ZHEJIANG, China, Aug. 15, 2011 /PRNewswire-Asia-FirstCall/ -- SORL Auto Parts, Inc. (NASDAQ: SORL) ("SORL" or "The Company"), a global tier one supplier of brake and control systems to the commercial vehicle industry, announced today financial results for the second quarter and six months ended June 30, 2011.
Second Quarter 2011 Financial Highlights
* Revenues rose 10.8% year-over-year to a quarterly record of $61.1 million;
* Aftermarket sales rose 84.1% year-over-year;
* International market sales rose 15.4% year-over-year;
* Gross margin was 27.1% in the second quarter of 2011;
* Cash and cash equivalents of $14.2 million, $6.7 million on December 31, 2010
* SORL Net cash flows from operating activities were $10.6 million, up from negative $10.3 million for six months ended June 30, 2010.
Mr. Xiaoping Zhang, SORL Auto Parts' Chief Executive Officer and Chairman, stated, "We are pleased with our record sales in the 2011 second quarter despite revised government policies and the slow global recovery restrained market growth. Lower sales to the OEM market resulted from the Chinese automotive industry resuming a more rational growth pattern after two years of rapid growth. In the first half of 2011, China's commercial vehicle production and sales were reduced by 6.07% and 3.67%, respectively, compared with a year ago. However, in such a difficult OEM market environment, our balanced revenue sources enabled us to maintain growth in the second quarter. Noticeably, due to the successful execution of our product strategy, our OEM business was only down slightly year-over-year basis as we are winning new customers and entering into new markets. Our aftermarket sales posted robust growth attributable to the large number of commercial vehicles on the road with their OEM warranties expiring needed replacement parts. The government's emphasis on expanding public bus transportation in the many growing metropolitan areas, created an opportunity for our aftermarket and bus market. Our international sales increased as customers became more confident with our quality, our globalization strategy and our growing efforts in international marketing and distribution network successfully captured new customers."
Financial Performance
For the second quarter of 2011, net sales were $61.1 million, a 10.8% increase compared to $55.2 million for the second quarter of 2010. Revenues from the Company's domestic OEM customers were $32.6 million, compared with $34.7 million for the second quarter of 2010. Revenues from China's domestic aftermarket were $12.7 million, an 84.1% increase over the previous year's second quarter. Revenues from international markets were $15.7 million, a 15.4% increase from the same period in 2010.
OEM sales reflected slower new vehicle sales in China's auto market. The larger number of aging vehicles operating in China requiring replacement parts is generating stronger aftermarket sales. The international sales growth reflects the Company's improved foreign distribution system and customer base. Further, OEM customers increasingly purchased the Company's integrated systems and modular supplies of air brake systems instead of single products, which also consolidated SORL's strategic partnerships with these OEMs.
Second quarter gross profit increased to $16.6 million from $16.4 million a year ago. Gross margin was 27.1%, compared with 29.7% in the same period a year ago. The gross margin decrease primarily resulted from higher material and labor expenses, and the appreciation of the Chinese currency. The Company believes that increasing production efficiency, improving the technologies of products, and upgrading its product portfolio will help us to maintain or increase gross profit margins.
Operating expenses increased 5.5% to $10.3 million in the second quarter of 2011 from $9.8 million in the second quarter of 2010. As a percentage of revenue, operating expenses decreased to 16.9% in the second quarter 2011 from 17.8% a year ago as more expenses were partially offset by higher sales.
Selling and distribution expenses decreased to $3.5 million, or 5.7% of quarterly revenue due to decreased advertising costs and accrued warranty expenses, compared with $3.6 million, or 6.6% of revenue in the same quarter of 2010.
General and administrative (G&A) expenses in the second quarter of 2011 were $3.8 million, or 6.2% of revenue, compared with $3.8 million, or 7.0% in the previous year's second quarter.
Research and development (R&D) expenses increased to a quarterly corporate record of $2.2 million, or 3.6% of revenues compared with $2.0 million for the same period of 2010. SORL continues to invest in new product development to capture market share and propel sales growth with a focus on upgrading traditional valve products and developing more higher-margin electronically controlled products.
Operating income was $6.2 million for the second quarter 2011 compared with $6.6 million for the same quarter last year.
Net income attributable to stockholders for the second quarter of 2011 was $5.0 million, or $0.26 per basic and diluted share, compared with $5.6 million, or $0.31 per basic and diluted share, in the second quarter of 2010.
First Six Months Financial Results
SORL's net sales for the first six months of 2011 increased by 20.6% year-over-year to $113.1 million from $93.8 million during the same period in 2010.
For the six months ended June 30, 2011, domestic OEM sales were $64.6 million, a 12.2% increase from the same period in 2010. Aftermarket sales were $21.3 million reflecting a 59.0% increase from a year ago. International sales rose 18.9% to $27.1 million compared with last year.
SORL's gross profit rose 11.4% to $31.2 million during the first six months in 2011. Gross margin was 27.6% in 2011 compared with 29.8% for 2010.
Income from operations increased 10.9% to $12.3 million for the first six months of 2011. Operating margin was 10.9% versus 11.9% a year ago.
The net income attributable to stockholders increased to $9.8 million from a year ago, with basic and diluted earnings per share ("EPS") of $0.51.
Balance Sheet
At June 30, 2011, SORL had cash and cash equivalents of $14.2 million as compared to $6.7 million December 31, 2010. The Company had working capital of $100.7 million as compared to working capital of $87.9 million at December 31, 2010. Bank acceptance note to vendors were $15.2 million compared with $1.0 million at December 31, 2010. Total equity increased to $162.3 million at the end of June 2011 compared with $147.8 million at December 31, 2010.
Net cash flow from operating activities was $10.6 million for the first six months of 2011. Net cash flow from operating activities in the same period of 2010 was a loss of $10.3 million. Capital expenditure in the first six months was $4.9 million as compared to $7.0 million in the same period of 2010.
Recent Developments
In June 2011, SORL announced that its Electronic Servo Clutch System (ESCS) won China's New Energy Bus Auto Parts Technology Innovation Award for 2011 in recognition of SORL's novel technologies for new energy vehicles that contribute to greater efficiency and energy saving. SORL's product is a new control system for the clutch, which offers drivers the option of using either the traditional clutch pedal or an electronic system to separate and engage the clutch. This clutch control system can help reduce driver fatigue, provide more flexible operation, and it is both more reliable and fuel efficient.
In July 2011, SORL announced that to improve its production management system, managers of its subsidiary, Ruili Group Ruian Auto Parts Co., Ltd., had completed advanced training in the Toyota Production System (TPS) production management system. TPS is a widely-used global system that eliminates inefficiencies to shorten the time from the start of production to the time units reach the customer.
In July 2011, the Company announced that it has entered into a supply agreement with a new customer, Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd. ("Zoomlion"), China's leading manufacturer of construction machinery equipment. SORL will supply braking air processing unit (APU) technology for Zoomlion's crane trucks. Annual sales from this APU module to Zoomlion are expected to approximate RMB 10 million in 2011.
Business Outlook
For the third quarter of fiscal year 2011, management is expecting net sales to be approximately $45 million and net income to be approximately $3.6 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.
Mr. Zhang stated, "While there can be increased headwind in OEM sector in the second half, we continue to strengthen our relationships with our key OEM customers as we are preparing ourselves for sector's resurgence in the future. Aftermarket remains our focus for the following quarters, as our capacity has been expanded and demand for our products remains high. On the international side, we will use our cost advantages and rising product quality to reach additional foreign markets and win more business with current international customers. Our R&D program continues to develop new value added products that increase sales in the OEM, aftermarket and international markets. We are mitigating our business risk in the current environment while we generate positive free cash flow. Our strategy is to also further penetrate into the bus and construction vehicle markets to enhance future growth. "