Miller Industries, Inc. — Q1 2018 Form 10-Q
Business context and period: Miller Industries manufactures towing and recovery equipment, selling primarily through independent distributors. This unaudited report covers the three months ended March 31, 2018; comparisons are with Q1 2017 unless noted. Amounts below are in millions except per-share data.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net sales | $159.2 | $148.9; up 6.9% |
| Gross profit | $18.4 | $15.4 |
| Gross margin | 11.6% | 10.3% |
| Net income | $6.7 | $3.8; up 73.7% |
| Diluted EPS | $0.59 | $0.34 |
| Cash from operating activities | $(1.9) | $(3.1) |
| Capital expenditures, net of asset-sale proceeds | $(3.8) | $(6.4) |
North American sales were $131.6 million versus $130.7 million; foreign sales rose to $27.5 million from $18.3 million. Costs of operations increased 5.4%, slower than sales growth, and declined as a share of sales from 89.7% to 88.4%. SG&A rose to $9.6 million from $9.0 million and remained stable as a percentage of sales. Net income benefited in part from a $0.9 million net foreign-currency translation gain included in other income.
At March 31, cash and temporary investments were $15.1 million, down from $21.9 million at year-end. Current assets were $235.8 million and current liabilities $106.2 million. The company reported $10.0 million outstanding on its $50 million credit facility, leaving $40.0 million unused; total long-term obligations, including the French subsidiary loan, were $11.1 million. Subsequent to quarter-end, credit-facility borrowings were $15.0 million at April 30, primarily to fund working capital. The quarterly dividend was $0.18 per share, unchanged from 2017.
Changes, outlook, risks and unusual items
- Management attributed higher sales to continued strong domestic and international demand and positive consumer sentiment. It cited product mix and cost monitoring for the improved cost-of-operations ratio.
- The company expects cash on hand, operating cash flow and available credit to meet cash needs in 2018 and for the next several years, while noting this depends on operating performance and economic factors. It anticipated continued compliance with credit-facility covenants in 2018.
- Cash used in operations remained negative, reflecting working-capital outflows, notably inventory. The company had approximately $7.1 million of capital commitments at quarter-end. An Ooltewah administrative building was estimated to cost $4.2 million; about $3.2 million had been incurred, with the remainder expected in Q2 2018.
- Adoption of the new revenue standard in January delayed recognition for painting activities until completion and shipment. It reduced Q1 reported sales by $0.9 million and net income by $0.1 million versus amounts calculated without adoption. Comparative periods were not restated; management did not expect a material ongoing impact.
- The effective tax rate fell to 28.5% from 35.9%, primarily reflecting the Tax Cuts and Jobs Act. The estimated deemed-repatriation tax liability was revised upward to $1.335 million at March 31.
- Key risks include cyclical demand, customer access to credit, raw-material costs and availability, and potential tariffs on imported European steel. The company also cited foreign-currency, interest-rate, supplier, labor, product-liability, regulatory and operational risks. It reported no material changes to the risk factors in its 2017 Form 10-K.
- Potential distributor-product repurchase obligations had a maximum stated amount of $54.5 million; management said the value of products and other factors mitigated exposure and the related liability was not material or probable. Routine litigation was disclosed, with management not expecting excess liabilities to materially affect results or financial position.
Important facts for investors to verify
- Whether sales growth and improved gross margin continue, particularly in foreign markets, and how demand responds to cyclical conditions.
- Working-capital trends, especially inventory growth and operating cash flow, alongside use of the credit facility after quarter-end.
- Actual completion costs and timing for the administrative building and other capital commitments.
- Effects of input-cost changes or tariffs, foreign-currency movements, and the revised tax liability on future results and cash flows.
- Credit-facility maturity, covenant compliance, and the terms and potential exposure of distributor repurchase arrangements.