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STEWART AND STEVENSON ANNOUNCE RESULTS

STEWART AND STEVENSON ANNOUNCE RESULTS IN LINE WITH EXPECTATIONS

25 Aug 04. Stewart & Stevenson Services, Inc. (NYSE: SVC) announced results for the second quarter of fiscal 2004, which ended on July 31, 2004.

Sales for the second quarter of fiscal 2004 totaled $316.3m (2003: $312.9m).Net earnings in the second quarter of fiscal 2004 were $5.9million or $0.20 (2003: $0.11 per diluted share). Included in this result was a loss of $1.4m or $0.05 per diluted share from discontinued operations related to adjustments to liabilities recorded for obligations from the company’s blowout preventer, valve, elastomer, and drilling riser business which was sold during fiscal
2002. Net earnings from continuing operations in the second quarter of fiscal
2004 were $7.3m or $0.25 per diluted share, (2003: $3.2m or
$0.11 ).

Max L. Lukens, the company’s President and Chief Executive Officer,
stated, “We are encouraged by these results as they reflect the benefits of the strategic actions we have implemented to generate acceptable returns in our core businesses and to position Stewart & Stevenson for sustained profitable growth. While we are pleased with the improved results, we intend to build upon this progress, and we are committed to taking the actions required to achieve our desired level of returns.”

The Tactical Vehicle Systems segment, which manufactures tactical vehicles for the U.S. Army and others, recorded sales of $140.7 million in the second quarter of fiscal 2004 compared to $108.4 million in the prior year’s second quarter. Operating profit for the second quarter of fiscal 2004 improved to $18.8m, (2003: $17.3m).primarily as a result of the higher sales volume. Operating margin percentages were lower in fiscal 2004 as a result of higher material costs, primarily related to increased steel pricing, and product mix. The company’s current multi-year contract with the U.S. Army to produce the Family of Medium Tactical Vehicles (“FMTV”) is scheduled to conclude during the second half of fiscal 2004 at which time production is expected to begin under the new multi-year FMTV contract.

Liquidity

Total cash and short-term investments were $99.8m at July 31, 2004 as compared to $106.3m at the end of the first quarter. Net cash used in operating activities during the second quarter was $9.7m and included a $32m impact from decreases in progress payments related to the transition to the new U.S. Army contract at TVS. Net cash provided by investing activities was $5.5 million and included $11.4m of proceeds from the sale of certain rental equipment assets and two idle manufacturing facilities. Financing activities consumed $2.0m of cash primarily related to the regularly scheduled quarterly dividend payment.

TACTICAL VEHICLE SYSTEMS UNIT DELIVERIES

Fiscal 2003
1Q 2Q 3Q 4Q Total

Trucks 631 644 585 621 2,481

Trailers 132 126 121 130 509
763 770 706 751 2,990

Sales (millions) $111 $108 $110 $116 $445

Fiscal 2004
Estimated Unit
Deliveries 1Q 2Q 3Q* 4Q* Total*

Trucks 743 751 661 644 2,799

Trailers 204 201 146 179 730
947 952 807 823 3,529

Estimated Sales
(millions) $139 $141 $139 $125 $544

* Based on current US Army forecast and other data as of July 31, 2004.

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