HURC - Hurco Companies - increased its huge gross margin, reporting 41% for the quarter compared to 37% in the first-quarter 2007

Hurco is cashing in on the commodities boom as metal tools are in big demand. HURC surprised on estimates three of the last four quarters by 21.05%. The company is cheap, with a P/E of only 10.96.

Full Analysis

Hurco Companies, Inc. (HURC) is an industrial technology company that produces interactive computer controls, software and computerized machine tools for the global metal cutting and metal forming industry.

Hurco, a Zacks #1 Rank (Strong Buy), has service subsidiaries around the world and manufacturing operations in Taiwan and China.

The company's customers include independent job shops and short run manufacturing operations within the aerospace, medical equipment, energy, transportation and computer equipment industries. Products are sold through independent agents and distributors in North America, Europe and Asia. The company also has direct sales forces in the United Kingdom, Germany, France, Italy, Canada, and Asia.

On Feb 28, the company reported first-quarter earnings and surprised on analysts' estimates by 35 cents. Net income increased 45% to $7.805 million, or $1.21 per share, compared to $5.395 million, or 84 cents per share, a year ago, in the year-ago period. Analysts expected 86 cents per share.

Sales and service fees for the quarter were up 30% over the first-quarter 2007. The company said the effect of a weaker U.S. dollar had a favorable impact of approximately 10% on the year-over-year comparison.

While sales in North America continued to be soft, growth was driven by strong demand in existing European markets, expansion into Eastern European markets, and increased shipments of the higher end VMX product line. Asia Pacific saw growth mainly from India, a new market targeted by the company in 2007. The effect of a weaker U.S. dollar had a favorable impact of approximately 14% in Europe and 8% in the Asia Pacific market.

New order bookings increased 30% over first-quarter 2007, with a 44% increase in European orders and a 27% increase in Asia Pacific orders. North America, which continues to be weak, fell 6%.

Hurco increased its huge gross margin, reporting 41% for the quarter compared to 37% in the first-quarter 2007. The company attributed the rise to increased sales of higher margin VMX products in European sales regions, as well as the impact of a continuing decline in the value of the U.S. dollar.

"Strong first quarter results, despite market softness in the U.S., affirm the importance of our global strategy. Europe continues to exceed expectations. Increased sales in the Asia Pacific region are a direct result of the resources we devoted to India last year to expand our presence in this key market. We will continue to monitor the U.S. market closely," said Michael Doar, Hurco's Chief Executive Officer.

Brokerage analysts responded by raising estimates for the second quarter and the full year. One out of two covering analysts raised consensus estimates for the second quarter in the last 30 days by 4 cents to 87 cents from 83 cents. One out of two covering analysts also raised for the full year in the last 30 days by an average of 15 cents to $3.65 from $3.50 per share.

The company has a P/E of 10.96, slightly below the industry average of 11.1. HURC's price-to-book is 2.49. Hurco has an excellent five year average return on equity (ROE) of 17.49%.

Content Courtesy: Zacks Investment Research

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