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STEWART & STEVENSON REPORTS IMPROVED FIGURES

19 May 04. Stewart & Stevenson Services, Inc. (NYSE: SVC) announced results for the first quarter of fiscal 2004, which ended on May 1, 2004. Sales for the first quarter of fiscal 2004 totaled $304.3m, (2003: $289.8m). Net earnings from continuing operations in the first quarter of fiscal 2004 were $5.5m, or $0.19 per diluted share, (2003: $1.7m, or $0.06). First quarter 2003 results included special charges totaling $4.1m, or $0.10 per diluted share, associated with pension curtailment expense and costs associated with restructuring activities.

During the first quarter of fiscal 2004, the company announced that it is pursuing a sale of its Airline Products business located in Marietta, Georgia. This decision resulted from the conclusion that this business is not core to the long-term direction of the company, and it is in the best interests of the company’s shareholders to redeploy the capital invested in this segment to other more strategic activities.

Additionally, during the first quarter of fiscal 2004, the company completed a number of actions in its Power Products segment including the sale of its MerCruiser product offering, its wheelchair lift manufacturing product line, and certain undeveloped real estate. Subsequent to the first quarter, the company transferred the sales and marketing responsibility of custom generator sets from the Distributed Energy Solutions segment to the Power Products segment.

The Tactical Vehicle Systems segment, which manufactures tactical vehicles for the U.S. Army and others, recorded sales of $138.8m in the first quarter of fiscal 2004, (2003: $111.0m). Operating profit for the first quarter of fiscal 2004 improved to $19.5m, (2003: $17.8m). Operating margin percentages were lower in fiscal 2004, primarily as a result of a difference in product mix, as fiscal 2004 deliveries consisted of a higher proportion of lower-priced option trucks. In addition, higher material costs largely attributable to increased steel prices contributed to the lower operating margin percentage. As previously announced, 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 contract with the U.S. Army. The company expects the fourth quarter of fiscal 2004 to be one of transition with lower sales as production commences under the new contract.

Net cash provided by operating activities totaled $43.6 million for the first quarter of fiscal 2004 compared to $14.3 million in the first quarter of fiscal 2003, primarily as a result of increased earnings, collections of receivables related to large fiscal 2003 equipment shipments, and reductions of inventory levels. As a result, total cash and short-term investments increased from $61.7m at January 31, 2004 to $106.3 million at the end of the first quarter. Total debt remained unchanged from year-end at $28.4m at the end of the first quarter.

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