CompX International Inc. — Q1 2024 Form 10-Q
Business and period: CompX manufactures security locks and related products and recreational marine components. This unaudited report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless otherwise noted.
Financial performance
| Metric | Q1 2023 | Q1 2024 | Change |
|---|---|---|---|
| Net sales | $41.2 | $38.0 | Down 7.7% |
| Gross margin | $12.7; 30.9% | $9.7; 25.5% | Down $3.0; 5.4 percentage points |
| Operating income | $7.0; 17.1% | $3.7; 9.8% | Down 47.2% |
| Interest income | $0.9 | $1.2 | Up $0.3 |
| Net income | $6.1 | $3.8 | Down 38.1% |
| Diluted and basic EPS | $0.49 | $0.31 | Down $0.18 |
| Operating cash flow | $3.1 | $1.7 | Down $1.4 |
Cost of sales was nearly unchanged despite lower sales, increasing to 74.5% of revenue from 69.1%. SG&A increased to $6.0 million from $5.7 million. The effective tax rate was approximately 24.0% in 2024, versus 24.0% in 2023.
Segments and material changes
- Security Products: Sales increased 9% to $29.9 million, primarily from $1.8 million of additional government security-market sales. Operating income was $5.5 million versus $5.4 million, while gross margin declined to 29.4% from 31.0%; management cited product/customer mix and fixed-cost allocation.
- Marine Components: Sales fell 41% to $8.1 million, primarily because towboat-market sales were $4.3 million lower. Operating income dropped to $0.03 million from $3.3 million. Gross margin declined to 11.1% from 30.7%, reflecting higher-cost inventory produced in Q4 2023 and lower coverage of production and operating costs.
- Consolidated operating income decreased by $3.3 million, mainly due to Marine Components. Interest income rose with higher average rates and investment balances, partly offset by lower average Valhi note balances.
Cash, liquidity and capital
- At March 31, 2024, cash and cash equivalents were $51.9 million and marketable securities were $23.7 million, totaling $75.6 million. Cash increased from $41.4 million at year-end 2023; marketable securities declined from $35.4 million.
- Current assets were $122.2 million and current liabilities $11.4 million. Total liabilities were $12.8 million. The balance sheet reports no debt outstanding.
- Operating cash flow was $1.7 million; investing activities provided $12.5 million, including $12.0 million of Treasury maturities and net collections under the affiliate note. Financing cash outflow was $3.7 million of dividends. Cash increased by $10.5 million during the quarter.
- Capital expenditures were $0.3 million. The company expects approximately $2.8 million of 2024 capital expenditures and reported $0.4 million of firm commitments for projects in process.
- The quarterly dividend increased from $0.25 to $0.30 per share beginning in Q1 2024. Future dividends remain discretionary. The company reported 523,647 shares available under its repurchase authorization.
- CompX had a $9.8 million receivable from Valhi under an unsecured revolving demand note, with a $25 million lending limit and interest at prime plus 1%. CompX states it believes available cash, operating cash flow and financing capacity will meet liquidity needs for the next 12 months and five years.
Outlook, risks and other matters
Management expects 2024 Security Products sales to be below 2023, citing sluggishness across several markets, customer uncertainty and no repeat of a 2023 government-security pilot project. It expects gross margin comparable to 2023 but operating income margin lower, with only modest price increases anticipated.
Management expects Marine Components sales and gross margin percentage to be lower in 2024, as towboat demand is expected to decline further and recreational marine markets face higher interest rates and broader weakness. Some boat manufacturers, including customers, announced reduced 2024 production schedules. The company reported progress reducing elevated Marine Components inventory and expects alignment with demand to be complete by mid-2024.
Management said raw-material prices had stabilized, supply chains were stable and transportation delays minimal. Risks include demand uncertainty, raw-material and other cost changes, competition, customer and product mix, supply-chain or operating interruptions, cyber/technology disruptions, economic and geopolitical conditions, regulation, litigation and tax matters. The filing reports no material change in market risks or contractual obligations from the 2023 annual report. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the sharp Marine Components downturn, especially in towboat demand, continues and how it affects margins and 2024 results.
- Whether Security Products government-market sales offset weakness elsewhere, and whether the company meets its lower-sales outlook.
- Progress on Marine Components inventory alignment by mid-2024 and the effects of higher-cost inventory on subsequent margins.
- The credit exposure and repayment terms of the $9.8 million Valhi affiliate receivable, as well as related-party governance considerations.
- Cash generation and the sustainability of the increased dividend amid lower operating income and cash flow; future dividend payments are not assured.
- That Q1 results are interim and may not indicate full-year performance; the filing provides no numerical earnings guidance.