Business context and reporting period
CompX International Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2019. It manufactures security products and recreational marine components. NL Industries owned approximately 86% of CompX at quarter-end.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net sales | $33.7 million | $32.4 million | $64.9 million | $60.8 million |
| Gross profit | $10.9 million | $11.2 million | $20.6 million | $20.7 million |
| Operating income | $5.6 million | $6.0 million | $9.9 million | $10.4 million |
| Net income | $4.9 million | $5.0 million | $8.9 million | $8.7 million |
| Diluted EPS | $0.39 | $0.40 | $0.71 | $0.70 |
| Gross margin | 32.4% | 34.7% | 31.7% | 34.1% |
| Operating margin | 16.7% | 18.5% | 15.3% | 17.0% |
- Marine Components drove sales growth: segment sales rose 32% in Q2 and 40% in the first half, mainly from wake enhancement systems and surf pipes sold to an original equipment boat manufacturer. Security Products sales were broadly flat.
- Security Products operating income fell 11% in Q2 and 10% in the first half, primarily due to higher skilled-labor rates and payroll costs. Marine Components operating income increased, supported by volume and fixed-cost leverage, despite less favorable product and customer mix.
- First-half operating cash flow was $5.9 million, versus $6.1 million a year earlier. Capital expenditures were $1.8 million; dividends paid were $1.7 million.
Financial position and liquidity
- At June 30, cash and cash equivalents were $41.9 million, down from $45.4 million at December 31, 2018. Current assets were $75.6 million and current liabilities $11.2 million.
- Total liabilities were $14.6 million, including $3.4 million in deferred taxes; the balance sheet reports no debt. Stockholders’ equity was $156.8 million.
- CompX held a $40.0 million unsecured demand note receivable from affiliate Valhi, bearing interest at prime plus 1% (6.5% at June 30). Valhi may borrow up to $40 million under the agreement, at CompX’s discretion. The affiliate loan is a significant concentration and related-party exposure.
- The board raised the regular quarterly dividend from $0.05 to $0.07 per share beginning in Q1 2019. Future dividends remain discretionary.
Outlook, risks and other notable items
- Management expected 2019 full-year sales to exceed 2018 and operating income to be comparable with the prior year. It expected Marine sales growth to moderate in the second half versus the prior-year period.
- Management reported minimal impact from recently enacted tariffs at the time of filing, but was monitoring developments. It also cited demand, raw-material and labor costs, competition, product mix, operating interruptions, economic conditions, litigation, environmental matters and tax issues as risks.
- Capital-project purchase commitments totaled $0.8 million at June 30. The filing reported no material change in contractual obligations or risk factors from the 2018 annual report.
- Effective July 16, 2019, two third parties became successor co-trustees of the Family Trust; the filing describes resulting potential control relationships involving Contran and CompX. This occurred after quarter-end.
- CompX said its disclosure controls were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Marine demand and the major boat-manufacturer customer relationship remain strong as management anticipated slower second-half growth.
- Whether labor-cost pressure at Security Products persists and whether pricing or productivity can offset it.
- The credit, repayment terms and concentration risk of the $40 million Valhi receivable, including its demand feature and related-party governance.
- Actual full-year sales and operating income against management’s outlook, and the effects of tariffs, input costs and product mix.
- Dividend sustainability and capital needs; interim results may not indicate full-year performance.