United States Lime & Minerals, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2019. The company operates two segments: Lime and Limestone Operations, its principal business, and Natural Gas Interests. Lime and limestone products serve construction, industrial, environmental, metals, oil and gas services, roofing, and agriculture customers across Arkansas, Colorado, Louisiana, Oklahoma, and Texas.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $39.0 million, versus $39.2 million | $76.8 million, versus $74.5 million |
| Gross profit | $9.7 million; 25.0% margin | $18.4 million; 24.1% margin |
| Operating profit | $7.1 million; 18.2% margin | $13.1 million; 17.2% margin |
| Net income | $6.0 million, or $1.07 diluted EPS | $11.2 million, or $1.99 diluted EPS |
| Operating cash flow | Not separately provided | $20.0 million |
| Capital expenditures | Not separately provided | $12.4 million |
| Cash and equivalents | Not separately provided | $73.7 million at June 30, 2019 |
| Debt | No debt outstanding | No debt outstanding; $1.2 million of letters of credit reduced facility availability |
All financial statement amounts are in thousands unless otherwise noted. Total assets were $261.5 million at June 30, 2019, compared with $244.7 million at December 31, 2018. Stockholders’ equity was $233.1 million, compared with $223.0 million at year-end.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 0.7%, while first-half revenue increased 3.0%.
- Lime and limestone revenue was essentially flat in the second quarter and increased 3.8% for the first six months. Second-quarter product volumes declined 1.8%, primarily due to lower construction demand, while average realized prices increased 1.8%.
- Lime and limestone gross profit increased 3.9% in the second quarter and 14.0% year to date, supported by higher prices and, for the first half, lower stripping costs.
- Natural gas revenue fell 45.5% in the second quarter and 43.8% year to date. Production and prices declined because of normal production declines, lower market prices, and lower natural gas liquids prices.
- Second-quarter net income decreased 9.1%, primarily because income tax expense rose to $1.5 million from $0.8 million in the prior-year quarter. First-half net income increased 2.4% despite income tax expense more than doubling to $2.8 million.
- Operating cash flow increased 9.9% to $20.0 million, while capital expenditures decreased to $12.4 million from $19.4 million.
- The company adopted the new lease standard on January 1, 2019, recording approximately $3.9 million of right-of-use assets and corresponding lease liabilities with no retained-earnings impact.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- The new St. Clair vertical kiln began producing commercially saleable quicklime during the second quarter. The modernization project is estimated to cost approximately $50 million; approximately $43.3 million had been incurred through June 30, 2019, with $42.5 million paid in cash. Approximately 70% of the project was in service, and the remainder was expected to be completed in the second half of 2019.
- Management expects most of the remaining St. Clair project costs to be incurred and paid by year-end 2019. The filing does not provide formal earnings or revenue guidance.
- Management believes cash on hand and operating cash flow, absent a significant acquisition, will cover operating needs, capital requirements, dividends, and the remaining authorized share repurchases for the near future.
- The amended credit agreement provides a $75 million revolving facility, an additional $50 million accordion feature subject to lender approval, and a $10 million letter-of-credit sublimit. The facility matures May 2, 2024 and is secured by company assets.
- Weather, particularly in North Texas, disrupted construction activity in the second quarter. Other stated risks include demand and pricing pressure, competition, fuel and transportation costs, availability of transportation, operational interruptions, project delays or cost overruns, permitting and environmental requirements, mine safety, cybersecurity, economic conditions, and changes in natural gas production and prices.
- The company had no material open purchase-order commitments at June 30, 2019. It had $0.7 million of Euro-denominated equipment obligations hedged through foreign-exchange contracts, with hedge liabilities of $11 thousand.
- The company paid quarterly dividends of $0.135 per share during the first two quarters. On July 31, 2019, the board declared another $0.135 per-share dividend payable September 13, 2019.
- No shares were repurchased under the public repurchase program during the second quarter. The program had approximately $7.2 million remaining authorization through November 2019.
Important Facts for Investors to Verify
- Progress, final cost, commissioning, and expected contribution of the St. Clair kiln modernization project.
- Whether construction demand recovers and whether price increases offset volume, fuel, labor, and transportation cost pressures.
- The continued decline in natural gas production, prices, and segment profitability.
- Cash generation relative to remaining capital expenditures, dividends, and any future repurchases or acquisitions.
- Compliance with the revolving credit agreement, including leverage-related restrictions on dividends and share repurchases.
- Mine safety, permitting, environmental, operational, weather, and project-execution disclosures in the filing and Exhibit 95.1.
- The company’s effective tax rate, including the effect of statutory depletion and the absence of the prior-year research and development tax credits.