Hurco Q3 Results Report Losses
Hurco Companies (Nasdaq: HURC) released its financial results for the third fiscal quarter (Q3) ending July 31, 2024. The company reported a net loss of $9.6 million, or $(1.47) per diluted share. This includes an $8.2 million non-cash tax valuation allowance, contributing significantly to the quarterly loss. In comparison, Hurco recorded a net income of $260,000, or $0.04 per diluted share, in the same quarter of fiscal 2023.
For the nine months of fiscal 2024, Hurco posted a net loss of $15.2 million, or $(2.33) per diluted share, compared to net income of $1.97 million, or $0.30 per diluted share, in the corresponding period of fiscal 2023. This year’s loss also included the $8.2 million non-cash tax valuation allowance.
Despite these losses, Hurco’s stock remained unchanged following the earnings release.
Hurco Q3 Results: Sales Decline, Orders Show Positive Growth
Hurco’s sales and service fees for Q3 2024 totaled $42.7 million, marking a 20% decrease from the same period in 2023. This decline included an unfavorable currency impact of less than 1%. For the first nine months of fiscal 2024, sales fell by 18% to $132.9 million, with a slight favorable currency impact of $796,000.
However, the company’s global orders for Q3 2024 exceeded $52 million, showing improvement both year-over-year and compared to the previous two quarters. Orders for the quarter outpaced sales by over $10 million, signaling potential future growth.
Hurco’s CEO Greg Volovic expressed optimism about the rise in orders, stating, “We are hopeful that this positive order growth is representative of a trend.” He also highlighted the company’s continued focus on technological advancements and cost reductions, which are expected to impact future results.
Performance Across Regions
Americas
Sales in the Americas declined by 16% for both Q3 and the first nine months of fiscal 2024 compared to the same periods in 2023. This was mainly attributed to decreased shipments of Hurco and Takumi 3-axis vertical machines. However, sales of higher-performing Hurco 5-axis machines and Milltronics 3-axis machines partially offset these declines.
Orders in the Americas for Q3 2024 increased by 21%, driven by rising demand for Hurco 5-axis machines, Hurco and Milltronics lathes, and Milltronics 3-axis machines. For the nine-month period, orders decreased by 2%, primarily due to lower demand for Hurco 3-axis machines, although higher demand for Hurco 5-axis machines and Milltronics products helped soften the decline.
Europe
Sales in Europe fell by 23% in both Q3 and the first nine months of fiscal 2024, with a favorable currency impact of 1%. The decline was due to lower shipments of Hurco and Takumi machines in key markets such as Germany, Italy, and the UK, as well as decreased sales of electro-mechanical components from Hurco’s subsidiary LCM Precision Technology.
European orders in Q3 2024 increased by 15%, bolstered by strong demand for Hurco machines in the UK, France, and Italy. However, orders for the nine months of fiscal 2024 decreased by 14%, reflecting weakening demand across the region.
Asia Pacific
In the Asia Pacific region, sales for Q3 2024 decreased by 15%, with a 2% unfavorable currency impact. The decline was driven by lower shipments of Takumi machines in China and Hurco machines in Southeast Asia. However, increased sales of Hurco machines in India helped offset the downturn. Sales for the nine months of fiscal 2024 grew by 8%, thanks to strong demand from China and India.
Orders in Asia Pacific surged by 151% in Q3 2024, reflecting growing demand for Hurco and Takumi machines across China, India, and Southeast Asia. For the nine months of fiscal 2024, orders increased by 41%, driven by strong performance in China and India.
Hurco Q3 Results: Gross Profit Declines Amid Lower Sales
Hurco’s gross profit for Q3 2024 was $7.8 million, or 18% of sales, compared to $13.4 million, or 25% of sales, in Q3 2023. For the first nine months of fiscal 2024, gross profit dropped to $25.6 million, or 19% of sales, from $38.7 million, or 24% of sales, in the corresponding period last year.
The decline in gross profit was primarily due to lower sales volumes of vertical milling machines in the Americas and Europe. Additionally, price reductions for certain machines, aimed at penetrating key markets and reducing inventories, further impacted gross profit margins.
Cost reductions implemented in Q3 2024 helped mitigate the impact of lower sales volumes. However, these measures were not enough to offset the overall decline in profitability.
Hurco Q3 Results: Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses for Q3 2024 totaled $10.4 million, or 24% of sales, down from $12.4 million, or 23% of sales, in Q3 2023. For the first nine months of fiscal 2024, SG&A expenses were $33.4 million, or 25% of sales, compared to $35.5 million, or 22% of sales, in the prior year period.
Despite cost reductions implemented during the quarter, SG&A expenses increased as a percentage of sales due to lower sales volumes. Currency fluctuations also impacted SG&A expenses, although these effects were minimal.
Hurco Q3 Results: Income Tax and Valuation Allowance
Hurco recorded income tax expenses of $7 million for Q3 2024 and $6.4 million for the first nine months of fiscal 2024, compared to $385,000 and $1.3 million for the same periods in 2023. The increase in tax expenses was largely due to an $8.2 million non-cash tax valuation allowance on U.S. deferred tax assets.
This allowance was recorded after evaluating changes to tax laws, statutory tax rates, and Hurco’s cumulative three-year income levels. The valuation allowance, combined with losses from certain jurisdictions with differing tax rates, contributed to the higher tax expense.
Strong Balance Sheet Despite Challenges
Hurco’s balance sheet remained strong, with cash and cash equivalents totaling $36.1 million at the end of Q3 2024, compared to $41.8 million as of October 31, 2023. Working capital decreased to $182 million from $193 million over the same period, driven by declines in accounts receivable and cash balances, partially offset by inventory growth.
Looking Ahead: Innovation and Growth Opportunities
Despite the challenges faced in fiscal 2024, Hurco remains focused on innovation and future growth. CEO Greg Volovic highlighted the company’s commitment to technological advancement, including the upcoming showcase of Hurco’s next-generation control systems and robotic automation solutions at the International Manufacturing Technology Show (IMTS) in September.
The Q3 results of Hurco reflect significant challenges with a widening loss and declining sales, yet the promising order growth provides a glimmer of optimism for a potential turnaround. With positive order growth in recent quarters, Hurco is cautiously optimistic about a market rebound and improved performance in the latter part of the fiscal year. The company’s strong balance sheet, coupled with its emphasis on innovation, positions it to weather economic cycles and emerge stronger in the machine tool market.
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