Miller Industries, Inc. — Q2 2015 Form 10-Q
Business context and period. The company manufactures vehicle towing and recovery equipment. This unaudited report covers the three and six months ended June 30, 2015; financial amounts below are in thousands of dollars, except per-share data. Management attributed higher sales primarily to stronger domestic demand, recovering economic conditions, improving consumer sentiment, and increased production.
Financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $151,537 | $122,432 | $278,325 | $226,600 |
| Gross profit | $17,541 | $12,510 | $29,493 | $23,448 |
| Gross margin | 11.6% | 10.2% | 10.6% | 10.4% |
| SG&A | $7,648 | $6,964 | $15,088 | $14,130 |
| Interest expense, net | $245 | $126 | $408 | $196 |
| Other expense, net | $265 | $55 | $321 | $117 |
| Income before taxes | $9,383 | $5,365 | $13,676 | $9,005 |
| Net income attributable to Miller Industries | $5,866 | $3,387 | $8,930 | $5,753 |
| Diluted EPS | $0.52 | $0.30 | $0.79 | $0.51 |
Management reported sales growth of 23.8% for Q2 and 22.8% for the first half. Costs of operations increased, but declined as a share of sales: 88.4% versus 89.8% in Q2 and 89.4% versus 89.6% year to date. SG&A was 5.0% of Q2 sales versus 5.7%, and 5.4% of first-half sales versus 6.2%. First-half effective tax rate was 34.7%, compared with 36.9%; management cited lower European subsidiary tax rates and U.S. domestic production deductions.
- Cash flow: First-half operating cash flow was $4,431, versus $1,279 in 2014. Increases in accounts payable partly offset cash absorbed by receivables and inventory. Investing cash outflow was $3,071, mainly capital expenditures of $3,072; financing cash outflow was $3,342, mainly dividends.
- Liquidity and debt: Cash and temporary investments were $35,971 at June 30, 2015, down from $39,597 at year-end 2014. Current assets were $232,232 and current liabilities $103,788. The company had no borrowings under its unsecured revolving credit facility; capacity was increased from $25 million to $30 million and maturity extended to March 31, 2018. It reported approximately $1.1 million in non-cancelable operating lease obligations.
- Balance sheet: Total assets were $277,381 and shareholders’ equity $171,409. Accounts receivable rose to $131,323 from $116,498, and inventory to $57,554 from $56,460. Cash dividends declared were $0.16 per share in Q2 and $0.32 per share for the first half.
- Geography: First-half North American sales were $239,005, up from $185,664; foreign sales were $39,320, down from $40,936.
Material changes, outlook, and risks
- Growth in domestic demand and production supported higher revenue and improved gross and SG&A ratios. Interest expense rose, which management attributed mainly to interest on distributor floor planning and chassis purchases.
- Foreign currency transaction losses were $321 for the first half, versus $34 in the prior-year period; first-half foreign currency translation reduced other comprehensive income by $2,729, compared with a $165 increase in 2014. No foreign currency contracts were outstanding at June 30, 2015.
- The Pennsylvania manufacturing consolidation and expansion is estimated to cost approximately $22 million; $2.605 million had been incurred by June 30, and the remainder was expected in the second half of 2015 and 2016. The company also planned $9–$10 million of capital projects at its Ooltewah, Tennessee facility over the following year. Project timing and costs may change. Management did not anticipate material severance or relocation expense for the Pennsylvania project.
- Management expected cash on hand, operating cash flow, and available credit to be sufficient for cash needs during 2015 and the next several years, subject to operating performance and other economic and business factors. The filing provides no specific revenue or earnings guidance.
- Key risks include the cyclical industry, customer access to credit and floor-plan financing, raw-material and transportation costs, supplier dependence, foreign exchange, competition, skilled-labor availability, regulation, and potential product liability or warranty claims. Management described ordinary-course litigation and said it did not expect liabilities beyond accruals and insurance to materially affect results. Customer repurchase commitments had a maximum potential amount of approximately $40.160 million; management said the product collateral mitigated exposure and the related liability was not material or probable.
- The company sold its interest in the Delavan joint venture in March 2014; management said no further losses from that venture were expected. It reported no material change in risk factors from its 2014 Form 10-K and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether strong domestic demand continues and whether improved margins persist as production and sales change.
- Receivables, inventory, and supplier-payment trends, given working-capital use and the increase in receivables.
- Actual spending, schedule, and returns from the Pennsylvania and Ooltewah capital projects.
- Availability and terms of customer financing, unused credit capacity, and compliance with facility covenants governing dividends.
- Foreign-exchange effects, raw-material costs, and exposure under customer repurchase commitments and litigation.