Core Molding Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. The company manufactures thermoplastic and thermoset structural products for truck, automotive, marine, building, consumer, and other commercial markets, operating as one segment.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $72.829 million | $64.023 million |
| Gross margin | $12.718 million; 17.5% | $10.766 million; 16.8% |
| Operating income | $5.346 million | $4.261 million |
| Interest expense | $0.579 million | $1.174 million |
| Income before taxes | $4.807 million | $3.107 million |
| Income tax expense (benefit) | $1.351 million | $(4.854) million |
| Net income | $3.456 million; $0.41 per diluted share | $7.961 million; $0.97 per diluted share |
| Operating cash flow | $(0.512) million | $5.379 million |
| Capital expenditures | $2.436 million | $0.456 million |
At March 31, 2021, cash was $3.027 million, total current assets were $69.823 million, and current liabilities were $46.309 million. Total debt, including revolving borrowings and current maturities, was approximately $32.005 million; $3.001 million was drawn on the revolver. The company reported $21.277 million available on its revolving line and was compliant with debt covenants. Total assets were $179.785 million and stockholders’ equity was $97.595 million.
Changes versus the prior period
- Sales increased 14% year over year. Product sales rose to $69.133 million from $61.930 million; tooling sales increased to $3.696 million from $2.093 million.
- Management attributed higher sales primarily to stronger heavy-duty truck, building-product, and consumer-product demand, as well as power-sports business launched in 2020. Truck product sales rose 9%.
- Gross margin improved to 17.5% from 16.8%, supported by product mix and manufacturing efficiencies; these benefits were partly offset by unfavorable selling-price and material-cost changes.
- Operating income increased 25%, while net income declined because Q1 2020 included a $5.638 million tax benefit from a valuation-allowance reversal and tax-law-related net operating loss carrybacks. Q1 2020 also included $0.225 million of credit-agreement forbearance fees.
- Operating cash flow weakened to an outflow, with working-capital changes using $7.570 million, primarily reflecting higher accounts receivable and inventory, partly offset by accounts payable.
- Interest expense fell, reflecting lower average debt and interest rates. Debt balances were refinanced in 2020; the Wells Fargo term loans mature in November 2024, while the FGI loan carries a fixed 8.25% rate and has scheduled payments through 2026.
Outlook, risks, and other notable items
- Management expects 2021 sales to increase versus 2020. It cited industry forecasts of approximately 41% growth in North American heavy-duty truck production and stronger customer forecasts in several other markets; this is company commentary, not formal quantified revenue guidance.
- Supply disruptions and higher material costs—linked to storms, port delays, supplier force majeure, and strong global demand—were expected to continue affecting revenue and costs through the rest of 2021. The company can pass through only part of material-cost increases for most business.
- Management anticipated up to $17.064 million of capital spending for the remainder of 2021, including approximately $3.9 million to expand direct long-fiber thermoplastic capacity in Matamoros, Mexico. Capital-expenditure commitments were $5.041 million at quarter-end.
- Management believes cash, operating cash flow, and available borrowing capacity will meet liquidity needs for the next 12 months and expects covenant compliance, while cautioning that materially weaker sales or higher expenses could impair liquidity and financing access.
- Customer concentration is significant: five customers—UFP, Navistar, Volvo, PACCAR, and BRP—each exceeded 10% of sales under the company’s stated definition. The filing warns that loss of a significant portion of sales to these customers could materially harm the business.
- Other cited risks include cyclical end-market demand, raw-material availability and pricing, labor availability and relations, customer order cancellations or rescheduling, foreign exchange, Mexico and Canada operating conditions, and execution of new program launches. No material litigation, significant off-balance-sheet arrangements, or material changes to previously disclosed risk factors were reported.
- No foreign-exchange contracts or interest-rate swaps were outstanding at March 31, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether forecast market growth and customer demand translate into company sales, and whether customer concentration changes.
- Whether material-cost inflation and supply disruptions persist, and how much cost increases the company can pass through.
- Working-capital conversion, especially receivables and inventory, and the ability to restore positive operating cash flow.
- Capital spending progress, returns from the Matamoros capacity expansion, and use of revolver availability.
- Debt service, covenant headroom, and the effect of variable-rate borrowing and refinancing conditions on liquidity.
- The comparability of reported earnings across periods given the unusually large Q1 2020 tax benefit.