlook,” said Penn. “We continue to be encouraged by the level and breadth of activity with our key customers. We improved our overall execution during the first quarter and expect to make further progress toward our manufacturing yield and efficiency targets in the quarters ahead. In addition, we are not yet realizing the full benefits related to the shift of assembly manufacturing to our Thailand plant and the consolidation of our U.S. operations. These benefits will become more material to our financial performance in the latter part of calendar 2014.”