Core Molding Technologies, Inc. — Q3 2013 Form 10-Q
Business context and period. The company manufactures sheet molding compound and molded fiberglass-reinforced plastics for truck, marine, automotive, agricultural, construction and other commercial markets. This unaudited filing covers the three and nine months ended September 30, 2013; comparisons are with the same 2012 periods.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $37.434 million | $37.681 million | $106.477 million | $126.754 million |
| Gross margin | $6.370 million (17% of sales) | $4.989 million (13%) | $18.249 million (17%) | $19.646 million (15%) |
| Income before interest and taxes | $2.948 million | $1.957 million | $8.065 million | $9.414 million |
| Net income | $1.960 million | $1.151 million | $5.230 million | $6.127 million |
| Diluted EPS | $0.26 | $0.16 | $0.71 | $0.83 |
- Q3 total sales declined about 1% year over year, while product sales rose about 1%; tooling revenue was lower overall but varied substantially by customer and project.
- For the first nine months, sales fell about 16% and product sales fell about 17%, primarily reflecting weaker North American heavy- and medium-duty truck demand. Net income declined about 15%.
- Q3 gross margin improved as a share of sales, which management attributed to a higher-margin sales mix, favorable material pricing adjustments and improved production efficiencies. For the nine-month period, these benefits were partly offset by lower fixed-cost absorption from reduced volume.
- Q3 SG&A increased to $3.422 million from $3.032 million; nine-month SG&A was nearly flat at $10.184 million versus $10.232 million. Nine-month interest expense was $183,000, down from $221,000.
- Nine-month operating cash flow was $5.804 million, compared with $5.323 million. Capital expenditures, net of asset-sale proceeds, used $7.035 million; financing activities used $3.231 million. Cash declined $4.462 million to $3.376 million.
- At September 30, total debt was $6.171 million, down from $9.477 million at year-end 2012; no revolving-line borrowings were outstanding. The $18 million revolver was available, subject to its terms, and matures May 31, 2015. Current assets were $37.049 million and current liabilities $19.366 million.
- Total assets were $94.499 million and stockholders’ equity $63.496 million. The company reported compliance with its debt covenants at quarter-end.
Outlook, developments and risks
- Management expected sales in Q4 2013 and into 2014 to rise from recent-quarter levels, citing the ramp-up of new Volvo Group North America business, truck-industry and customer forecasts, and other product launches. This is forward-looking, not a guarantee.
- The company was expanding compression-molding capacity and planning additional SMC compounding capacity. It expected to invest up to $17 million through 2014; about $5.6 million had been spent by September 30. Capital-expenditure commitments were $4.582 million, and management anticipated up to $5 million of property, plant and equipment spending for the rest of 2013.
- After quarter-end, on October 31, 2013, the company amended its credit agreement to reduce the applicable interest-rate margin from 175 to 160 basis points.
- Customer concentration is material: PACCAR and Navistar were each major customers. Heavy- and medium-duty truck products accounted for 81% of nine-month sales, versus 86% a year earlier. Results are exposed to truck demand, customer dependence, raw-material prices and availability, foreign currency, Mexico-related conditions, labor, supply-chain, order-cancellation and execution risks. Management cautioned that actual sales or costs differing substantially from forecasts could impair liquidity or financing access.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Key facts investors should verify
- Whether the anticipated Volvo and other product launches ramped as expected, and whether the projected Q4 2013 and 2014 sales improvement materialized.
- Actual demand and product volumes from PACCAR, Navistar and the broader truck market; tooling sales are project-driven and can be volatile.
- Expansion project timing, total cost, remaining commitments and expected capacity utilization, including the planned SMC investment.
- Cash conversion and working-capital trends: the nine-month period included a $4.816 million increase in accounts receivable.
- Debt-covenant headroom and liquidity under weaker-than-forecast sales or higher raw-material costs; the revolver was undrawn at September 30, 2013.