Miller Industries, Inc. — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011; balance sheet compared with December 31, 2010. Miller Industries manufactures vehicle towing and recovery equipment.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net sales | $97.6 | $81.3 | $206.5 | $153.6 |
| Gross profit (calculated) | $17.5 | $12.0 | $38.2 | $21.9 |
| Gross margin (calculated) | 17.9% | 14.8% | 18.5% | 14.2% |
| Income before taxes | $9.6 | $5.2 | $22.0 | $8.4 |
| Net income | $5.8 | $3.2 | $13.2 | $5.2 |
| Diluted EPS | $0.47 | $0.26 | $1.08 | $0.43 |
- Sales rose 20.1% in Q2 and 34.5% for the first half. Management attributed growth to government-related prime-contractor work and stronger commercial demand; first-half sales also benefited from an order completed in Q1.
- Costs of operations increased more slowly than sales, improving gross margin. Management cited product mix, including a lower proportion of lower-margin chassis sales. SG&A rose in dollars but declined as a share of sales: 7.9% versus 8.2% in Q2 and approximately 7.7% versus 8.6% for the first half.
- Operating income calculated as sales less costs of operations and SG&A was $9.8 million in Q2 versus $5.3 million, and $22.4 million for the first half versus $8.7 million. Net interest expense increased to $0.2 million in Q2 and $0.4 million for the first half, mainly due to interest on chassis purchases.
Cash, debt and liquidity
- Cash and temporary investments were $54.9 million at June 30, up from $46.3 million at year-end. Working capital was approximately $122.0 million, compared with $106.8 million at year-end.
- First-half operating cash flow was $9.0 million versus $9.3 million a year earlier. Higher earnings and increases in payables and accrued liabilities were partly offset by increases in receivables and inventory; inventory increased $11.2 million from year-end.
- Investing activities provided $0.2 million, versus $3.4 million used in the prior-year period. Financing activities used $1.8 million, including dividends and share repurchases, partly offset by stock-option proceeds.
- No borrowings were outstanding on the $20 million unsecured revolving facility, which expires March 31, 2013. Equipment and other notes payable were $16,000, all current. The filing says cash and expected operating cash flow should meet needs in 2011 and for the next several years, subject to business and economic conditions.
Material developments, outlook and risks
- Government-related prime-contractor sales were 22.3% of Q2 sales; management expected production on existing follow-on government orders to continue into Q4 2011. In July, the company received an add-on order for 140 recovery units scheduled for delivery through year-end. Management said it could not predict the success or timing of additional government or export orders.
- Management reported stronger commercial demand but said it remained below pre-2008 levels. It cited the industry’s cyclicality, slow economic recovery, customer access to financing, fuel and insurance costs, and volatility and availability of steel, aluminum and other raw materials. The company continued to monitor costs and raw-material prices.
- The board shifted from an annual to a quarterly dividend policy and declared a $0.12-per-share quarterly dividend in May. It also authorized up to $20 million of share repurchases; 65,800 shares were repurchased for $1.1 million through June 30.
- The maximum customer-product repurchase obligation under lender arrangements was approximately $16.7 million; management said the collateral value mitigates exposure and the related liability was not material. Capital expenditure commitments were approximately $0.5 million; non-cancelable operating lease obligations were approximately $1.3 million.
- Litigation arises in the ordinary course; management did not expect uninsured exposure beyond accruals to materially affect financial position or results. The company reported no material changes to the risk factors in its 2010 Form 10-K. Foreign currency translation increased accumulated other comprehensive income by $1.7 million from year-end.
Important facts for investors to verify
- How much future revenue and earnings depend on government orders, including delivery and timing of the 140-unit add-on order, and whether commercial demand continues to recover.
- Whether inventory and receivables convert to cash as planned; assess the working-capital build and customer credit exposure. The largest customer accounted for 32.5% of first-half sales and 24.4% of receivables at June 30.
- Whether raw-material cost changes, chassis mix and customer financing availability affect margins and demand.
- The pace and funding of the announced dividends and $20 million repurchase authorization, alongside the credit facility’s covenant restrictions.
- The MD&A’s six-month SG&A percentage comparison contains an apparent wording error: it states 7.7% for 2010, while the financial statements and reported expense levels indicate approximately 7.7% for 2011 and 8.6% for 2010.