Core Molding Technologies, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company manufactures sheet molding compound and molded reinforced-plastic products for truck, automotive, marine, construction, and other markets. Results are unaudited.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $54.856 million | $46.124 million | $104.455 million | $87.199 million |
| Gross margin | $10.982 million; 20.0% of sales | $7.599 million; 16.5% | $20.007 million; 19.2% | $14.244 million; 16.3% |
| Income before interest and taxes | $6.232 million | $3.873 million | $11.122 million | $6.989 million |
| Net income | $4.039 million | $2.520 million | $7.235 million | $4.640 million |
| Diluted earnings per share | $0.53 | $0.33 | $0.95 | $0.62 |
- Q2 sales rose about 19% year over year and net income about 60%. For the six-month period, sales increased about 20% and net income about 56%.
- Product sales drove growth: up about 24% in Q2 and 21% in the first half. Tooling sales were lower in Q2, while six-month tooling sales were broadly flat.
- Six-month operating cash flow was $8.203 million, versus $1.128 million in 2014. Investing used $16.920 million, including $14.512 million for the CPI acquisition and $2.408 million of capital expenditures. Financing provided $10.522 million. Cash increased $1.805 million to $4.117 million.
- At June 30, cash was $4.117 million and total debt was $15.821 million, compared with $2.312 million and $5.196 million at year-end 2014. The $18 million revolving facility was undrawn; the filing reports $18 million available. Current assets were $55.826 million and current liabilities $28.162 million.
Material developments and comparisons
- On March 20, 2015, the company acquired substantially all assets of CPI Binani for a net cash purchase price of $14.512 million. CPI added direct long-fiber thermoplastics capability and contributed to growth in sales to other customers. The company recorded $303,000 of acquisition-related expense in the first half.
- Sales growth reflected CPI and higher demand from Volvo and PACCAR. First-half product sales to Volvo rose 31% and to PACCAR 15%; product sales to Navistar declined 1%. Heavy- and medium-duty truck markets represented 77% of first-half sales, down from 82% in 2014.
- Management attributed higher gross-margin percentages to product mix and production efficiencies, favorable foreign exchange, selling-price and material-cost changes, CPI contribution, and better fixed-cost absorption. SG&A and interest expense increased, including from CPI, profit sharing, professional fees, labor costs, and higher average debt.
Outlook, risks, and other disclosures
- Management remained optimistic about 2015 and expected second-half sales to exceed the same period in 2014, while anticipating a seasonal Q3 impact from customer summer shutdowns. This is management’s outlook, not a guarantee.
- The company expected up to $7.235 million in remaining-2015 capital expenditures. Management said operating cash flow and available revolver borrowings should meet liquidity needs and forecast covenant compliance for the next 12 months. The company was in compliance with debt covenants at June 30.
- Key risks include dependence on major customers and truck-industry demand, raw-material cost and availability, commodity and foreign-exchange fluctuations, variable-rate debt, Mexico operating conditions, labor and supplier issues, delivery and order changes, and regulatory and environmental matters. Management warned that materially weaker sales or higher expenses could pressure liquidity and financing access.
- Four customers met the company’s major-customer threshold: Volvo, Navistar, PACCAR, and Yamaha. The filing reports no material change in previously disclosed risk factors, no legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether CPI’s sales, margins, and integration benefits continue after the acquisition, and how much of reported growth is attributable to CPI.
- Whether customer forecasts and truck-production volumes support management’s second-half sales outlook, particularly given customer concentration and seasonality.
- Progress on planned capital spending, cash conversion, working capital, debt repayment, and continued compliance with credit covenants.
- Exposure to raw-material inflation, foreign exchange, variable interest rates, and potential changes in customer orders or production schedules.