CompX International Inc. — Q2 2022 Form 10-Q
Business context and reporting period. CompX manufactures security products and marine components. This unaudited filing covers the quarter and six months ended June 30, 2022; the company notes that its actual quarterly period ended July 3, 2022. Financial statement amounts below are in millions unless otherwise stated.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $41.7 | $36.3 | $83.7 | $72.2 |
| Operating income | $7.7 | $5.8 | $14.1 | $11.6 |
| Net income | $6.2 | $4.6 | $11.2 | $9.3 |
| Diluted EPS | $0.50 | $0.37 | $0.90 | $0.75 |
| Gross margin | 32.7% | 31.2% | 30.7% | 31.0% |
| Operating margin | 18.6% | 15.9% | 16.8% | 16.0% |
- Q2 sales grew 15% year over year; operating income rose 35% and net income rose 34%. For the first six months, sales increased 16%, operating income 21%, and net income 20%.
- Q2 Security Products sales were $28.8 million, up 5%, and operating income was $6.7 million, up 15%. Marine Components sales were $12.8 million, up 48%, and operating income was $2.7 million, up 70%.
- Six-month operating cash flow was $1.5 million, down from $3.6 million. Higher inventory and tax payments weighed on cash generation. Capital expenditures were $2.2 million.
- Cash and cash equivalents were $70.1 million at June 30, down from $76.6 million at year-end 2021. Current assets were $124.7 million and current liabilities $16.2 million. No debt is reported on the balance sheet. The company held a $16.6 million note receivable from affiliate Valhi.
- Inventories increased to $33.3 million from $25.6 million at year-end; days in inventory rose to 108 from 96 at June 30, 2021. Stockholders’ equity was $176.4 million.
Changes, outlook and risks
- Management attributed higher sales to stronger Marine Components demand, particularly from the towboat market, and higher Security Products sales. Security Products’ Q2 margin improved with price increases and surcharges; Marine Components’ six-month gross margin rate declined as higher raw-material, shipping and labor costs offset pricing and volume benefits.
- Management expects full-year 2022 net sales and operating income to increase in both segments compared with 2021. It reported some softening in Security Products transportation and distribution demand, offset in its view by strength in other markets; Marine Components demand remained strong.
- Supply disruptions, component shortages, longer lead times, transportation delays, competitive labor markets and elevated input costs remain risks. The company said price increases and surcharges had so far recovered increased production costs, but future recovery is uncertain and elevated inventory costs may pressure margins.
- The quarterly dividend increased from $0.20 to $0.25 per share beginning in Q1 2022. Six-month dividends paid were $6.2 million. The company repurchased 78,900 shares for approximately $1.7 million in Q2, including 8,900 shares from affiliates; 523,647 shares remained authorized for repurchase at quarter-end.
- CompX stated that it had sufficient liquidity for expected needs over the next 12 months and five years, subject to actual results and developments. It reported no material change in contractual obligations and no material change in market risks from its prior annual report. Disclosure controls were assessed as effective, with no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether strong Marine Components demand and the expected full-year growth persist, and whether Security Products’ softer markets broaden.
- Whether price increases and surcharges continue to offset raw-material, labor, freight and other cost inflation, especially as inventory costs flow through results.
- How working-capital needs, including the inventory build, affect cash flow and liquidity in subsequent quarters.
- Credit and governance considerations associated with the $16.6 million affiliate note receivable and the company’s controlled-company ownership structure.
- Future dividend and repurchase decisions, which remain discretionary; the filing provides no fixed timetable or price targets for repurchases.