Gibraltar Industries, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless noted. The company makes and distributes building, residential, industrial, and infrastructure products. Its results are seasonal, with generally lower activity in the first and fourth quarters.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $200.6 million | $191.0 million |
| Gross profit / margin | $29.9 million / 14.9% | $29.9 million / 15.6% |
| Operating income / margin | $9.0 million / 4.5% | $0.3 million / 0.2% |
| Continuing operations income (loss) | $5.5 million | $(2.1) million |
| Net income (loss) / diluted EPS | $5.5 million / $0.18 | $(2.1) million / $(0.07) |
| Operating cash flow | $(14.8) million | $(14.6) million |
| Cash and cash equivalents, March 31 | $118.3 million | $78.2 million |
| Total debt, March 31 | $213.6 million | $213.6 million at Dec. 31, 2014 |
Revenue rose 5.0%, reflecting 6.4% higher volume and 1.0% higher pricing, partly offset by a $4.4 million foreign-exchange headwind. Gross profit was essentially flat as the gross margin narrowed. SG&A declined 29.1% to $20.9 million, including the effects of a property-sale gain and lower performance-based compensation. Other income was $3.6 million, primarily from net gains on derivatives. The effective tax rate was 37.3%.
Residential Products sales increased 22.8% to $106.8 million, led by postal and parcel storage products; segment operating income was $12.1 million. Industrial and Infrastructure Products sales fell 9.8% to $93.8 million, with weaker energy-related industrial demand; segment operating income was $2.0 million. Currency translation reduced reported segment sales in both businesses.
Liquidity, debt, and cash flow
- Cash increased by $7.7 million during the quarter, despite $14.8 million of operating cash outflow. The increase was principally supported by $26.2 million of net proceeds from the sale of property and equipment.
- Operating cash use reflected a seasonal $17.3 million investment in working capital, including higher receivables and inventory, partly offset by higher payables. Capital expenditures were $2.0 million.
- Reported liquidity was $224.4 million: $118.3 million cash plus $106.1 million available under the revolving credit facility. No revolver borrowings were outstanding; $19.6 million of letters of credit reduced availability. The company reported compliance with its 1.25-to-1.00 fixed-charge coverage covenant.
- Debt included $210 million of 6.25% senior subordinated notes due 2021 and $3.6 million of other debt. The revolving facility was committed through October 2016.
Material changes and unusual items
- A first-quarter sale-leaseback generated $26.4 million in gross proceeds. The company recognized a $7.4 million gain in SG&A and deferred the remaining $5.8 million gain, to be amortized over the five-year operating lease. Annual minimum lease payments are $1.4 million.
- Exit activity and asset impairments produced a net $6.6 million reduction in expense, largely reflecting the facility-sale gain, partly offset by product-line impairment and other exit costs.
- Foreign-currency translation reduced other comprehensive income by $3.8 million. Net income was $5.5 million, while total comprehensive income was $1.9 million.
- The company recorded a $0.3 million contingent consideration liability for a prior acquisition and expects further earn-out payments through 2015; the agreement has no stated payment cap.
Outlook, commentary, and risks
Management expected full-year 2015 sales to be approximately level with 2014: anticipated residential growth, particularly in postal products, was expected to be offset by an industrial-related decline. Industrial and Infrastructure Products revenue was forecast to decline by a mid-single-digit percentage. Management cited lower oil and gas prices and expected foreign exchange to reduce 2015 revenue by about 2%. Full-year 2015 EPS guidance was $0.55–$0.65, compared with a 2014 reported loss of $2.63 per share or adjusted EPS of $0.47 excluding the 2014 impairment loss.
Management attributed expected earnings improvement to prior cost-reduction and margin-improvement actions. It also noted that core markets remained below long-term historical activity levels and that residential manufacturing efficiencies were not yet fully realized. Risks include economic and end-market conditions, commodity prices, foreign exchange, customer demand, infrastructure funding, and the availability and terms of financing. Management cautioned that results are seasonal and that forward-looking statements are subject to risks and uncertainties. No material change in market-risk exposure was reported; disclosure controls were deemed effective.
Most important facts for investors to verify
- How much of the operating-income improvement is repeatable after excluding the property-sale gain and other exit-related items.
- Whether residential growth and the forecast industrial decline align with subsequent order trends, especially in energy-related markets.
- Progress on gross-margin recovery and the expected benefit and timing of cost-reduction initiatives.
- Working-capital seasonality, operating cash generation, and continuing capital needs after the one-time property-sale proceeds.
- Revolver availability, covenant compliance, the 2021 notes and 2016 facility maturity, and the timing and amount of acquisition earn-out payments.
- The assumptions underlying 2015 EPS guidance and the estimated impact of foreign exchange, taxes, and derivative gains or losses.