Gibraltar Industries, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; compared with Q1 2011. Unaudited results. Gibraltar manufactures and distributes building and industrial products across North America and Europe.
Financial results
Amounts are in millions of dollars except per-share data.
| Metric | Q1 2012 | Q1 2011 | Change / context |
|---|---|---|---|
| Net sales | $192.2 | $163.6 | Up 17.4%; acquisitions contributed $22.2 million and operations $6.4 million. |
| Gross profit / margin | $35.5 / 18.5% | $30.0 / 18.4% | Margin broadly stable. |
| Operating income / margin | $7.0 / 3.7% | $7.2 / 4.4% | Margin declined despite higher sales. |
| Interest expense | $4.7 | $4.5 | Primarily relates to the 8% notes. |
| Continuing-operations income | $1.4 | $1.4 | Essentially unchanged. |
| Net income / diluted EPS | $1.4 / $0.04 | $8.4 / $0.27 | Prior-year result included income from discontinued operations. |
| Cash from continuing operations | $(13.0) | $(9.4) | Seasonal working-capital investment drove the outflow. |
Cash and equivalents were $35.3 million at March 31, down from $54.1 million at year-end. Total current assets were $273.4 million and current liabilities $123.2 million. Total debt was $207.3 million, including $202.4 million of 8% notes due December 2015. The notes’ disclosed fair value was $237.3 million. The $200 million revolving facility had no borrowings, $140.3 million of availability after letters of credit, and the company reported compliance with its 1.25:1 fixed-charge coverage covenant. Management reported total liquidity of $175.6 million.
Changes, outlook, and notable matters
- Organic sales increased 3.9%; customer pricing rose 4.4% to help offset raw-material inflation, while overall volume was roughly flat. Residential sales on the West Coast weakened, offsetting gains in other regions.
- SG&A rose 25% to $28.5 million, reflecting acquired businesses and a less favorable equity-compensation comparison. Q1 2011 included a $0.9 million charge for surrendered CEO awards; Q1 2012 included a $2.8 million equity-compensation charge versus a $0.2 million benefit in Q1 2011. Award Metals integration costs also weighed on performance.
- Net income comparisons are affected by discontinued operations: Q1 2011 included $7.0 million after tax, principally from a business-sale gain; Q1 2012 recorded an $87,000 discontinued-operations loss. No discontinued-operations sales were reported in Q1 2012.
- Operating cash use reflected a $23.1 million working-capital investment, including higher receivables and inventory, partly offset by higher payables. The company also paid $2.7 million for the Edvan acquisition and spent $2.7 million on capital expenditures.
- Gibraltar acquired Edvan’s Canadian metal-grating business for approximately $2.7 million. It consolidated two facilities in the quarter and recorded $1.8 million in exit costs and asset impairments; approximately $1.0 million of additional moving and severance costs was expected for a facility closure in 2012.
- Management expected modest improvement across served markets during 2012 and seasonally higher Q2 2012 revenue than Q1, with sales favorable to Q2 2011. It cautioned that a sustained recovery remained uncertain and provided no specific full-year numerical guidance.
- Principal disclosed risks include construction-market demand, raw-material availability and pricing, energy costs, credit-market liquidity, acquisition integration, and changes in interest and tax rates. The company recorded an environmental-remediation contingency related to a discontinued operation; management did not expect the claim or other indemnification claims to materially affect results or financial condition.
Investor facts to verify
- How much of sales growth and future earnings is attributable to acquisitions versus organic volume, pricing, and integration performance.
- Whether seasonal working-capital investment converts to operating cash flow as expected, and how cash and revolver availability evolve.
- Debt maturity and refinancing plans for the $204 million principal amount of 8% notes due in 2015, along with covenant headroom.
- Progress on facility consolidations, the expected $1.0 million additional closure costs, and the environmental-remediation contingency.
- Whether construction-market recovery and West Coast residential demand support management’s stated outlook.