Park-Ohio Holdings Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. Park-Ohio is a diversified manufacturer and supply-chain services provider operating through Supply Technologies, Assembly Components, and Engineered Products. Figures are in U.S. dollars; financial-statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior balance |
|---|---|---|
| Net sales | $359.6 | $366.3 |
| Gross profit / margin | $52.0 / 14.5% | $53.9 / 14.7% |
| Operating income | $12.3 | $13.0 |
| Net income attributable to common shareholders | $5.5 | $1.2 |
| Diluted earnings per share | $0.45 | $0.10 |
| Cash from operating activities | $9.9 | $(3.9) |
| Capital expenditures | $6.6 | $4.9 |
| Cash and cash equivalents | $58.9 | $55.0 at Dec. 31, 2020 |
| Total debt | $537.1 | $534.7 at Dec. 31, 2020 |
| Total liquidity, as reported by the company | $264.4 | Not provided |
Interest expense was $7.4 million, down from $8.0 million. Income tax expense was $1.9 million, versus $5.5 million; the effective tax rate fell to 26% from 81%. The company paid $1.6 million in dividends during the quarter. It reported $205.5 million of unused borrowing availability; separately, calculated availability under the credit agreement was $182.6 million.
Material changes versus Q1 2020
- Sales declined 1.8%, principally because Engineered Products revenue fell; stronger Supply Technologies sales partly offset that weakness.
- Supply Technologies sales rose 12.0% to $157.7 million and segment operating income increased to $12.2 million from $9.2 million. Management cited higher demand in truck-related, power sports, and medical markets, as well as cost reductions.
- Assembly Components sales decreased 1.7% to $126.0 million; segment operating income was nearly flat at $6.4 million.
- Engineered Products sales fell 22.0% to $75.9 million, and the segment recorded a $1.3 million operating loss versus $3.8 million operating income. Management cited weaker demand in several end markets and customer delays in capital-equipment purchases.
- Operating cash flow improved by $13.8 million to $9.9 million. The company attributed the improvement to higher profitability and lower working-capital usage, although inventory increased $22.9 million during the quarter.
Outlook, risks, and unusual items
- No specific earnings or sales guidance is provided. Management said existing financial resources and anticipated operating cash flow should cover expected needs for at least the next 12 months.
- COVID-19 continues to create uncertainty and has affected several markets. The company cited its diversified businesses, liquidity, cost reductions, and working-capital and capital-spending controls as support for managing the disruption.
- Plant closures and consolidation generated $1.3 million of Q1 expense: $0.6 million in Assembly Components and $0.7 million in Engineered Products. The company expects approximately $3.6 million of additional related costs during the remainder of 2021.
- Debt and covenant compliance remain important risks. The company reported compliance at quarter-end and expected compliance through 2021, but warned that lower sales or customer payment problems could reduce borrowing availability and affect covenant compliance. A 100-basis-point rate increase would have added approximately $0.4 million to quarterly interest expense.
- The company was a co-defendant in approximately 121 asbestos cases involving approximately 222 plaintiffs. Management believes resolution will not materially affect financial condition, liquidity, or results, but acknowledges outcomes are uncertain. It also disclosed ordinary-course legal and warranty disputes.
- On April 1, 2021, the company acquired NYK Component Solutions for $5.7 million cash, net of cash acquired, plus potential contingent consideration of up to $2.0 million. On April 23, the board declared a $0.125-per-share dividend, payable May 21.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. The filing states there were no material changes to previously disclosed risk factors.
Investor facts to verify
- Whether Engineered Products demand and segment profitability recover, particularly in capital equipment and forged and machined products.
- Inventory levels, working-capital cash conversion, and whether operating cash flow can support investment, dividends, and debt service.
- Debt, borrowing availability, and covenant headroom if sales decline or customer receivables weaken.
- Actual remaining closure and consolidation costs compared with the approximately $3.6 million expected for the rest of 2021.
- NYK’s contribution to Supply Technologies and any contingent consideration ultimately payable.
- Developments in asbestos and other legal matters; the filing does not quantify a clear maximum potential exposure.