Core Molding Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Core Molding operates one segment, manufacturing molded thermoplastic and thermoset structural products for truck, marine, automotive, building, power-sports and other commercial markets.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $80.5 million | $37.8 million | $153.3 million | $101.8 million |
| Gross margin | $13.7 million; 17.1% | $2.9 million; 7.7% | $26.5 million; 17.3% | $13.7 million; 13.4% |
| Operating income (loss) | $6.2 million | ($1.2 million) | $11.5 million | $3.1 million |
| Net income (loss) | $4.1 million | ($2.3 million) | $7.5 million | $5.7 million |
| Diluted EPS | $0.48 | ($0.29) | $0.89 | $0.69 |
| Operating cash flow | Not provided separately | Not provided separately | $8.5 million | $18.5 million |
- Q2 sales increased about 113% year over year; first-half sales increased about 51%. Product sales drove the increase, while tooling revenue was lower in Q2 and higher for the first half.
- First-half operating cash flow fell despite higher earnings, principally because accounts receivable and inventories absorbed cash. Capital expenditures were $5.4 million; cash increased to $5.6 million from $4.1 million at year-end.
- At June 30, current assets were $78.8 million and current liabilities $51.7 million, a current ratio of approximately 1.52. Total assets were $188.4 million; stockholders’ equity was $102.1 million.
- Debt at the balance-sheet carrying amounts was approximately $26.8 million, including $23.2 million long-term debt, $3.4 million current debt and $0.2 million revolving borrowings. Gross term-loan principal was $28.3 million before deferred loan costs. Revolver availability was $23.7 million; the company reported covenant compliance.
Changes, drivers and management outlook
- Management attributed the sales recovery to higher demand in heavy-duty trucks, building products, power sports and consumer products, with the prior-year comparison affected by COVID-19-related customer shutdowns. First-half truck product sales rose 41.3%; the North American truck market represented 42% of product revenue in both comparable six-month periods.
- Improved production efficiencies, product mix and fixed-cost absorption lifted margins. These benefits were partly offset by unfavorable selling-price and material-cost movements. SG&A rose, including from higher labor and benefit costs; prior-year SG&A benefited from cost reductions and $1.4 million of COVID-related government subsidies.
- Raw-material inflation was approximately $10.4 million in the first half; the company recovered about $5.3 million through customer pass-throughs. Management expects elevated material costs and some supply-chain disruption to continue through the rest of 2021, and says it expects to recover some, but not all, of further increases.
- Management expects second-half 2021 sales to exceed the second half of 2020, citing customer forecasts and industry projections. ACT Research forecast North American heavy-duty truck production growth of about 37% for the second half. The company cautioned that customer supply-chain interruptions could temporarily halt production and affect its sales. No company-specific revenue or earnings guidance was provided.
- Planned capital spending for the remainder of 2021 was up to $14.5 million, including approximately $3.4 million to expand direct long-fiber thermoplastics capacity in Matamoros, Mexico. Management expects cash, operating cash flow and available credit to meet liquidity needs for the next 12 months, subject to forecast and covenant assumptions.
Risks, contingencies and unusual items
- Key exposures include raw-material prices and availability, customer and supplier disruptions, labor availability and costs, cyclical truck demand, foreign exchange, variable interest rates, and dependence on major customers. Five customers were identified as major customers; management warns that loss of significant sales to them could materially harm the business.
- First-half 2020 net income included a $5.6 million tax benefit from a valuation-allowance reversal and tax-law-enabled loss carrybacks. This makes the year-over-year net-income comparison less representative of operating improvement. First-half 2021 tax expense was $2.9 million, or 27.7% of pretax income.
- Interest expense declined to $1.2 million for the first half from $2.4 million, partly because 2020 included $450,000 of credit-agreement forbearance fees. The company reported no foreign-exchange contracts or interest-rate swaps outstanding at June 30, 2021.
- The filing reports no material-adverse-effect legal proceedings, no significant off-balance-sheet arrangements and no material change in previously disclosed risk factors. Management reported disclosure controls as effective.
- After quarter-end, on August 5, the company amended executive employment agreements and its cash incentive plan. The filing describes salary, incentive and severance terms; investors may wish to assess potential compensation and change-in-control costs.
Important facts for investors to verify
- Whether sales recovery and margin gains persist as customer demand, production volumes and fixed-cost utilization change.
- Whether material-cost increases, supply constraints and customer pass-throughs develop as management expects.
- Working-capital trends—especially receivables and inventory—and the resulting cash conversion as sales grow.
- Planned capital spending, its funding, and the returns from the Matamoros capacity expansion.
- Debt repayment, revolver availability and covenant headroom under weaker-than-forecast sales or margins.
- Customer concentration and any production interruptions or order cancellations among major customers.