Core Molding Technologies, Inc. — Q3 2023 Form 10-Q
Business context and period. This unaudited filing covers the quarter and nine months ended September 30, 2023. Core Molding Technologies is a single-segment manufacturer of thermoplastic and thermoset structural products, serving truck, power sports, building products, industrial and utilities, and other markets.
Financial performance
Amounts are in millions of dollars except per-share data. Period comparisons are with the corresponding 2022 period.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $86.728 | $101.606 | $283.961 | $290.933 |
| Gross margin | $15.278 (17.6%) | $13.303 (13.1%) | $53.581 (18.9%) | $40.918 (14.1%) |
| Operating income | $5.875 | $4.632 | $24.019 | $15.029 |
| Net income | $4.354 | $1.319 | $18.142 | $7.371 |
| Diluted EPS | $0.49 | $0.16 | $2.08 | $0.87 |
| Operating cash flow | Not separately presented for quarter | $26.149 | $8.489 |
Q3 revenue declined about 14.6%, while net income rose about 230%. Nine-month revenue declined about 2.4%, while net income rose about 146%. Lower Q3 demand in power sports, building products and industrial markets drove lower sales; medium and heavy-duty truck sales were approximately flat in the quarter. Nine-month truck product sales increased to $140.104 million from $116.864 million, partly offset by declines in other markets and lower tooling sales.
SG&A was $9.403 million in Q3 and $29.562 million for the nine months, versus $8.671 million and $25.889 million, respectively. Management attributed the increase to items including higher compensation and bonuses, professional fees, and $0.540 million of one-time press relocation costs. Lower raw material costs, pricing recovery and operating efficiencies improved gross margin; foreign exchange and weaker fixed-cost leverage were offsets. 2022 comparisons included a $1.582 million debt-extinguishment loss related to refinancing.
Financial position and liquidity
- At September 30, 2023, cash was $18.035 million, up from $4.183 million at December 31, 2022. Current assets were $102.132 million and current liabilities $52.870 million.
- Gross debt was $23.603 million, compared with $24.564 million at year-end 2022; cash less gross debt implies net debt of about $5.568 million, versus $20.381 million at year-end.
- No borrowings were outstanding on the $25 million revolving facility or $25 million CapEx facility; both were available at quarter-end. The company reported compliance with credit covenants.
- Nine-month operating cash flow was $26.149 million; investing cash outflow was $6.803 million, primarily capital expenditures; financing cash outflow was $5.494 million. Capital spending was $9.575 million, including purchases recorded in accounts payable and other liabilities, and management expected full-year 2023 capital expenditures of $9–$11 million.
- The Huntington term loan is due July 2027. A swap fixed the rate on the term loan at 4.75% as of September 30, 2023. The credit agreement is secured by substantially all U.S. and Canadian assets and specified Mexican subsidiary equity.
Outlook, risks and other notable items
- Management expected Q4 2023 revenue to be 15%–20% below Q4 2022 and full-year 2023 revenue to be 5%–10% below 2022. It cited UAW strikes affecting customer facilities, lower industrial demand from inventory optimization, lower tooling revenue, return to normal seasonality and higher interest rates.
- For 2024, management anticipated revenue headwinds from macroeconomic tightening, truck-market cyclicality and certain programs reaching end of life. Industry analysts expected North American heavy-duty truck demand to decline in 2024 and rebound in 2025.
- Key exposures include customer production and order changes, reliance on major customers (BRP, Navistar, PACCAR, UFP and Volvo), raw-material prices and availability, labor, foreign exchange, interest rates, and conditions in Mexico. Management said 2023 raw-material prices were lower than the prior year and expected Q4 prices to remain below prior-year levels.
- Foreign-currency forward contracts had $20.222 million notional value; the interest-rate swap had $23.542 million notional value. Management’s hypothetical market-risk discussion identifies potential margin pressure from higher commodity costs or a weaker U.S. dollar against the Mexican peso and Canadian dollar.
- No material change in previously disclosed risk factors was reported. Management reported effective disclosure controls, no material off-balance-sheet arrangements, and no legal proceedings believed likely to materially affect the company.
Important facts for investors to verify
- Whether Q4 and full-year revenue expectations were met, particularly given customer strikes, industrial inventory reductions and lower tooling revenue.
- Whether improved gross margins are sustainable as input costs, pricing recovery, product mix and fixed-cost utilization change.
- Customer concentration and demand trends, especially among the five named major customers and in the truck and power sports markets.
- Cash conversion and working-capital needs, planned capital expenditures, and continued availability under the credit facilities.
- Debt covenant compliance and the effects of variable-rate borrowing, foreign exchange, commodity costs and hedging.