Miller Industries, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Amounts are in USD millions unless otherwise stated. Miller manufactures vehicle towing and recovery equipment and sells primarily through independent distributors.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $118.4 | $105.1 | $345.0 | $295.9 |
| Gross profit | $13.0 | $10.8 | $36.4 | $31.2 |
| Gross margin | 11.0% | 10.3% | 10.6% | 10.5% |
| Net income attributable to Miller Industries | $3.5 | $2.6 | $9.2 | $6.9 |
| Diluted EPS | $0.31 | $0.23 | $0.82 | $0.61 |
- Q3 sales increased 12.6% year over year; nine-month sales increased 16.6%. Management attributed growth to higher domestic and international demand and production amid recovering economic conditions and improving consumer sentiment.
- Nine-month SG&A was $21.4 million, or 6.2% of sales versus 7.0% a year earlier. Costs of operations were 89.4% of sales, compared with 89.5%.
- Operating cash flow was $2.4 million for the nine months, versus cash use of $1.6 million in 2013. Working-capital movements included $18.4 million used by accounts receivable and $11.6 million used by inventory, partly offset by $18.6 million from accounts payable.
- Cash and temporary investments were $36.3 million at September 30, down from $42.9 million at year-end 2013. Investing cash use was $3.7 million, primarily capital expenditures; financing cash use was $4.9 million, primarily dividends. Capital expenditures were $3.7 million.
Financial position and liquidity
- Current assets were $207.7 million and current liabilities $83.1 million, implying working capital of $124.6 million and a current ratio of approximately 2.5. At December 31, 2013, working capital was $120.8 million and the current ratio was approximately 2.9.
- No borrowings were outstanding under the $25 million unsecured revolving credit facility, which matures March 31, 2016. The facility was available if needed; management expected cash, operating cash flow and potential facility borrowings to meet needs during 2014 and the next several years.
- Cash dividends paid in the first nine months totaled $5.1 million, or $0.45 per share. After quarter-end, the board declared a $0.15-per-share dividend payable December 15, 2014.
Material changes, outlook and risks
- Miller sold its interest in the Delavan joint venture on March 31, 2014 and ended related production at its Greeneville facility. The company reported $0.15 million of first-quarter losses directly attributable to the venture, including an $0.08 million deconsolidation loss; management said no further venture losses were expected. The sale and related deconsolidation contributed to nine-month other expense of $0.15 million, alongside $0.07 million of foreign-currency transaction losses.
- Management highlighted industry cyclicality, customer access to credit and floor-plan financing, raw-material prices and availability, fuel and insurance costs, and economic conditions. Aluminum, steel and other materials are substantial cost components; the company said it monitors costs and may use price increases and alternative components.
- Foreign-currency translation reduced accumulated other comprehensive income by $0.71 million during the first nine months. Foreign subsidiaries held $15.8 million of cash, generally in local currency; repatriation is generally subject to U.S. income tax.
- Potential customer-default repurchase obligations had a maximum collateral amount of $33.5 million; management said the value of products to be repurchased mitigates exposure and the related liability was not material. Capital-expenditure commitments were $2.8 million; non-cancelable operating lease obligations were approximately $1.0 million.
- Ordinary-course litigation remains possible; management did not expect liabilities beyond accruals and insurance to materially affect financial position or results. No material risk-factor changes were reported. Disclosure controls were assessed as effective.
- No formal sales or earnings guidance was provided. Management’s liquidity outlook is subject to operating performance and economic and other factors outside its control.
Important facts for investors to verify
- Whether sales growth and improved gross margin persist, given the company’s cyclical end markets and exposure to customer financing.
- Whether receivables and inventory growth convert into cash; nine-month operating cash flow remained modest relative to net income.
- Future effects of raw-material, labor, transportation and foreign-exchange movements on margins and cash flow.
- Available liquidity and covenant capacity under the revolving facility, including the facility’s dividend restrictions.
- Exposure from repurchase arrangements, capital commitments, litigation and the tax implications of foreign-held cash.