Highway Holdings (NASDAQ:HIHO)

Third Quarter 2012 Results

• Net sales for the period were $7.3 million compared with $9.0 million a year ago.
• Net income for the fiscal 2012 third quarter was $75,000, or $0.02 per diluted share, compared with $407,000, or $0.11 per diluted share, in the third quarter a year earlier.

"Results for both the last quarter and the most recent nine-month period were impacted by a continued challenging business environment, with less revenue and higher manufacturing expenses due to increased labor costs in China," said Roland Kohl, chairman, president and chief executive officer of Highway Holdings.

Kohl noted that net sales in the third quarter were impacted by a reduction in orders from two of the company's metal component customers, which represents approximately $1.0 million less compared with the same period a year earlier. The company expects to start making up for this lost business beginning in the current fiscal fourth quarter, as presently new tooling is being made for the production of new metal components for these customers.

Kohl noted that labor force shortages during the past months and a high local inflation rate put further pressure on labor costs and consequently on operating margins, which could lead to even higher customer pricing. He emphasized that the company's ongoing focus on increasing operating efficiency through automation and new production methods can only partially absorb increased payroll expenses. Kohl highlighted the dramatic increase in Chinese wages -- particularly during the last two years with statutory minimum salaries in China increasing by about 67 percent and market wage rates climbing to about 100 percent due to competitive wage pressure in Shenzhen. "If the present labor shortage continues, wages may increase even further in the foreseeable future," Kohl added.

As a result of such extreme increases in labor costs, the company, therefore, is also exploring the possibility of outsourcing some of the company's very labor intensive assembly work to low-labor cost countries under its direct management. 

"The company's strategic focus is to continue our efforts to further upgrade Highway Holdings' facilities in China into a much smaller high-tech operation – utilizing automation and becoming the premier model for modern and highly efficient manufacturing in China," Kohl said.

"The company is confident, despite the loss of assembly work to lower cost labor countries, that such activities eventually will benefit our operation, because such countries usually lack a strong supplier network for mechanical components. Such a situation may in fact provide significant new business opportunities," Kohl said.

LOS ANGELES, Jan. 31, 2012 (GLOBE NEWSWIRE) -- Highway Holdings Limited (Nasdaq:HIHO) today announced it has established a strategic marketing alliance with Hongtuo Precision Metalware Co., Limited, a Shenzhen, China-based company that is part of the Hot-Top Group. Terms were not disclosed.

"This new marketing alliance is intended to accelerate business opportunities within the local China market by capitalizing on Hongtuo Precision Metalware's extensive regional customer relationships and leveraging our high-tech and high-volume manufacturing capabilities -- which should be attractive to large local Chinese companies, particularly within the white goods, lighting fixture and stepping motor product industries," said Roland Kohl, chairman, president and chief executive officer of Highway Holdings.

Kohl noted that the conversion of the company's China-based operations to a wholly foreign owned enterprise (WFOE) structure from a subcontracting licensing arrangement in Southern China, as required by recently implemented local Chinese government regulations, now allows Highway Holdings to sell to local Chinese companies. Under the company's previous twenty-year business license arrangement in China, Highway Holdings was only permitted to export the products it manufactured.

Second Quarter 2012 Results

• The company reported a net loss of $364,000, or $0.09 per share, for its 2012 fiscal second quarter compared with a net profit of $410,000, or $0.11 per diluted share, a year earlier. Net sales for the same period were $5.6 million compared with $7.8 million in fiscal 2011.
• Net income for the six-months was $17,000, or $0.01 per diluted share, compared with net income of $454,000, or $0.12 per diluted share, a year earlier. Net sales for the six-month period were $12.1 million compared with $14.3 million a year ago.

"Results a year earlier were enhanced by a large order for mobile phone cases, while case orders for a new recently introduced popular mobile phone were not received until after the end of the second quarter of fiscal 2012," said Roland Kohl, president and chief executive officer of Highway Holdings.

Kohl said he expects the most recent model mobile phone case order should positively impact results in the second half of the current fiscal year. He added that the timing and size of orders can vary greatly based on the release of certain popular mobile phones and demand for the product.

Kohl noted that fiscal 2012 second quarter sales were also impacted by the loss of business from two customers who would not accept price increases. "Despite the impact of global economic conditions, we are encouraged by modest gains in business from some of our European customers. We are also optimistic that the second half will improve based on customer feedback, which can be characterized as cautious rather than negative," Kohl said.

• Net sales for the fiscal first quarter were $6.46 million compared with $6.45 million a year earlier.
• Net income for the same period climbed sharply to $381,000, or $0.10 per diluted share, from $44,000, or $0.01 per diluted share, last year, supported by a favorable currency exchange gain of $100,000. During the comparable quarter in 2010, the company had a currency exchange loss of $257,000.
• Operating income for the current quarter increased 17.8 percent to $357,000 from $303,000 a year earlier.

"Net sales for the fiscal first quarter, which were essentially unchanged from last year, reflect the impact of current world economic conditions. Although we remain guardedly optimistic that demand for our manufacturing services from our global customers base will increase this year, the current unstable global economic environment has caused uncertainty in the timing of orders and the volume of business," said Roland Kohl chairman, president and chief executive officer of Highway Holdings.

HONG KONG, Jan. 31, 2011 (GLOBE NEWSWIRE) -- Highway Holdings Limited today reported solid results for its third fiscal quarter ended December 31, 2010, reflecting continued sales momentum and increased profitability.

• Net income for the fiscal 2011 third quarter climbed 59 percent to $407,000, or $0.11 per diluted share, from $256,000, or $0.07 per diluted share, in the third quarter a year earlier.
• Net sales for the same period increased 51.4 percent to $9.0 million from $5.9 million a year ago.
• Net income for the nine-month period of fiscal 2011 increased more than three-fold to $861,000, or $0.23 per diluted share, from $259,000, or $0.07 per diluted share, a year earlier.
• Net sales for the nine months ended December 31, 2010 increased 48 percent to $23.3 million from $15.8 million in the comparable period a year earlier.

"Results for the quarter reflect the benefits of an improving business environment, as our major customers have become more confident in the sustainability of the global economic recovery and have increased their production orders," said Roland Kohl, chairman, president and chief executive officer of Highway Holdings.

Fiscal 2011 Second Quarter Results

• Net sales for same period climbed 50 percent to $7.8 million from $5.2 million a year earlier.

• Net income for the 2011 fiscal second quarter increased to $410,000 or $0.11 per diluted share, from $139,000, or $0.04 per diluted share, a year earlier.

Despite a significant increase in both net sales and net income, Kohl stated that net income could have been higher. He noted that operating income for the quarter was $167,000, or approximately two percent of net sales, due to a 60 percent increase in labor costs, most of which had not yet been passed through to customers under terms of existing contracts. Under terms of many of the company's OEM contracts, prices are adjusted quarterly to reflect increases in raw material and employment costs. Kohl added that the company's strong sales gains for the quarter were not sufficient to offset these sharp labor and personnel cost increases. "We anticipate operating income will improve in future quarters as these higher labor costs are passed through as price increases to our customers," Kohl said. He said that prior initiatives designed to reduce dependency on certain labor processes through assembly automation and robotic manufacturing technology helped to partially offset the higher labor costs in the quarter.

GeoTeam® Note: Excluding currency gains Fiscal 2011 second quarter EPS would have been about $0.04.

"It appeared early in the quarter that the global recession was having only a modest impact on our business. Unfortunately, some of our European customers were impacted late in the economic cycle -- thereby reducing our fiscal first quarter performance. However, while the fiscal second quarter also has been slow to ramp up, business inquiries from new and existing customers started to accelerate within the last week. These trends that are very encouraging and offer hope for a near-term recovery," said Roland Kohl, president and chief executive officer.

Source: GlobeNewswire (August 17, 2009)

"Despite a worldwide economic slowdown, the company was able to achieve an increase in net sales in fiscal 2009 and return to profitability. However, demand for manufacturing services in the short term is still weak and is not expected to regain momentum until our international customers gradually start increasing their orders to restore depleted inventories to meet anticipated consumer demand as the global economy slowly recovers. The business environment, near term, therefore, continues to be challenging and unpredictable -- with sales for the first fiscal quarter expected to be soft, based on current order flow. Nonetheless, we believe that the company is well-positioned to capitalize on its solid financial footing and operational strengths to maintain and hopefully increase existing business, as well as capture business from those competitors that may not be able to survive the turmoil," said Roland Kohl, president and chief executive officer.

Source: GlobeNewswire (June 22, 2009)

"The worldwide financial crisis has not yet had a direct material effect on the company's operations, but indications from some of its customers suggest a softer near-term outlook. Kohl noted the company is therefore particularly focused on maintaining a strong financial position in order to be prepared should the situation change. As an example, the company reduced its accounts receivable from $4.77 million on March 31, 2008 to $3.09 million on December 31, 2008. In addition, Kohl highlighted the company's success in reducing inventory levels while increasing sales levels. He noted that a further reduction in inventory levels is an important goal of the company for the foreseeable future.

The tightening credit markets resulted in the termination of one of the company's three credit facilities. The withdrawal of this credit facility by one of the company's three banks is not expected to affect the company, as its cash position has increased, its use of its line of credit has decreased, and the amount of credit available from its two other banks is expected to exceed its anticipated requirements."

Source: GlobeNewswire (February 17, 2009)