Core Molding Technologies, Inc. — Q3 2012 Form 10-Q
Business and period: Manufacturer of sheet molding compound and fiberglass-reinforced plastic products for truck, automotive, marine, and commercial markets. This unaudited report covers the three and nine months ended September 30, 2012, compared with the same periods in 2011.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net sales | $37.681 million | $37.836 million | $126.754 million | $102.119 million |
| Product sales | $32.149 million | $37.173 million | $117.689 million | $99.694 million |
| Tooling sales | $5.532 million | $0.663 million | $9.065 million | $2.425 million |
| Gross margin | $4.989 million; 13% of sales | $8.171 million; 22% | $19.646 million; 15.5% | $22.493 million; 22% |
| Income before interest and taxes | $1.957 million | $4.754 million | $9.414 million | $12.976 million |
| Net income | $1.151 million | $2.856 million | $6.127 million | $7.967 million |
| Diluted earnings per share | $0.16 | $0.39 | $0.83 | $1.09 |
Cash flow and liquidity: Nine-month operating cash flow was $5.323 million, versus $4.712 million a year earlier. Capital expenditures were $7.103 million, and investing cash outflow was $7.066 million. Financing cash outflow was $2.891 million; cash declined from $4.634 million at year-end 2011 to zero at September 30. Current assets were $37.462 million and current liabilities $21.260 million. Total debt was $10.862 million, including $4.691 million classified as current; long-term debt was $6.171 million. The company had $752,000 drawn on its $8 million revolver and no borrowings on its $10 million Mexican expansion revolving facility. It reported compliance with debt covenants.
Other metrics: Total assets were $92.024 million and stockholders’ equity $56.250 million. Nine-month interest expense was $221,000, versus $620,000. The company reported a net deferred tax asset of $2.963 million and post-retirement benefits liability of $9.223 million.
Changes versus prior comparable periods
- Q3 total sales were nearly flat year over year, but product sales fell 14%; higher, sporadic tooling sales substantially offset the decline.
- Q3 net income fell 60% to $1.151 million. Gross margin declined to 13% from 22%, reflecting production and labor inefficiencies, lower-margin mix, reduced volume and the dilutive effect of tooling sales.
- For the first nine months, total sales rose 24% and product sales rose 18%, driven by truck demand, new business and growth in marine sales. Despite higher sales, net income fell 23% and gross margin declined to 15.5% from 22%.
- Q3 product sales to Navistar fell 33% and to PACCAR fell 2%. Nine-month product sales to PACCAR rose 29%, while Navistar product sales declined 5%.
Outlook, management commentary and risks
- Management expected Q4 2012 product sales to be lower than Q4 2011, based on customer and industry forecasts for production levels similar to Q3. Analysts’ forecasts at the time projected 2013 combined heavy- and medium-duty truck production slightly above estimated 2012 levels; management expected new product launches to benefit 2013 sales.
- The company planned approximately $2.5 million of additional capital spending during the remainder of 2012. Its Matamoros expansion was expected to cost $14.5 million; approximately $12.5 million had been spent by September 30. Management said it did not expect to need the Mexican expansion revolver to complete the work.
- The Warsaw, Kentucky facility was permanently closed in October 2012 after its customer ended the supply relationship. Management did not anticipate an adverse Q4 financial impact from the operation or closure.
- Key risks include dependence on Navistar and PACCAR, which together represented about 75% of Q3 sales; concentration in truck markets; customer order changes; production inefficiencies; raw-material prices and availability; Mexican operating and currency exposure; and the ability to maintain debt covenant compliance and liquidity. Management cited commodity, interest-rate and foreign-currency risks.
- Management stated that cash from operations and available credit were expected to cover liquidity needs and that covenant compliance was forecast for the next 12 months, subject to assumptions including truck production estimates. No material change to previously reported risk factors was disclosed. No legal proceedings were reported; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether truck production, especially at Navistar and PACCAR, supports the Q4 and 2013 sales outlook.
- Whether gross margins recover as production inefficiencies are addressed and the Warsaw closure takes effect.
- Progress, remaining costs and expected returns from the Matamoros capacity expansion.
- Cash generation, revolver availability, debt maturities and continued compliance with credit covenants.
- The timing and amount of tooling revenue, which is sporadic and carries lower margins than product sales.