Miller Industries, Inc. — Q1 2019 Form 10-Q
Business context and period: For the three months ended March 31, 2019, Miller Industries reported results from its towing and recovery equipment business, with manufacturing operations in the United States, France and the United Kingdom. Unless stated otherwise, financial amounts below are in thousands of dollars.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Net sales | $197,213 | $159,160; up 23.9% |
| Gross profit / gross margin | $22,597 / 11.5% | $18,427 / 11.6% |
| SG&A | $10,215; 5.2% of sales | $9,589; 6.0% of sales |
| Income before taxes | $11,460 | $9,333 |
| Net income / diluted EPS | $8,660 / $0.76 | $6,670 / $0.59 |
| Operating cash flow | ($17,854) | ($1,909) |
| Capital expenditures | $3,155 | $3,880 |
North American sales were $163,893 versus $131,644; foreign sales were $33,320 versus $27,516. Costs of operations rose 24.1%, slightly faster than sales, and were 88.5% of sales compared with 88.4%. Interest expense, net, increased to $668 from $420. The effective tax rate declined to 24.4% from 28.5%. Other expense included a $252 foreign-exchange loss, compared with a $876 gain in Q1 2018.
At March 31, cash and temporary investments were $18,979, down from $27,037 at year-end. Working capital was approximately $170,240; the current ratio was about 2.3. Accounts receivable increased to $183,848 from $149,142. The company had $30,000 drawn on its $50,000 revolving credit facility, leaving $20,000 available. It also had $666 outstanding on a French subsidiary loan. The facility matures May 31, 2022; the company reported covenant compliance. Cash, debt and lease balances are reported separately in the filing.
Changes, cash flow and notable items
- Management attributed sales growth to strong domestic and international demand and production capacity from recently completed domestic capital projects.
- Operating cash use increased substantially, mainly because sales outpaced customer collections and inventory increased as production rose. The company drew an additional $15,000 on its credit facility to fund working capital.
- Cash used in investing was $3,155; financing provided $12,848, primarily from credit-facility borrowings, partly offset by $2,052 of dividends.
- The company adopted the new lease accounting standard in Q1 2019, recording operating lease right-of-use assets and liabilities. At March 31, operating lease obligations were $1,784; finance lease obligations were $73.
- Quarterly dividends declared were $0.18 per share, unchanged from Q1 2018. A further $0.18 dividend was declared May 6, payable June 17, 2019.
Outlook, risks and contingencies
The company provided no quantified earnings or sales guidance. Management said it expects available cash, operating cash flows and credit-facility capacity to meet cash needs for the remainder of 2019 and the next several years, while noting that this depends on operating performance and other factors. It is focused on securing orders to replace several substantial military projects scheduled to conclude during 2019.
Management highlighted industry cyclicality, customer access to financing, economic conditions, supplier dependence, raw-material prices and availability, tariffs on steel and aluminum, and operating challenges from higher volumes. It implemented product price increases in September 2018 and pursued alternative components to address materials cost increases. The company also faces foreign-currency exposure; Q1 2019 exchange-rate movements produced an operating loss and a positive translation adjustment.
Potential distributor-lender repurchase obligations had a maximum collateral amount of approximately $52,277 at March 31, 2019. Management said the recoverable product value mitigates the exposure and that a liability was neither material nor probable. The company is involved in ordinary-course litigation; management believes any uninsured or unaccrued liability would not materially affect financial position or results. No material changes to the 2018 Form 10-K risk factors were reported.
Important facts for investors to verify
- Whether collections improve and receivables and inventory convert to cash after the production increase.
- Progress in replacing scheduled military-project revenue and the durability of current customer demand.
- Effects of steel, aluminum and other input costs, tariffs, pricing actions and production volumes on margins.
- Credit-facility utilization, covenant headroom and liquidity if working-capital needs remain elevated.
- Developments in distributor repurchase exposures, litigation and foreign-currency results.