Gibraltar Industries, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Gibraltar manufactures and distributes products serving residential, industrial and infrastructure, and renewable energy and conservation markets. Results are unaudited; the company notes that its operations are seasonal and interim results may not indicate full-year performance.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net sales | $262.7 million | $266.0 million | $490.1 million | $481.4 million |
| Gross profit / margin | $63.6 million / 24.2% | $70.5 million / 26.5% | $107.5 million / 21.9% | $118.8 million / 24.7% |
| Operating income / margin | $26.6 million / 10.1% | $32.3 million / 12.1% | $37.2 million / 7.6% | $46.1 million / 9.6% |
| Net income | $19.9 million | $22.8 million | $26.3 million | $31.2 million |
| Diluted EPS | $0.61 | $0.70 | $0.80 | $0.96 |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $6.5 million | $(3.8) million |
Q2 sales declined 1.2%; pricing improved 2.7% but volume fell 5.2%. For the first half, sales rose 1.8%, as 4.1% higher pricing more than offset a 3.5% volume decline. Margins contracted in both comparisons, primarily from unfavorable material-cost-to-price alignment, lower volume leverage and solar tracker field-improvement costs. SG&A declined 3.3% in each period, helped by lower performance compensation, but included higher leadership transition and simplification costs. Interest expense fell to $0.2 million in Q2 and $2.3 million for the half, following the notes redemption.
Segments and material changes
- Residential Products: Q2 sales were $130.4 million, down 0.5%; first-half sales were $234.1 million, down 0.4%. Management cited weaker building-product demand, including unfavorable early-quarter weather and labor shortages; pricing increases partly offset the decline. Operating margins fell to 15.9% for Q2 and 14.0% for the half.
- Industrial and Infrastructure Products: Q2 net sales were $56.2 million, down 8.1%; first-half sales were $111.1 million, down 3.9%. Lower expanded-metal volumes, as customers used existing inventories amid lower steel prices, were partly offset by infrastructure growth. Operating margins were 7.2% for Q2 and 7.4% for the half.
- Renewable Energy and Conservation: Q2 sales were $76.0 million, up 3.1%; first-half sales were $144.8 million, up 10.8%. Greenhouse demand and SolarBOS contributed to growth, while solar revenues were affected by a pause in new tracker projects during field modifications. Operating margin was 12.7% in Q2 and 7.8% for the half, pressured by tracker improvement costs.
Cash, debt and liquidity
Cash and equivalents were $81.9 million at June 30, down from $297.0 million at year-end. The $215.1 million first-half cash decline principally reflects $212.0 million of debt repayments and related financing uses. Operating cash flow was $6.5 million, including a $38.5 million investment in working capital and other net assets; the increase in receivables was attributed mainly to seasonal manufacturing activity. Investing cash outflow was $6.5 million, including $6.3 million of capital expenditures.
The company redeemed its $210 million 6.25% senior subordinated notes on February 1, 2019, and reported no debt outstanding at June 30. It had $394.0 million available under its $400 million revolving credit facility, net of $6.0 million in letters of credit, plus $81.9 million cash; reported total liquidity was $475.9 million. The facility runs through January 2024, and the company said it was in compliance with all three financial covenants. Operating lease liabilities totaled $30.3 million after adoption of the new lease standard.
Outlook, risks and unusual items
- Management maintained 2019 guidance: consolidated revenue expected to exceed $1 billion and full-year GAAP EPS of $1.95–$2.10, versus $1.96 in 2018. Q3 revenue guidance is $288–$298 million and GAAP EPS guidance is $0.71–$0.78, versus $0.60 in Q3 2018.
- Management cited growing backlogs across greenhouse, solar, perimeter-security and infrastructure products and expects positive end-market activity in the second half. It expects paused solar tracker installations to proceed as planned after field modifications. These are forward-looking statements, not assurances.
- Q2 included $2.1 million of net exit-activity costs; first-half costs were $2.4 million. The company also recorded a $1.1 million charge for writing off deferred financing fees related to the redeemed notes. Solar tracker field improvements contributed $2.3 million of incremental Q2 costs.
- Risks discussed include economic and end-market conditions, construction and infrastructure demand, interest and foreign-exchange rates, commodity costs and availability, tariffs and trade policy, and renewable-energy demand. The company said there were no material changes to previously disclosed risk factors. No legal proceedings were reported; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether solar tracker field modifications are completed on schedule and whether related costs or project delays exceed expectations.
- Whether pricing can keep pace with material costs and offset continued volume weakness, and whether margins recover.
- Whether reported backlogs convert to revenue and support the company’s second-half and full-year guidance.
- Whether receivables and other working-capital needs normalize and operating cash generation improves.
- Facility availability, covenant compliance and cash deployment, including potential acquisitions and capital returns.