Gencor Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013; filed August 13, 2013. The interim financial statements are unaudited. Gencor manufactures heavy equipment, including asphalt plants and combustion systems, and its business is seasonal.
Financial performance
| Metric | Quarter ended June 30, 2013 | Prior-year quarter | Nine months ended June 30, 2013 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $18.690 million | $22.986 million | $41.375 million | $49.189 million |
| Gross margin | 26.6% | 25.0% | 23.5% | 21.4% |
| Operating income | $2.683 million | $2.401 million | $2.581 million | $1.775 million |
| Net income | $2.489 million | $1.192 million | $4.490 million | $4.833 million |
| Diluted earnings per share | $0.26 | $0.13 | $0.47 | $0.51 |
| Operating cash flow | Not presented by quarter | $6.237 million | $9.818 million |
- Quarterly revenue declined 18.7%, while operating income rose as improved margins and lower engineering and selling, general and administrative costs more than offset reduced sales.
- For the nine-month period, revenue declined 15.9%. Operating income improved, but net income fell 7.1%, partly reflecting lower investment gains: $888,000 versus $3.548 million in the prior-year period.
- Quarterly net income benefited from a $350,000 reduction in tax provision associated with research and development credits. For the nine months, the company recorded a $1.1 million tax receivable and corresponding tax-provision reduction; final audit results were not complete.
Financial position and liquidity
- At June 30, 2013, cash was $8.491 million and marketable securities were $82.023 million, compared with $3.361 million and $81.375 million, respectively, at September 30, 2012.
- Working capital was $102.4 million, up from $96.2 million at fiscal year-end. Current assets totaled $108.472 million and current liabilities $6.110 million.
- Total liabilities were $8.778 million; shareholders’ equity was $108.135 million. The company reported no short- or long-term interest-bearing debt.
- Nine-month operating cash flow was $6.237 million; capital expenditures were $1.107 million. Cash increased $5.130 million to $8.491 million. No financing cash flows were reported.
Management commentary, outlook and risks
- Management attributed weaker sales to subdued domestic road-building activity and fewer federal and state highway projects. It cited lower material costs and improved manufacturing efficiency for stronger gross margins, and cost containment, workforce reductions and lower legal expenses for reduced operating costs.
- Management described the business as seasonal, with order activity generally concentrated between October and February and shipments primarily before May. It is conserving cash and reviewing operations and costs; the filing provides no specific revenue or earnings guidance.
- Demand is exposed to economic conditions, highway funding, infrastructure spending, oil and freight costs, and steel prices. The company may not be able to pass all cost increases to customers. Its investment portfolio is also exposed to market, interest-rate and credit risks.
- A customer group associated with a global company accounted for 13% of nine-month revenue, versus 27% in the prior-year period; quarterly concentration was 2%, versus 44%. Customer financial condition and concentration warrant attention.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the period. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether highway-project demand and orders improved after June 30, 2013, given the revenue decline and seasonality.
- Final IRS audit outcomes and collectability of the recorded $1.1 million research and development tax-credit receivable, as well as any subsequent credits not yet recorded.
- Investment portfolio performance, composition and exposure to market, interest-rate and credit risks.
- Changes in major-customer concentration, operating cash conversion and working capital as contracts progress.