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Hawk Corp. earnings drop 33 percent, misses analysts’ estimate

by Tara Lachapelle
March 10, 2010

Hawk Corp., a supplier of friction materials for brakes, clutches and transmissions used in airplanes, construction vehicles and farming equipment, posted a 33 percent decline in earnings Wednesday. It missed Wall Street's estimate by 7 cents and its stock reacted, closing at $18.58, down 6 percent.

The Cleveland-based company reported fourth-quarter net income of $1.6 million, or 18 cents per diluted share, down from $2.4 million, or 26 cents per diluted share, in the year-ago quarter.

Wall Street estimated earnings to reach 25 cents per diluted share.

Sales declined 21.2 percent to $45.6 million from $57.9 million in the year-earlier period.

“Despite the fact that we had a difficult year, we continue to generate cash from operations,” CEO Ronald Weinberg said in Wednesday’s conference call. “We have an excellent deck of internal growth products, and I think it’s fair to say these have a very high probability of happening."

Weinberg added, “All of these things going on have been masked by the fact that it’s been a very, very slow economy. It really does muffle good things going on in the company.”

Full-year earnings were $6.4 million, or 73 cents per diluted share, down 69 percent from $20.8 million, or $2.21 per diluted share in 2008. Full-year sales fell 36 percent to $172.4 million from $269.6 million.

In a report released Wednesday, analysts Saul Ludwig, Ivan Marcuse and Eric Swanson of KeyBank Capital Markets Inc., said they have raised their 2010 earnings estimate for Hawk Corp. to $1.30 from $1, and for 2011 to $1.70 from $1.20, as a result of an improving sales outlook. "We believe the underlying demand for the company's products is recovering, and additionally, key customers will rebuild inventories through the first half of 2010," the report said.

The company said it expects 2010 operating income to increase at least 10 percent to about $18 million to $19 million. It said 2010 sales should be between $190 million and $200 million, an increase of 10 percent to 16 percent compared with 2009 levels.

“We are expecting 2010 to bring a general recovery to most of our markets,” Vice President of Finance Thomas Gilbride said in the call. “That recovery will be relatively modest and not very quick.”