Preformed Line Products Company: FY2021 Form 10-K Summary
Business context and reporting period
Preformed Line Products Company designs and manufactures hardware and systems supporting overhead and underground energy, telecommunications, cable, data communication and solar networks. The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a standalone fourth-quarter filing. The company operates through four geographic segments: PLP-USA, The Americas, EMEA and Asia-Pacific.
Revenue mix was approximately 61% energy, 30% communications and 9% special industries. International sales represented approximately 50% of consolidated sales. No individual customer accounted for more than 10% of revenue.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $517.4 million | $466.4 million | +11% |
| Gross profit | $166.2 million | $154.0 million | +8% |
| Gross margin | 32.1% | 33.0% | Down 90 basis points |
| Operating income | $47.5 million | $40.2 million | +18% |
| Operating margin | 9.2% | 8.6% | Up 60 basis points |
| Net income attributable to PLP shareholders | $35.7 million | $29.8 million | +20% |
| Diluted earnings per share | $7.19 | $5.98 | +20% |
| Net cash provided by operating activities | $33.6 million | $41.6 million | Down $8.0 million |
| Capital expenditures | $18.4 million | $24.6 million | Down $6.2 million |
| Cash, cash equivalents and restricted cash | $36.4 million | $45.2 million | Down $8.8 million |
| Total debt | $59.6 million | $56.0 million | Up $3.6 million |
Gross margin declined primarily because of commodity, freight and other inflationary pressures, despite price increases. Operating income benefited from higher sales, product mix and expense control. Net income included approximately $2.1 million of pretax income from a Brazilian tax-overpayment recovery.
At December 31, 2021, current assets were $272.1 million and current liabilities were $105.5 million, producing a current ratio of 2.6 to 1. The company had $51.7 million of unused availability under its $65.0 million credit facility, net of letters of credit, and was in compliance with its debt covenants. Bank debt to equity was 18.8%.
Cash flow was affected by working-capital investment, including a $24.2 million increase in inventories and an $11.6 million increase in accounts receivable. Cash uses included $18.4 million of capital expenditures, $14.2 million of net debt payments, $5.3 million of share repurchases and $4.1 million of dividends paid.
Material changes versus the prior comparable period
- Net sales increased 11%, with PLP-USA sales up 28%; international sales excluding currency translation increased approximately 2% overall.
- Communications sales increased as North American and global project activity expanded, while Asia-Pacific sales excluding currency effects declined 12% because of COVID-19-related project postponements.
- Energy products remained the largest category, but communications increased to approximately 30% of revenue from 24% in 2020.
- Foreign currency translation increased reported sales by $9.3 million and net income by $0.4 million.
- Asia-Pacific reported a $0.7 million net loss attributable to PLP shareholders, compared with $1.5 million of net income in 2020. EMEA net income declined 49% excluding currency effects, while The Americas improved.
- Backlog increased to approximately $242.9 million from $115.1 million, with substantially all year-end 2021 backlog expected to ship in 2022.
- The company purchased a new corporate aircraft financed by a $20.5 million term loan; $18.8 million remained outstanding at year-end.
- The company paid $5.3 million for share repurchases during 2021 and maintained a quarterly dividend of $0.20 per share.
Guidance, outlook, commentary, risks and unusual items
Management did not provide formal quantitative revenue or earnings guidance. Management expects backlog-related benefits from 2021 price increases to support 2022 results, but warned that continued metal, plastics, freight and labor inflation may require additional price increases that could reduce demand.
Management expects operating cash flow, existing cash and the credit facility to fund debt repayments, capital expenditures and dividends for the foreseeable future. On March 2, 2022, after year-end, the credit facility was increased from $65.0 million to $90.0 million, its maturity was extended to March 2, 2026, and the interest-rate reference changed from LIBOR to BSBY, with an option to use SOFR.
Subsequent to year-end, the company acquired Maxxweld in Brazil for approximately $11.2 million and Holplast in the Czech Republic for approximately $5.3 million. It also expects approximately $7.0 million of life-insurance proceeds following the January 2022 death of Director Emeritus Barbara P. Ruhlman.
- Primary risks include supply-chain disruption, raw-material and transportation inflation, inability to pass through costs, customer project delays and dependence on energy and telecommunications capital spending.
- COVID-19 continued to affect Asia-Pacific operations and project timing; management stated that the potential future financial impact cannot be reasonably estimated and could be material.
- Approximately 38% of indebtedness bore floating interest rates at year-end. A 100-basis-point increase in rates would have increased 2021 interest expense by approximately $0.6 million.
- Foreign-exchange exposure remained material; management estimated that a hypothetical 10% currency movement would affect pretax income by approximately $1.6 million.
- The company faces a Canadian legal claim seeking approximately C$56.0 million related to alleged defects in spacer dampers. The company believes the claims lack merit but has recorded a reserve at the low end of the potential-loss range; an adverse outcome could materially affect results.
- Goodwill totaled $28.2 million. The Asia-Pacific reporting unit had approximately $7.3 million of goodwill and fair value approximately 10% above carrying value after impairment testing; no goodwill impairment was recorded.
Most important facts for investors to verify
- Whether elevated backlog converts to revenue and cash flow in 2022 without materially higher working-capital requirements.
- Whether price increases offset continuing raw-material, freight and labor inflation without reducing demand.
- The recovery trajectory of Asia-Pacific operations and the effect of ongoing project delays.
- The terms, integration progress and returns from the Maxxweld and Holplast acquisitions.
- Future borrowing levels, floating-rate exposure, covenant compliance and the effect of the expanded credit facility.
- The potential financial exposure from the Canadian spacer-damper litigation and other legal matters.
- Goodwill impairment sensitivity, particularly for the Asia-Pacific reporting unit.
- The filing’s audited financial statements and internal controls received unqualified opinions from Ernst & Young LLP.