Miller Industries, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; balance-sheet comparisons are to December 31, 2012. Financial statement amounts below are in millions of dollars, except per-share data.
Business context and results
Miller Industries manufactures vehicle towing and recovery equipment and sells through domestic and international distributors. Management attributed higher sales to increased commercial-customer demand, higher production, improving economic conditions, and consumer sentiment.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $105.1 | $78.0 | $295.9 | $260.3 |
| Gross profit | $10.8 | $9.2 | $31.2 | $30.7 |
| Gross margin | 10.3% | 11.8% | 10.5% | 11.8% |
| Net income | $2.5 | $2.9 | $6.5 | $7.4 |
| Net income attributable to Miller Industries | $2.6 | $2.9 | $6.9 | $7.4 |
| Basic / diluted EPS | $0.23 / $0.23 | $0.26 / $0.26 | $0.61 / $0.61 | $0.67 / $0.66 |
| Cash dividends declared per share | $0.14 | $0.13 | $0.42 | $0.39 |
Financial position, cash flow, and liquidity
- At September 30, cash and temporary investments were $41.2 million, versus $48.6 million at year-end 2012. Accounts receivable were $83.0 million and inventories $53.7 million, up from $59.1 million and $45.0 million, respectively.
- Current liabilities were $65.7 million, including accounts payable of $51.3 million. Shareholders’ equity totaled $160.0 million.
- Operating cash flow was a use of $1.6 million for the first nine months, compared with $0.2 million provided in 2012. Increased receivables and inventories were partly offset by higher payables and accrued liabilities. Investing cash use was $2.0 million, primarily for capital expenditures; financing cash use was $4.1 million, primarily dividends.
- No borrowings were outstanding under the $25 million unsecured revolving credit facility, which matures March 31, 2015. The company reported $1.2 million of non-cancelable operating lease obligations and $0.3 million of property and equipment commitments.
Material changes and unusual items
- Q3 sales rose 34.8% year over year; nine-month sales rose 13.7%. Costs of operations grew faster than sales, and gross margin declined in both comparisons, primarily because of a higher proportion of lower-margin completed vehicles containing purchased chassis.
- SG&A was nearly flat in Q3 and slightly lower year to date, while its share of sales declined as revenue grew and the company continued cost control. Interest expense also declined.
- Prior-year 2012 tax results included approximately $1.4 million of tax benefits from domestic production deductions and research and development and other credits. The 2013 effective tax rates were 36.7% for Q3 and 36.6% year to date, versus (18.5)% and 25.2% in the respective 2012 periods.
- The company reported a $0.2 million net fair-value liability on foreign currency contracts at September 30; hedge-related activity affected other comprehensive income. No individual customer represented 10% or more of sales.
Outlook, risks, and contingencies
Management expected cash on hand, operating cash flow, and available credit to meet cash needs during 2013 and for the next several years, while noting dependence on future operating performance and external factors. The filing provides no quantified revenue or earnings guidance. The board declared a subsequent quarterly dividend of $0.14 per share, payable December 16, 2013.
Risks cited include economic and customer conditions, customer access to credit and floor-plan financing, industry cyclicality, fuel and transportation costs, and availability and prices of steel, aluminum, and other raw materials. Potential customer-default repurchase obligations had a maximum amount of approximately $29.1 million; management said product collateral mitigated the exposure and the related liability was not material. The company is involved in ordinary-course litigation and believes any loss beyond accruals and insurance would not materially affect its financial position or results. Management reported effective disclosure controls and no material changes to the risk factors in its 2012 Form 10-K.
Key facts for investors to verify
- Whether the increase in receivables and inventory converts to cash, given negative year-to-date operating cash flow.
- Whether lower-margin chassis mix continues to pressure gross margins as sales grow.
- How earnings comparisons are affected by the prior-year tax benefits and changes in foreign-currency gains.
- The extent and performance of customer financing-related repurchase exposures, alongside the reported $29.1 million maximum potential obligation.
- Whether the cash-flow outlook and dividend policy remain consistent with operating results and credit-facility covenants.