Core Molding Technologies, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company is a single-segment manufacturer of thermoplastic and thermoset structural products, serving truck, powersports, building products, industrial, utilities and other markets.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $97.7M | $98.7M | $197.2M | $189.3M |
| Gross margin | $20.6M (21.0%) | $13.0M (13.2%) | $38.3M (19.4%) | $27.6M (14.6%) |
| Operating income | $10.1M | $4.4M | $18.1M | $10.4M |
| Net income | $7.9M | $2.2M | $13.8M | $6.1M |
| Diluted EPS | $0.91 | $0.26 | $1.59 | $0.71 |
| Operating cash flow | Not separately stated | Not separately stated | $18.9M | $2.9M |
Cash and liquidity: Cash was $14.2M at June 30, up from $4.2M at year-end 2022. The company had no borrowings on its $25M revolving facility and no borrowings on its $25M capital-expenditure facility. Management said cash, operating cash flow and available credit would meet current liquidity needs.
Debt: Debt principal totaled $23.9M at June 30, 2023; the balance sheet reports $23.6M after deferred loan costs. The company reported $1.2M current and $22.4M long-term debt. Its $25M term loan is hedged by an interest-rate swap; the reported term-loan rate was 4.75%. The company was in compliance with credit covenants.
Changes and management commentary
- Q2 sales decreased about 1% year over year, while first-half sales increased about 4%. Product sales rose in both periods, offset in reported revenue by lower, uneven tooling sales.
- Q2 gross margin improved to 21.0% from 13.2%; first-half margin rose to 19.4% from 14.6%. Management attributed the improvement chiefly to selling-price and raw-material cost changes, with operational efficiencies and product mix also contributing. Foreign currency and lower fixed-cost leverage were offsets.
- Higher demand in medium- and heavy-duty trucks and powersports, new program launches and pricing supported product sales. Building products and several other markets were weaker. SG&A rose, primarily from increased labor and benefits, bonuses and professional fees.
- First-half operating cash flow benefited from net income and non-cash expenses, partly offset by increased working capital, particularly accounts receivable. Capital spending was $4.5M for the half; management expected full-year 2023 capital expenditures of approximately $11M–$13M.
Outlook, risks and unusual items
- Management expected second-half 2023 revenue to decline 5%–10% versus the second half of 2022, mainly reflecting projected lower truck, powersports and building-products activity and a return to normal seasonality. It would monitor the effects of monetary tightening.
- Management anticipated raw-material prices to remain stable in the second half after slightly lower prices during the first half.
- Key risks include cyclicality and customer production changes, input-cost inflation and limits on passing costs through to customers, labor and supply availability, execution of new program launches, foreign-exchange and interest-rate movements, and reliance on major customers. The filing identifies BRP, Navistar, PACCAR, UFP and Volvo as major customers; loss of significant sales to them could materially affect the company.
- Foreign-exchange and interest-rate hedges generated gains recorded partly in other comprehensive income. The company reported no material off-balance-sheet arrangements and no legal proceedings that management believed were likely to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the projected second-half revenue decline and market assumptions materialize.
- How much margin improvement is sustained as selling prices, raw-material costs, product mix and factory utilization change.
- Customer-level sales exposure, particularly to the five identified major customers, and the impact of their production forecasts.
- Cash conversion and working-capital trends, planned capital spending, and remaining availability under the credit facilities.
- Variable-rate debt exposure, hedge effectiveness, and continued compliance with credit covenants.