Core Molding Technologies, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparison is Q1 2013. The company manufactures sheet molding compound and molded reinforced-plastic products at facilities in the U.S. and Mexico, serving truck, automotive, marine, construction and other markets.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $41.075 million | $34.362 million | +19.5% |
| Gross margin | $6.645 million; 16.2% of sales | $5.890 million; 17.1% of sales | Margin down about 1 percentage point |
| Income before interest and taxes | $3.116 million | $2.617 million | +19.1% |
| Net income | $2.120 million | $1.681 million | +26.1% |
| Basic / diluted EPS | $0.29 / $0.28 | $0.24 / $0.23 | Higher |
| Operating cash flow | $(0.853) million | $1.310 million | Lower |
| Capital expenditures | $3.436 million | $2.308 million | Higher |
Product sales rose approximately 24%, largely due to Volvo business awarded in 2013. Tooling sales fell to $0.411 million from $1.504 million and fluctuate with customer project timing. Gross margin was pressured by a mix shift toward lower-margin products and Volvo program start-up inefficiencies; improved fixed-cost absorption partly offset these effects. SG&A increased to $3.529 million from $3.273 million.
Cash, debt and liquidity
Cash was $1.289 million at March 31, 2014, down from $2.266 million at year-end 2013. The operating cash outflow reflected, in part, a $5.379 million increase in accounts receivable; accounts payable increased $2.068 million. Net cash used in investing was $3.436 million, primarily for capacity-expansion equipment. Financing activities provided $3.312 million, including net revolving-credit borrowings.
Total debt was $8.551 million, including $4.837 million drawn on the revolving credit facility; $2.000 million was classified as long-term debt. The $18 million revolver matures May 31, 2015, and $13.163 million remained available at quarter-end. The company reported compliance with debt covenants and expects to remain compliant for the next 12 months. Management believes operating cash flow and available borrowing capacity will meet liquidity needs.
Changes, outlook and risks
- Volvo sales increased to $10.246 million from $1.746 million as the new program ramped up. PACCAR sales declined 27% overall, with product sales down 24%, as older programs wound down and replacement-program sales were below expectations. Yamaha sales increased 25%; Navistar sales increased 4%.
- Heavy- and medium-duty truck markets represented 81% of sales, compared with 80% a year earlier. Four customers—Navistar, Volvo, PACCAR and Yamaha—each represented more than 10% of sales.
- Management anticipated higher 2014 sales than in 2013, citing analysts’ expectations for moderate truck-production growth and the full-year contribution from Volvo. The company expected to spend up to $9.6 million on property, plant and equipment during the remainder of 2014; capital-expenditure commitments were $5.868 million at quarter-end.
- The effective tax rate was approximately 31%, versus 34% a year earlier. Disqualifying dispositions of stock awards reduced tax expense; the filing reports a $75,000 tax-expense credit and a $223,000 credit to paid-in capital.
- Principal risks include dependence on major customers and truck-market demand, raw-material prices and availability, Mexico-related conditions, labor and supply risks, order cancellations or rescheduling, and the funding and execution of capacity expansions. A hypothetical 10% increase in commodity prices would adversely affect margins. The filing reported no material change in previously disclosed risk factors, no legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether Volvo program growth and other customer demand offset PACCAR declines and customer concentration risk.
- Whether gross margins recover as Volvo start-up inefficiencies ease and product mix changes.
- Whether receivables convert to cash and operating cash flow supports planned capital spending.
- Progress, costs and returns from the compression-molding and SMC capacity expansions, including reliance on revolver funding.
- Ongoing covenant compliance and refinancing or liquidity needs before the revolver’s May 2015 maturity.
- The extent to which the lower Q1 tax rate reflects nonrecurring equity-award tax benefits.