Miller Industries, Inc. — Q2 2018 Form 10-Q
Business and period: Manufacturer of towing and recovery equipment, with operations in North America and Europe. This unaudited report covers the quarter and six months ended June 30, 2018; amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $176.9 | $153.1 | $336.0 | $302.0 |
| Gross profit | $21.3 | $17.6 | $39.7 | $33.0 |
| Gross margin | 12.0% | 11.5% | 11.8% | 10.9% |
| Net income | $7.6 | $5.4 | $14.3 | $9.3 |
| Diluted EPS | $0.67 | $0.48 | $1.25 | $0.81 |
- Q2 sales rose 15.5%; first-half sales increased 11.3%. Management attributed growth to strong domestic and international demand. Foreign sales more than doubled in Q2 to $33.8 million; North American sales were $143.1 million.
- Gross margin improved as costs of operations declined as a share of sales, which management linked to product mix and cost monitoring. SG&A was $9.7 million in Q2 and $19.3 million for the half; as a share of sales it declined year over year.
- Effective tax rates declined to 27.6% for Q2 and 28.0% for the first half, versus 37.6% and 36.9%, respectively, primarily reflecting the Tax Cuts and Jobs Act’s lower federal corporate rate.
- First-half operating cash flow was $6.1 million, up from $1.4 million. Investing used $9.3 million, mainly for capital expenditures; financing provided $1.3 million, including $5.0 million of net credit-facility borrowings, partly offset by $4.1 million in dividends. Cash declined $2.2 million to $19.7 million.
- At June 30, current assets were $253.5 million and current liabilities $119.1 million. Total obligations were approximately $16.0 million, including $15.0 million drawn on the revolving facility; unused facility capacity was $35.0 million. The company reported $5.6 million of capital-expenditure commitments.
Changes, outlook, and risks
- Q2 income before taxes rose to $10.5 million from $8.7 million; first-half income before taxes was $19.8 million versus $14.7 million. Interest expense increased year over year in both periods.
- Management said tariff-related increases in steel and aluminum costs were a concern. It had implemented price increases and worked with suppliers on alternative components, but said cost recovery was uncertain and price increases take time to implement. Other risks include industry cyclicality, customer financing availability, raw-material supply and pricing, foreign exchange, and labor availability.
- No specific earnings or sales guidance was provided. Management expected operating cash flow, cash on hand, and credit-facility availability to meet cash needs during 2018 and for the next several years, subject to operating and economic conditions.
- The $50 million revolving facility was extended after quarter-end to mature May 31, 2020. The company reported covenant compliance and anticipated continued compliance. It declared a $0.18-per-share dividend payable in September 2018.
- Revenue-standard adoption changed timing for painting-related performance obligations. The company reported a $0.1 million reduction in first-half net income from adoption versus the prior accounting basis and said the ongoing impact was not expected to be material. The filing also reports a $1.3 million foreign-currency translation loss in Q2 other comprehensive income.
- Potential distributor-product repurchase exposure had a stated maximum of $52.4 million; management considered the related liability not material and not probable. The company disclosed ordinary-course litigation and said any uninsured exposure beyond accruals was not expected to materially affect results or financial position.
Important facts for investors to verify
- Whether demand and foreign-market sales remain strong, and whether tariff-related costs can be recovered through pricing.
- Working-capital and cash-flow trends, particularly receivables and inventory, which increased from year-end.
- Credit-facility borrowings, terms, covenant headroom, and the effect of variable interest rates.
- Whether capital spending, operating-lease obligations, and distributor repurchase exposure change materially.
- Any updates to the company’s outlook, foreign-exchange effects, and the financial impact of revenue-recognition and lease-accounting requirements.