) to sell from buy.
Analyst Tony Boase says this is the second time in nine months that Sypris has disappointed. He says the technology-services provider is another year away from achieving its long-term industrial gross margin goals of 18%. Boase notes while many issues were responsible for the shortfall, he points out that a $2 million cut in third-quarter industrial revenue is cutting industrial gross margins in half to 8%.
The massive power outage in the northeast and Great Lakes region last month eliminated five days of production at the Sypris plant in Ohio. Another lingering issue: Dana Corp., one of Sypris' biggest customers, built up an inventory of supplies in preparation for an expected strike. When the plant did not strike, Dana suspended new orders. Also, Boase thinks Arvinmeritor's July acquisition of Dana faces higher integration risks than he first thought.
In addtion, another customer, Visteon Corp., lowered orders as it saw orders drop from Ford for new trucks. Boase also cited customer redesigns, as well as a third-quarter earnings miss. He cut the 75 cents 2003 earnings per share estimate to 47 cents, and cut the $1.07 2004 estimate to 90 cents.