Business Context and Reporting Period
United States Lime & Minerals, Inc. filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The company manufactures lime and limestone products for construction, industrial, environmental, metals, oil and gas services, roofing, and agriculture customers. It operates in the United States and reports one primary segment: lime and limestone operations.
On July 1, 2020, the company acquired Carthage Crushed Limestone in Missouri for $8.4 million in cash, subject to working-capital adjustment. The acquisition contributed $2.3 million of revenue during the quarter and nine-month period and included a preliminary $7.5 million allocation to property, plant and equipment.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $43.7 million | $43.6 million | $119.7 million | $120.3 million |
| Gross profit | $14.2 million | $13.5 million | $34.4 million | $31.9 million |
| Gross margin | 32.4% | 31.0% | 28.7% | 26.5% |
| Operating profit | $11.3 million | $10.6 million | $25.4 million | $23.7 million |
| Operating margin | 25.7% | 24.2% | 21.2% | 19.7% |
| Net income | $9.3 million | $9.9 million | $21.0 million | $21.1 million |
| Diluted EPS | $1.65 | $1.76 | $3.72 | $3.75 |
Net cash provided by operating activities was $41.9 million for the first nine months of 2020, compared with $36.2 million in the prior-year period. Capital expenditures were $13.6 million, and the Carthage acquisition used $8.4 million. Cash dividends paid were $2.7 million.
Cash and cash equivalents increased to $71.3 million at September 30, 2020, from $54.3 million at December 31, 2019. The company had no debt outstanding and only $0.4 million of letters of credit outstanding under its $75 million revolving facility, which matures in May 2024. The facility also includes a potential $50 million accordion feature, subject to lender approval.
Total assets were $271.7 million and stockholders’ equity was $236.5 million at September 30, 2020. Operating lease liabilities totaled $2.2 million.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue increased 0.4%, while nine-month revenue decreased 0.5%.
- Lime and limestone sales volumes declined 2.9% in the third quarter and 4.5% for the first nine months, primarily because of weaker demand from oil and gas services, environmental, and steel customers.
- Average selling prices increased 3.4% in the third quarter and 4.0% for the first nine months.
- Gross profit increased 5.2% in the third quarter and 7.9% for the first nine months, supported by higher prices, lower fuel costs, and operating efficiencies from the St. Clair kiln.
- SG&A increased to $9.0 million for the first nine months from $8.2 million, primarily due to higher personnel, stock-based compensation, legal, acquisition-related, and COVID-19 costs.
- Interest and other income declined substantially because of lower interest rates and lower average cash balances.
- Cash from operations increased $5.7 million, or 15.8%, year over year, while capital expenditures declined from $20.4 million to $13.6 million.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expects cash on hand and operating cash flow to meet operating, capital, liquidity, and regular dividend needs in the near term, absent a significant acquisition.
- The company entered into $5.0 million of capital-equipment commitments in October 2020; no material open purchase-order commitments existed as of September 30, 2020.
- Management stated that business activity resumed and pandemic restrictions eased during the third quarter, but a renewed increase in COVID-19 cases could weaken the recovery.
- COVID-19 risks include reduced demand and pricing, increased operating costs, employee or facility disruptions, supply-chain interruptions, transportation constraints, and delays to projects or acquisition integration.
- The company operates as an essential business but relies on specialized employees and functioning facilities to produce, sell, and deliver products.
- Other key risks include volatile fuel and freight costs, weather and natural disasters, equipment or IT failures, permitting and environmental requirements, mine-safety regulation, competition, construction and infrastructure activity, and conditions in oil and gas, steel, and industrial markets.
- The effective tax rate for 2020 was estimated at 18.2%, primarily reflecting statutory depletion benefits.
- The board declared a quarterly dividend of $0.16 per share on October 28, 2020, payable December 11, 2020.
- Foreign-exchange hedges covering Euro-denominated equipment commitments expired in April 2020; no such hedge liability remained at September 30, 2020.
Important Facts for Investors to Verify
- Whether COVID-19-related demand reductions, facility disruptions, or cost increases materially affect future revenue, margins, cash flow, or liquidity.
- The final purchase-price allocation, operating contribution, and integration performance of Carthage Crushed Limestone.
- The timing and return on the $13.6 million of year-to-date capital expenditures and the additional $5.0 million equipment commitments.
- Whether lower sales volumes in oil and gas, environmental, and steel markets persist and whether price increases remain achievable.
- Compliance with the revolving credit facility’s leverage and dividend provisions, despite no funded debt at the reporting date.
- Future fuel, energy, transportation, labor, environmental, permitting, and mine-safety costs.
- The sustainability of the $0.16-per-share quarterly dividend and the company’s stated liquidity outlook if economic disruption becomes prolonged.