Gibraltar Industries, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Gibraltar supplies products and services to renewable energy, residential, agricultural technology (Agtech), and infrastructure markets. Results are unaudited and subject to seasonality.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $348.4m | $255.2m | $636.0m | $470.6m |
| Gross profit / margin | $80.9m / 23.2% | $65.6m / 25.7% | $140.9m / 22.2% | $115.4m / 24.5% |
| Operating income / margin | $31.4m / 9.0% | $30.7m / 12.0% | $44.2m / 7.0% | $43.5m / 9.2% |
| Continuing-operations income | $26.4m | $24.5m | $36.9m | $34.4m |
| Net income | $25.9m | $27.3m | $38.7m | $39.4m |
| Diluted EPS, continuing operations | $0.80 | $0.74 | $1.11 | $1.05 |
| Diluted EPS, total | $0.79 | $0.83 | $1.17 | $1.20 |
Q2 sales rose 36.5%; management attributed $57.5m of the increase to acquisitions and $35.7m to organic growth. Six-month sales rose 35.1%, including $108.1m from acquisitions and $57.3m of organic growth. Backlog was $403m, up 54% year over year. Despite higher sales and continuing-operations income, net income declined because discontinued operations moved from income in 2020 to a loss in Q2 2021.
- Segment sales, Q2 year over year: Renewables +92.5% to $107.8m, Residential +17.7% to $164.2m, Agtech +27.0% to $53.7m, and Infrastructure +29.7% to $22.7m. Renewables growth chiefly reflected TerraSmart; each other segment also reported higher sales.
- Margins and costs: Gross and operating margins declined in both comparison periods. Management cited higher material, labor and logistics costs; delays in matching pricing to input inflation; acquisition integration and lower acquired-business margins; and supply-chain and project-timing disruptions. Six-month Renewables profitability was also affected by discontinuing the company’s organic solar tracker solution.
- Cash flow: Continuing-operations operating cash flow was $12.8m for the first half, versus cash use of $11.0m in 2020. Working capital absorbed cash, chiefly from higher inventory and receivables. Investing cash flow from continuing operations was positive $30.5m, including $40.0m of Industrial business sale proceeds, partly offset by $9.5m of capital expenditures. Financing used $56.3m, mainly for debt repayment.
- Liquidity and debt: June 30 cash was $17.0m versus $32.1m at year-end. Long-term debt was $32.3m versus $85.6m; revolving-credit availability was $360.2m. Management reported compliance with all credit covenants and considers liquidity sufficient for operations and growth initiatives.
Material developments, outlook and risks
- The company sold its Industrial business on February 23, 2021; it is reported as discontinued operations. Net proceeds were $38m, including a $13m seller note, which was paid in full in Q2. The sale generated an estimated pre-tax loss of $30m, mostly recorded in 2020; 2021 results include subsequent disposal adjustments.
- Q2 other income included a $4.7m gain on securities received from Thermo’s sellers to settle indemnification claims. This unusual gain supported reported income and should be distinguished from recurring operating performance.
- Full-year 2021 guidance was maintained: revenue of $1.30bn–$1.35bn and GAAP EPS from continuing operations of $2.78–$2.95. Management cited solid demand, record backlog and integration and execution priorities.
- Management expects a dynamic operating environment through the second half, with inflation, supply-chain and transportation constraints, labor tightness, and continuing COVID-related uncertainty. Agtech projects faced permitting delays, rescoping and scheduling disruptions; Renewables faced steel inflation and solar-panel supply challenges. The filing cautions that interim results may not predict full-year outcomes.
- The company incurred $7.4m of exit-activity and impairment charges in the first half and closed two facilities. It continues portfolio simplification and integration initiatives. No material change to previously disclosed risk factors was reported; market exposures include economic conditions, foreign exchange, and raw-material pricing and availability.
Important facts for investors to verify
- Whether pricing actions catch up with input-cost inflation and margins recover as management expects.
- How much backlog converts to revenue, particularly given project delays and supply-chain constraints.
- TerraSmart integration progress, Renewables margins, and the final acquisition purchase-price allocation due by year-end 2021.
- Whether working-capital investment normalizes and cash generation supports the guidance and planned growth spending.
- The effect of the Industrial disposal adjustments and the nonrecurring Thermo-related securities gain on comparisons of earnings.