Gibraltar Industries, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. Gibraltar manufactures and distributes building and industrial products across North America and other international markets. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Net sales | $224.5 | $219.7 | $421.3 | $411.9 |
| Gross profit / margin | $44.7 / 19.9% | $41.7 / 19.0% | $80.9 / 19.2% | $77.2 / 18.7% |
| Operating income / margin | $16.3 / 7.3% | $16.3 / 7.4% | $21.5 / 5.1% | $23.3 / 5.7% |
| Net income | $7.7 | $7.9 | $4.1 | $9.3 |
| Diluted EPS | $0.25 | $0.26 | $0.13 | $0.30 |
- Cash flow: First-half operating cash flow was $5.3 million, versus cash used of $2.0 million a year earlier. Working capital absorbed $23.5 million, primarily reflecting higher receivables and inventory for seasonal demand. Capital spending was $4.7 million. Cash declined $3.4 million to $44.6 million.
- Liquidity: The company reported $186.6 million of liquidity: $44.6 million cash plus $142.0 million available under its revolving facility. No revolver borrowings were outstanding; $13.9 million of letters of credit reduced availability.
- Debt: Total debt was $214.0 million at June 30, versus $207.8 million at December 31, 2012. In January, Gibraltar issued $210 million of 6.25% notes due 2021 and retired its $204 million of 8% notes. It reported compliance with its 1.25x minimum fixed-charge coverage covenant.
Material changes and drivers
- Q2 sales rose 2.2%; first-half sales rose 2.3%. Acquisitions added $16.1 million in Q2 and $28.5 million in the first half, while sales from businesses operating in both periods fell 5.2% and 4.6%, respectively. Organic declines reflected lower pricing and volume.
- Gross margin improved 90 basis points in Q2 and 50 basis points in the first half, helped by West Coast restructuring and the prior-year $2.2 million inventory charge. Lower raw-material costs, competitive pricing, and less favorable material-cost alignment partly offset gains.
- Q2 operating income was essentially flat as higher gross profit was offset by increased SG&A, including higher equity-compensation expense and acquired-business costs. First-half operating income fell 7.9%.
- First-half interest expense increased to $14.9 million from $9.3 million, including a $7.2 million charge related to retiring the 8% notes. The replacement notes lowered the quarterly coupon burden; Q2 interest expense fell to $3.7 million from $4.6 million.
- First-half comprehensive income was $0.2 million, versus $9.2 million, largely reflecting a $3.9 million foreign-currency translation loss.
Outlook, risks, and unusual items
- Management expected 2013 revenue to improve modestly over 2012, primarily from acquisitions, but anticipated slightly lower margins and earnings than in 2012. It described the first half as slower than expected and expected continued weakness in industrial demand and pricing during the second half.
- Management cited subdued construction-market recovery, uneven demand across residential and commercial markets, European weakness, inclement weather, commodity-price changes, and competitive pricing as business risks. It cautioned that actual results could differ from forward-looking statements.
- The company recorded $0.8 million of exit-activity costs and asset impairments in the first half, associated with facility consolidation and product-line rationalization. It also recorded the $7.2 million debt-redemption charge.
- Gibraltar disclosed an environmental-remediation contingent liability related to a discontinued operation; management did not expect this or other claims to materially affect financial condition or results. No legal proceedings were reported as applicable.
- The notes restrict additional indebtedness, liens, dividends, and other payments; annual dividend payments are limited to the greater of $0.25 per share or $25 million. Management said liquidity and expected operating cash flow should fund working capital and growth, while noting financing availability could affect future liquidity.
Important facts for investors to verify
- Whether organic sales and industrial-market pricing stabilize, given acquisition-driven reported growth and declines in comparable businesses.
- Whether working-capital investment converts to cash as seasonal demand passes, and whether reported liquidity remains available under facility terms.
- The ongoing effect of the 2013 note refinancing on interest expense, leverage, covenant headroom, and contractual restrictions.
- Whether management’s full-year outlook is achieved; the filing provides no numerical revenue, margin, or earnings guidance.
- Potential exposure from the environmental-remediation contingency and any changes in restructuring or impairment costs.