Gibraltar Industries, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in USD millions unless stated otherwise. Gibraltar makes products and provides services for renewable energy and conservation, residential, industrial, and infrastructure markets.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $285.8 | $262.7 | $535.3 | $490.1 |
| Gross profit / margin | $72.3 / 25.3% | $63.6 / 24.2% | $128.6 / 24.0% | $107.5 / 21.9% |
| Operating income / margin | $34.6 / 12.1% | $26.6 / 10.1% | $49.8 / 9.3% | $37.2 / 7.6% |
| Net income | $27.3 | $19.9 | $39.4 | $26.3 |
| Diluted EPS | $0.83 | $0.61 | $1.20 | $0.80 |
- Q2 sales increased 8.8%; first-half sales increased 9.2%. Management attributed most of the growth to acquisitions, with organic growth also contributing.
- Q2 consolidated gross margin rose to 25.3% from 24.2%; first-half margin increased to 24.0% from 21.9%. Management cited improved operating execution, better alignment of material costs and selling prices, and 80/20 initiatives; lower margins at recent acquisitions partly offset improvement.
- Q2 SG&A was $37.7 million (13.2% of sales), versus $37.0 million (14.1%). First-half SG&A was $78.9 million (14.7%), versus $70.3 million (14.3%), reflecting acquisition costs and organizational investments.
- First-half operating cash flow was negative $7.3 million, compared with positive $6.5 million in 2019. Management cited working-capital and other asset investment, including $42.4 million for Thermo, and incentive, rebate, and pension-related payments.
- First-half investing cash use was $58.9 million, mainly for acquisitions and $5.2 million of capital expenditures. Cash declined $70.5 million from year-end to $120.9 million.
- At June 30, cash was $120.9 million; no long-term debt or revolving-credit borrowings were outstanding. Revolver availability was $394.1 million after letters of credit, and the company reported compliance with its credit covenants.
Material changes and business developments
- Renewable Energy and Conservation sales rose 29.3% in Q2 and 34.5% in the first half, including contributions from Delta Separations, Thermo, and Apeks. Q2 segment operating margin declined to 9.4% from 12.7%, partly due to acquisition margins and softness in cannabis growing solutions.
- Residential Products sales increased 6.9% in Q2 and 3.7% in the first half. Q2 segment operating margin increased to 20.0% from 15.9%; management cited strong repair-and-remodel activity, pricing/cost alignment, volume leverage, and simplification benefits.
- Industrial and Infrastructure Products sales declined 14.4% in Q2 and 12.2% in the first half amid lower industrial demand; Q2 segment operating margin improved to 13.8% from 7.2%.
- The company acquired Thermo in January and Delta Separations in February 2020, funded from cash on hand. First-half acquisition cash outlays were $54.4 million. Goodwill increased to $378.7 million, including $49.0 million of acquired goodwill.
- Gibraltar sold its self-guided apartment tour application business on June 30. The sale generated a reported $1.9 million pretax gain, included in other income; it was not treated as a discontinued operation.
Outlook, risks, and unusual items
- Management suspended quantitative guidance because the pandemic made reliable forecasting difficult. It said momentum and market trends supported a solid second-half outlook and expected the second half to be stronger than the first, while emphasizing uncertainty and planning to revisit guidance in three months.
- Management said COVID-19 had not materially adversely affected reported first-half results, but warned that further disruption could affect demand, supply chains, workforce and subcontractor availability, distribution, operations, liquidity, and cash flows.
- Other notable items include $1.9 million of pretax sale gain and $1.3 million of first-half exit-activity and asset-impairment charges. Acquisition-related costs were $2.5 million in the first half.
- The company deferred employer Social Security taxes, expecting to retain approximately $4 million during the remainder of 2020, with repayment in 2021 and 2022. Certain businesses also qualified for payroll-tax credits or subsidies.
- Management reported no material change to previously disclosed risk factors other than the COVID-19 risk, and no material change in internal control over financial reporting. The filing lists no applicable legal proceedings.
Important facts for investors to verify
- Whether second-half sales, backlog, and margins support management’s qualitative outlook as COVID-19 and end-market conditions evolve.
- How much of reported growth and profitability is attributable to acquisitions versus organic performance, and whether acquired businesses achieve expected margins and integration benefits.
- Whether operating cash flow recovers as acquisition-related working-capital needs and other cash uses normalize.
- Current liquidity, covenant compliance, and the effect of any additional acquisition or capital-allocation decisions.
- Acquisition accounting, including Thermo’s preliminary purchase-price allocation, and the company’s assessment of goodwill and other intangible-asset impairment risk.