Gibraltar Industries, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Gibraltar manufactures and distributes products across Residential Products, Industrial and Infrastructure Products, and Renewable Energy and Conservation. Unless stated otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $227.4 | $215.3 |
| Gross profit / margin | $43.9 / 19.3% | $48.3 / 22.4% |
| Operating income / margin | $10.6 / 4.6% | $13.8 / 6.4% |
| Net income | $6.3 | $8.4 |
| Diluted EPS | $0.19 | $0.26 |
| Operating cash flow | $(37.5) | $(22.2) |
| Capital expenditures | $3.1 | $1.0 |
Sales increased 5.6%, with customer pricing up 5.9% and volume down 1.5%. Gross margin declined primarily because of costs for design refinements and field enhancements to a recently launched solar tracker solution. SG&A fell 3.3% to $33.3 million, helped by lower performance-based compensation and simplification initiatives, partly offset by leadership transition costs. Interest expense declined to $2.1 million from $3.3 million after redemption of the 6.25% notes. Other expense was $0.6 million, versus $0.6 million of other income in Q1 2018, primarily reflecting foreign currency fluctuations.
Segments and material changes
- Residential Products: Sales were $103.7 million, down 0.2%; operating income was $12.1 million versus $13.2 million. Unfavorable weather, product mix, and volume leverage weighed on results.
- Industrial and Infrastructure Products: Sales were $54.9 million, up 0.9%; operating income rose to $4.1 million from $2.6 million, supported by infrastructure performance, product mix, and 80/20 initiatives.
- Renewable Energy and Conservation: Sales were $68.8 million, up 20.9%, including $2.6 million from SolarBOS. Operating income fell to $1.6 million from $4.1 million as tracker field and durability-related costs more than offset volume growth.
Operating cash outflow reflected a $54.0 million investment in working capital and other net assets, notably higher receivables and lower accrued expenses and other liabilities. Cash used in financing was $213.2 million, principally the $210.0 million note redemption, plus $1.2 million of debt issuance costs and $2.1 million of treasury-stock purchases. Cash declined to $43.5 million from $297.0 million at year-end 2018.
Liquidity, debt, and balance sheet
At March 31, 2019, cash was $43.5 million; total debt was $2.0 million, including $0.4 million current and $1.6 million long-term. The company had no revolver borrowings and reported $391.9 million of revolver availability, net of $8.1 million in letters of credit. Reported liquidity was $435.4 million. The $400 million revolving credit agreement runs through January 23, 2024, with potential, subject to conditions, to increase the facility to $700 million or obtain a term loan up to $300 million. The company stated it was compliant with all three financial covenants.
Current assets were $317.6 million and current liabilities $168.1 million. Operating lease assets were $31.8 million and lease liabilities $32.1 million. Adoption of the new lease standard in Q1 recognized leases on the balance sheet and increased opening retained earnings by approximately $1.6 million; the company reported no material net earnings effect and no cash-flow effect.
Outlook, commentary, and risks
Management maintained 2019 guidance: consolidated revenue expected to exceed $1 billion and GAAP EPS of $1.95–$2.10, versus $1.96 in 2018. Q2 2019 revenue guidance is $268–$274 million and GAAP EPS guidance is $0.60–$0.65, versus $0.70 in Q2 2018. Management cited solid end-market activity and a focus on innovation, operational excellence, portfolio management, and acquisitions. Results are seasonal and interim performance may not indicate full-year results.
Key sensitivities identified include economic and end-market demand, interest and foreign-exchange rates, commodity costs and availability, government policy and funding, tariffs and trade policy, and renewable-energy demand. The filing reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and no applicable legal proceedings. The company recorded $1.1 million in Q1 to write off deferred financing fees on the redeemed notes; exit activity costs were $0.2 million net.
Important facts for investors to verify
- Whether tracker design and field-enhancement costs abate and Renewable Energy and Conservation margins recover.
- Whether receivables and accrued-liability movements reverse, supporting operating cash generation after the Q1 working-capital outflow.
- Whether the company achieves full-year revenue and EPS guidance, particularly given Q2 EPS guidance below the prior-year quarter.
- Whether the new credit facility’s covenants remain satisfied and stated borrowing availability remains accessible.
- How seasonal demand, weather, commodity prices, foreign exchange, and end-market conditions affect subsequent results.