Gibraltar Industries, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless stated otherwise. Financial amounts below are in U.S. dollars and millions, except per-share data. Gibraltar manufactures and distributes products for building and industrial markets, operating 44 facilities across North America and Europe.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $196.8 | $192.2 |
| Gross profit / margin | $36.2 / 18.4% | $35.5 / 18.5% |
| Operating income / margin | $5.2 / 2.6% | $7.0 / 3.7% |
| Interest expense | $11.2 | $4.7 |
| Net income (loss) | ($3.6) | $1.4 |
| Diluted EPS | ($0.12) | $0.04 |
| Cash used in operating activities | $12.7 | $13.0 |
- At March 31, cash was $30.3, total debt was $214.4, and shareholders’ equity was $470.9. Cash less debt implies net debt of approximately $184.1.
- Current assets were $280.9 and current liabilities $118.9 (working capital of approximately $162.0). The company reported $165 million in liquidity: $30 million cash and $135 million of revolver availability.
- Cash and equivalents declined $17.7 during the quarter. Operating cash use reflected a $24.8 million working-capital investment, principally higher receivables and inventory, partly offset by increased payables. Capital expenditures were $2.0.
Changes versus prior period
- Sales grew 2.4%, with $12.4 million attributed to 2012 acquisitions, offset by a $7.8 million decline in businesses operating in both periods. Comparable-business sales fell 4.0%; pricing declined 4.1% while volume increased 0.1%.
- Gross margin was nearly flat, but operating margin fell to 2.6% from 3.7%. SG&A rose 8.9% to $31.0 million, including higher equity compensation and expenses from acquired businesses.
- The company reported a net loss, versus net income a year earlier. Interest expense rose substantially, including a $7.2 million charge related to redeeming the former 8% notes.
- Foreign currency translation reduced other comprehensive income by $3.1 million; total comprehensive loss was $6.7 million.
Outlook, risks and unusual items
- Management expected 2013 to improve over 2012, with revenue growth from acquisitions and low-to-mid-single-digit organic growth. It noted the year had started slower than expected. No specific earnings or revenue amount was provided.
- Expected earnings supports included recent acquisitions, lower ongoing interest expense, improved West Coast operations and stronger end-market demand. Offsets included industrial demand and pricing weakness expected to continue into Q3, as well as higher equity compensation expense.
- On January 31, Gibraltar issued $210 million of 6.25% senior subordinated notes due February 2021 and tendered or redeemed its $204 million of 8% notes. The refinancing generated the $7.2 million charge; the new notes carry a lower coupon. The company had no revolver borrowings and was in compliance with its minimum fixed-charge coverage covenant of 1.25:1.00.
- Management cited construction-market recovery, housing and non-residential demand, competition, and steel and aluminum costs as business sensitivities. Foreign currency movements affected reported comprehensive income. A discontinued-operation environmental remediation contingency was recorded; management did not expect it or other claims to significantly affect results or financial condition.
- Liquidity could be affected if operating cash flows weaken or financing becomes unavailable or costly. The new notes and credit agreement include restrictions on debt, liens, distributions and other actions. Management stated that disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether organic sales, pricing and volume stabilize, particularly in industrial, residential and European markets.
- Whether gross and operating margins recover as material costs, customer pricing and acquisition integration evolve.
- Whether seasonal working-capital use reverses into cash generation and liquidity remains adequate.
- The ongoing interest-cost benefit of the refinancing compared with its one-time $7.2 million charge, and compliance with debt covenants and note restrictions.
- Whether management’s 2013 growth outlook is achieved, given its stated industrial-market and equity-compensation headwinds.