Hurco Companies, Inc. (NASDAQ:HURC) is an international, industrial technology company that designs, manufactures, and sells computerized (CNC) machine tools, primarily vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry. The company operates in a single segment and has a global footprint, with a worldwide sales, service, and distribution network.

Financials

In the fiscal year ended October 31, 2023, Hurco reported annual revenue of $227.8 million and a net income of $4.4 million. However, the company's performance has been impacted by the cyclical nature of the machine tool industry, as well as uncertain economic conditions in key markets.

For the six months ended April 30, 2024, Hurco reported revenue of $90.2 million, a decrease of 17% compared to the same period in the prior year. Net loss for the first six months of fiscal 2024 was $5.6 million, compared to net income of $1.7 million in the prior-year period. The company's operating cash flow for the first six months of fiscal 2024 was negative $0.7 million, and free cash flow was negative $1.9 million.

The decrease in revenue and profitability was primarily driven by lower sales volumes across Hurco's key geographic regions. In the Americas, sales declined by 17% in the first half of fiscal 2024, due to decreased shipments of the company's Hurco-branded vertical machining centers. European sales decreased by 22%, impacted by lower demand for Hurco and Takumi machines in Germany, the United Kingdom, and Italy, as well as decreased sales of electro-mechanical components and accessories from the company's wholly-owned subsidiary, LCM Precision Technology S.r.l.

In the Asia Pacific region, sales increased by 17% in the first six months of fiscal 2024, driven by stronger demand for Hurco's higher-performance VMX and 5-axis machines in India, partially offset by reduced shipments of Hurco and Takumi machines in China and Southeast Asia.

Hurco's gross profit margin declined to 20% in the first half of fiscal 2024, compared to 23% in the prior-year period. This was primarily due to the lower sales volumes, which reduced the company's leverage of fixed costs, as well as changes in average net selling prices for certain machines to penetrate key markets and reduce inventories.

The company's selling, general, and administrative expenses remained relatively flat year-over-year, but increased as a percentage of sales due to the lower revenue. Hurco reported an operating loss of $5.3 million for the first six months of fiscal 2024, compared to operating income of $2.2 million in the prior-year period.

Liquidity

Hurco's balance sheet remains strong, with $37.5 million in cash and cash equivalents as of April 30, 2024, and no outstanding debt. The company's working capital was $187.6 million at the end of the second quarter, down from $193.3 million at the end of fiscal 2023, primarily due to decreases in accounts receivable and cash, partially offset by increases in inventories.

During the first six months of fiscal 2024, Hurco paid $2.1 million in dividends to shareholders and did not repurchase any shares under its $25 million share repurchase program. The company has access to $50.7 million in available borrowing capacity under its credit facilities, providing ample liquidity to fund its operations and strategic initiatives.

Outlook

Looking ahead, Hurco has not provided specific financial guidance for the remainder of fiscal 2024. However, the company's management has emphasized the need to remain disciplined in managing overhead expenses and operating costs to minimize the impact of the lower sales volumes on profitability. Additionally, the company continues to focus on adjusting and managing its inventory levels to generate cash flow, while also investing in new technologies, product development, and necessary capital expenditures to position the business for long-term success.

Hurco's long history of profitability and the strength of its balance sheet provide the company with stability to navigate the cyclical nature of the machine tool industry. The company's diversified product portfolio, including its Hurco, Milltronics, and Takumi brands, as well as its growing automation solutions business, offer some insulation against the volatility in any single market or product category.

Risks and Challenges

However, Hurco faces several risks that could impact its future performance, including the cyclical nature of the machine tool industry, uncertain economic conditions in its key markets, the challenges of its international operations, and the need to continually invest in new product development and technological innovation to remain competitive.

Conclusion

Overall, Hurco's performance in the first half of fiscal 2024 reflects the challenges of the current market environment, but the company's financial strength and strategic focus provide a solid foundation for weathering the cyclical headwinds and positioning the business for long-term success.