CompX International Inc. — Q2 2021 Form 10-Q
Business and period: CompX manufactures security products and recreational marine components. This unaudited report covers the quarter and six months presented as ended June 30, 2021; the company notes its actual quarterly period ended July 4, 2021. Comparisons are with the corresponding 2020 periods.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $36.3 | $23.8 | $72.2 | $56.1 |
| Gross margin | $11.3 (31.2%) | $7.4 (30.9%) | $22.3 (31.0%) | $17.8 (31.7%) |
| Operating income | $5.8 (15.9%) | $2.4 (10.0%) | $11.6 (16.0%) | $7.4 (13.2%) |
| Net income | $4.6 | $2.1 | $9.3 | $6.3 |
| Diluted earnings per share | $0.37 | $0.17 | $0.75 | $0.51 |
| Operating cash flow | Not separately stated | Not separately stated | $3.6 | $4.9 |
Q2 sales increased 52% and operating income increased 143% year over year; first-half sales increased 29% and operating income increased 57%. Growth reflected higher volumes in both segments against the steep COVID-related demand disruption in Q2 2020. Q2 gross margin percentage was comparable year over year; first-half margin declined 0.7 percentage points.
- Segments: Q2 Security Products sales were $27.6 million (+49%) and operating income $5.8 million (+74%). Marine Components sales were $8.7 million (+66%) and operating income $1.6 million (+100%). First-half segment sales increased 21% and 55%, respectively.
- Cash and liquidity: Cash was $70.4 million at June 30, 2021, versus $70.6 million at year-end 2020. Current assets were $108.9 million and current liabilities $12.9 million. First-half operating cash flow fell to $3.6 million from $4.9 million, principally reflecting working-capital movements and higher cash taxes despite higher operating income.
- Debt and capital: The balance sheet reports no borrowings or debt balance. The company spent $1.6 million on capital expenditures and paid $5.0 million in dividends in the first half. Its regular quarterly dividend increased from $0.10 to $0.20 per share; it also repurchased 50,000 shares for approximately $0.8 million.
Outlook, commentary, and risks
Management expected strong demand to continue through the remainder of 2021 and anticipated higher full-year sales and operating income than in 2020. This is qualitative guidance, not a quantified forecast. Marine demand was particularly strong, while Security Products demand improved in distributors and office furniture markets that had recovered more slowly.
Management cited tight labor markets and staffing challenges, supply-chain delays and shortages, and rising labor, shipping, and raw-material costs. Price increases began in Q2, but their ability to offset cost inflation was uncertain; management expected cost pressures to continue challenging gross margins. The filing also identifies demand, competition, raw-material prices, COVID-19 and other disruptions, and tax, litigation, environmental, and regulatory matters as risks. Management said supply disruptions had so far had minimal operational impact.
CompX had a $26.0 million unsecured receivable from affiliate Valhi under a revolving note capped at $40 million, bearing interest at prime plus 1%. Principal is due on demand, but not before December 31, 2022; additional lending is at CompX’s discretion. Affiliate credit risk and the concentration of cash-management funds are relevant considerations. Management stated available cash, operating cash flow, and financing access should meet liquidity needs over the next 12 months and five years. No material changes in contractual obligations or off-balance-sheet financing arrangements were reported. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether demand remains strong and the full-year expectation for higher sales and operating income is achieved.
- Whether pricing actions offset rising labor, freight, and raw-material costs without materially weakening demand or margins.
- Whether staffing constraints and supply-chain disruptions affect production, delivery, or customer orders.
- Valhi’s repayment capacity and the terms, balance, and credit exposure of the $26.0 million affiliate note.
- Future cash conversion and working-capital needs, given the first-half operating cash-flow decline and increased receivables.
- The sustainability of the higher dividend and any further share repurchases, in light of operating cash flows and capital needs.