CompX International Inc. — Q3 2021 Form 10-Q
Business context and reporting period
CompX manufactures security products and recreational marine components. This unaudited report covers the quarter and nine months presented through September 30, 2021; the company notes its actual fiscal quarter ended October 3, 2021. Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2021 | Nine months 2020 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $28.4 | $34.6 | $84.5 | $106.7 |
| Gross margin | $7.3 (25.8%) | $10.9 (31.6%) | $25.1 (29.7%) | $33.3 (31.2%) |
| Operating income | $2.1 (7.3%) | $5.1 (14.8%) | $9.5 (11.2%) | $16.7 (15.7%) |
| Net income | $1.8 | $4.1 | $8.2 | $13.4 |
| Diluted EPS | $0.15 | $0.33 | $0.66 | $1.08 |
- Q3 sales rose 22% year over year; nine-month sales rose 26%. Q3 operating income more than doubled, and nine-month operating income increased 76%.
- For nine months, operating cash flow was $8.1 million, down from $9.2 million. Working-capital changes used more cash, particularly higher receivables and inventories; capital expenditures were $2.3 million.
- At September 30, cash was $76.0 million, current assets $117.7 million and current liabilities $15.7 million. Total stockholders’ equity was $173.0 million. The balance sheet reports no debt balance; the filing does not identify outstanding third-party borrowings.
- Cash dividends paid during the first nine months were $7.5 million. The quarterly dividend was increased from $0.10 to $0.20 per share beginning in Q1 2021. The company also repurchased and retired 50,000 shares for approximately $0.8 million.
Segment results and material changes
- Security Products: Q3 sales increased 22% to $25.8 million and operating income rose 98% to $5.5 million. Nine-month sales increased 22% to $79.3 million and operating income rose 42% to $16.9 million. Higher production improved fixed-cost absorption and margins, partly offset by higher material, shipping and labor costs.
- Marine Components: Q3 sales increased 21% to $8.7 million and operating income rose 11% to $1.3 million; Q3 operating margin declined to 14.4% from 15.6%. Nine-month sales increased 42% to $27.4 million and operating income rose 59% to $4.8 million. Growth was primarily driven by towboat-market sales.
- Management attributed the broad year-over-year recovery partly to COVID-19-related customer closures and reduced demand in 2020. Marine sales had exceeded pre-pandemic levels from Q3 2020 onward; Security Products recovered to pre-pandemic levels in Q2 2021.
Outlook, commentary and risks
Management expected strong demand through the remainder of 2021 and anticipated higher full-year sales and operating income than in 2020. It cautioned that labor shortages, supply-chain disruptions, longer lead times, material availability and logistics delays remained challenges. Price increases and surcharges implemented in Q2 and Q3 were intended to offset rising costs, but their effectiveness was uncertain; management expected higher production costs to pressure Q4 gross margins as more costly inventory was sold. Liquidity was considered sufficient for anticipated needs over the next 12 months and five years, subject to actual results and other developments.
- Raw-material prices, shipping and labor costs; staffing constraints; supply-chain disruption; and changes in demand, including any further COVID-19 effects.
- Affiliate exposure: CompX had a $21.8 million unsecured demand-note receivable from Valhi at September 30, 2021, under a facility of up to $40 million. The note bears interest at prime plus 1.00%; lending is at CompX’s discretion. CompX was approximately 87% owned by NL Industries.
- The filing reported no material changes in contractual obligations or market risks from the 2020 Annual Report, and no off-balance-sheet financing arrangements. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether elevated demand and production can be sustained, particularly in Marine Components and the markets that recovered later.
- Whether price increases and surcharges offset higher input, freight and labor costs, and how those costs affect subsequent margins.
- Working-capital trends: receivables, inventory and days in inventory increased, while operating cash flow fell despite higher earnings.
- Valhi note repayment, credit exposure and the related-party terms, as well as the discretion and capacity for future lending.
- Future dividend and repurchase decisions; the filing states these remain subject to board discretion and business conditions.