Miller Industries, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Miller Industries manufactures vehicle towing and recovery equipment. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net sales | $122.4 | $105.8 | $226.6 | $190.8 |
| Gross profit | $12.5 | $11.7 | $23.4 | $20.4 |
| Net income attributable to Miller Industries | $3.4 | $2.9 | $5.8 | $4.2 |
| Diluted earnings per share | $0.30 | $0.26 | $0.51 | $0.38 |
- Q2 sales rose 15.7% year over year; six-month sales rose 18.8%. Management attributed growth to stronger domestic and international demand and higher production amid recovering economic conditions and improving consumer sentiment.
- Gross margin was approximately 10.2% in Q2 versus 11.1% a year earlier, and 10.3% for the first half versus 10.7%. Costs of operations increased faster than sales in both comparisons. SG&A declined to 5.7% of Q2 sales from 6.8%, and to 6.2% of first-half sales from 7.3%, reflecting fixed-cost leverage, product mix and cost control.
- Cash from operations was $1.3 million for the first half, versus cash used of $0.8 million in 2013. The 2014 result included substantial working-capital movements, notably a $15.4 million increase in receivables, partly offset by higher accounts payable.
- Capital spending was $2.0 million; cash dividends paid were $3.4 million. Cash declined $3.8 million during the half to $39.1 million.
- At June 30, current assets were $198.1 million and current liabilities $73.8 million. The company had no borrowings on its $25 million unsecured revolving credit facility, which matures March 31, 2016. The facility bears interest at LIBOR plus 1.50% when drawn. The filing reports no material funded debt; it also reports $1.1 million of non-cancelable operating lease obligations.
- Total assets were $240.9 million and shareholders’ equity $165.3 million. Interest expense was $0.1 million in Q2 and $0.2 million for the first half.
Material changes and unusual items
- The company sold its interest in the Delavan joint venture to its partner, with the transaction closing March 31, 2014. It stopped manufacturing Delavan products at its Greeneville facility at the end of Q1 and expects no further losses from the venture. First-half other expense included an $83,000 loss on deconsolidation and $34,000 of foreign-currency transaction losses. Management also cited prior Delavan-related losses and indirect facility losses.
- Foreign sales were $19.5 million in Q2 and $40.9 million for the first half, compared with $16.0 million and $28.7 million, respectively, in 2013. No customer accounted for 10% or more of sales.
- The board declared a $0.15-per-share quarterly dividend on August 4, payable September 22, 2014. Dividends declared were $0.30 per share for the first half, versus $0.28 in 2013.
Outlook, risks and contingencies
- Management expects cash on hand, operating cash flow and the available credit facility to meet cash needs during 2014 and for the next several years, while noting this depends on operating performance and economic and other factors. No specific revenue or earnings guidance is provided.
- Key disclosed risks include the cyclical nature of demand, customer access to credit and floor-plan financing, raw-material prices and availability, fuel and transportation costs, competition, regulation, foreign-exchange movements, skilled-labor availability, and product warranty or liability claims.
- Potential customer-default repurchase obligations had a maximum collateral repurchase amount of approximately $31.8 million. Management said the value of the products reduces the exposure and the liability was not material. The company also had approximately $4.2 million of construction and equipment commitments as of July 31, 2014.
- The company is subject to ordinary-course litigation; management believes any liability beyond accruals and insurance would not materially affect financial position or results. No material changes to the prior annual report’s risk factors were reported.
- Foreign-currency forward contracts had a net fair-value liability of $145,000 at June 30, 2014. Management reported no material interest-rate sensitivity from a 1% rate change because the credit facility was undrawn.
Important facts for investors to verify
- Whether sales growth continues and whether gross margins recover after costs of operations rose faster than revenue.
- Receivables, inventory and payable trends, and the resulting conversion of reported earnings into operating cash flow.
- The realized effect of the Delavan exit and confirmation that no further related losses arise.
- Capacity to fund dividends and the $4.2 million capital commitment while preserving liquidity and complying with credit-facility covenants.
- Exposure from customer financing defaults, litigation, warranty claims, raw-material costs and foreign-currency movements.