Miller Industries, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, with unaudited fourth-quarter results also disclosed. Financial amounts below are in U.S. dollars; “million” figures are rounded.
Business context
Miller Industries manufactures towing and recovery equipment, including wreckers, car carriers and transport trailers. It sells through independent distributors and government prime contractors, with manufacturing operations in the U.S., France and the U.K. Management describes the company as the world’s largest manufacturer in its industry.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net sales | $818.2 million | $711.7 million |
| Gross profit / gross margin | $96.5 million / 11.8% | $83.3 million / 11.7% |
| Net income | $39.1 million | $33.7 million |
| Diluted EPS | $3.43 | $2.96 |
| Cash from operating activities | $35.1 million | $21.9 million |
| Cash and temporary investments at year-end | $26.1 million | $27.0 million |
| Working capital at year-end | $163.2 million | $149.8 million |
FY 2019 net margin was approximately 4.8%, versus 4.7% in 2018. Investing activities used $17.1 million, primarily for capital expenditures; financing activities used $18.6 million, including $10.0 million of net credit-facility repayments and $8.2 million of dividends. Capital expenditures were $17.4 million.
At year-end, borrowings were $5.0 million under the $50 million unsecured revolving facility and $0.4 million under a French subsidiary loan. The facility matures May 31, 2022; the company reported compliance with its covenants. Operating and finance lease liabilities totaled about $1.6 million. The company paid annual dividends of $0.72 per share.
Fourth quarter: Sales were $203.1 million, net income $11.7 million and diluted EPS $1.03, compared with $180.0 million, $10.8 million and $0.95, respectively, in fourth-quarter 2018.
Material changes versus prior year
- Sales increased 15.0%, primarily due to stronger demand and increased domestic production capacity. Domestic sales rose to $697.0 million from $574.8 million; foreign sales declined to $121.2 million from $136.9 million, largely due to timing and mix of government and other customer deliveries.
- Gross margin edged up to 11.8% from 11.7%, reflecting product mix and production-efficiency efforts. SG&A rose to $43.4 million from $39.5 million but declined as a share of sales to 5.3% from 5.6%.
- Net income rose 15.9%. The effective tax rate increased to 22.4% from 19.0%, principally because 2018 included a favorable adjustment to the deemed repatriation tax liability.
- Operating cash flow increased to $35.1 million, aided by revenue growth and a favorable inventory change. Credit-facility borrowings fell to $5.0 million from $15.0 million.
- The company opened a Chattanooga R&D facility and introduced the M100 heavy-duty tow truck. It continued facility modernization and capacity investments.
Outlook, risks and contingencies
- Management stated that cash, operating cash flow and available credit were expected to meet cash needs for 2020 and the next several years; this outlook is subject to operating and economic conditions. The filing provides no quantified sales or earnings guidance.
- Management noted that government orders were somewhat lower in 2019 due mainly to delivery timing and emphasized securing replacement orders as existing programs conclude.
- The filing identifies cyclical demand, customer access to financing, steel and aluminum costs and availability, supplier and chassis delays, production capacity, skilled labor, foreign exchange, Brexit and government-contract risks. COVID-19’s potential effects on supply chains, operations and markets were uncertain when the filing was made.
- Distributor-lender repurchase commitments had a maximum potential exposure of $74.0 million, up from $49.7 million. Management considered the liability not probable and not material; no repurchases were required in 2019 or 2018.
- Purchase obligations were $51.3 million, including open orders for materials and components. The company also disclosed $8.4 million of remaining software-license payments and $3.6 million of capital-project commitments.
- Routine litigation was disclosed; management did not expect any resulting liability beyond recorded accruals and insurance to materially affect financial position or results. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Key facts for investors to verify
- Whether demand, production capacity and margins remained resilient after the strong 2019 sales growth, particularly amid COVID-19-related disruption.
- Whether steel, aluminum, component and chassis costs or supply delays affected production, pricing and delivery performance.
- Government-order timing and replacement awards, and the trend in foreign sales and currency effects.
- Cash conversion and working-capital requirements, including the growth in receivables, and whether the $74.0 million distributor repurchase exposure changes.
- Future capital spending and software commitments, credit-facility covenant headroom, and the board’s discretion to maintain dividends.