Core Molding Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. The company molds thermoplastic and thermoset structural products for truck, power sports, building products, industrial, utilities, and other markets, operating six facilities in the U.S., Canada, and Mexico.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $99.5 million | $90.6 million |
| Gross margin | $17.7 million; 17.8% of sales | $14.5 million; 16.0% of sales |
| Operating income | $8.1 million | $6.0 million |
| Income before taxes | $7.8 million | $5.5 million |
| Net income | $5.9 million | $3.9 million |
| Basic / diluted EPS | $0.69 / $0.66 | $0.46 / $0.46 |
| Cash from operations | $4.6 million | $(1.7) million |
| Capital expenditures | $2.1 million | $2.5 million |
Sales grew about 9.8%. Product sales rose to $98.3 million from $89.9 million; tooling sales were $1.2 million versus $0.7 million and are described as variable between periods. Gross margin improved, with management citing a 7.0% favorable impact from net selling-price and raw-material changes, partly offset by operational inefficiencies and mix (3.6%), foreign currency (1.2%), and lower fixed-cost leverage (0.4%). SG&A increased to $9.7 million from $8.5 million, primarily due to higher labor, benefits, and share-based compensation. Interest expense declined to $0.4 million from $0.5 million, which the company attributed mainly to its 2022 refinancing.
Balance sheet, liquidity, and debt
At March 31, 2023, cash was $4.5 million; current assets were $91.2 million and current liabilities were $53.2 million. Debt was $24.2 million before deferred loan costs, including $1.2 million current; the balance sheet reports $22.7 million in long-term debt after loan costs. No revolver borrowings were outstanding, leaving the $25 million revolving facility available; the separate $25 million capex facility was also undrawn. The company reported compliance with Huntington Credit Agreement covenants and said cash, operating cash flow, and available borrowings should meet current liquidity needs.
Operating cash flow improved year over year, but working-capital changes reduced Q1 2023 operating cash by $5.5 million, principally reflecting higher receivables and inventory, partly offset by accounts payable. Cash increased by $0.3 million during the quarter to $4.5 million. Management expects approximately $13 million of 2023 capital spending. The Huntington debt is secured by substantially specified U.S. and Canadian assets and includes variable-rate borrowings; a swap hedges the $25 million term loan, for which the reported rate was 4.75%.
Business trends, outlook, and risks
Growth was led by medium- and heavy-duty trucks (product sales of $49.5 million versus $35.2 million) and power sports ($22.0 million versus $20.9 million). Building products declined to $11.8 million from $14.9 million. The five named major customers—BRP, Navistar, PACCAR, UFP, and Volvo—together accounted for a substantial share of sales; the filing warns that losing significant sales to major customers could materially harm the business.
Management expects 2023 revenue to be flat to slightly higher than 2022, with truck growth and price increases partly offset by expected weakness in building products and programs reaching end of life. It expects most raw-material prices to remain stable but elevated, and wage rates to remain under pressure. It is monitoring North American monetary tightening. Recent bank failures had no direct Q1 impact, but further disruptions could affect the company, customers, or suppliers.
Other identified risks include customer demand and order changes, inflation and inability to pass through input costs, labor availability and disruptions, raw-material availability, foreign exchange and Mexico-related conditions, new-program launch execution, supplier performance, product liability, and access to capital. The company uses foreign-exchange and interest-rate hedges. No material off-balance-sheet arrangements or material legal proceedings were reported; management stated there were no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the 2023 flat-to-slightly-higher revenue outlook remains achievable, particularly given building-products demand and customer forecasts.
- Whether margin improvement is sustained as wage costs remain elevated and raw materials remain above historic levels.
- Working-capital conversion, especially receivables and inventory, and funding for the expected $13 million of capital spending.
- Major-customer concentration and production forecasts in the truck and power sports markets.
- Debt covenant headroom, borrowing costs, and exposure to variable rates and foreign exchange despite hedging.