Core Molding Technologies, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. The company molds thermoplastic and thermoset structural products for truck, power sports, building products, industrial, utilities and other markets.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $90.6 million | $72.8 million | Up 24.4% |
| Gross profit | $14.5 million | $12.7 million | Up 14.1% |
| Gross margin | 16.0% | 17.5% | Down 1.5 percentage points |
| Operating income | $6.0 million | $5.3 million | Up 12.5% |
| Net income | $3.9 million | $3.5 million | Up 11.8% |
| Basic and diluted EPS | $0.46 | $0.41 | Up $0.05 |
| Operating cash flow | $(1.7) million | $(0.5) million | Greater cash use |
| Capital expenditures | $2.5 million | $2.4 million | — |
Higher product sales drove revenue growth, led by power sports, building products, and medium and heavy-duty trucks; selling-price increases reflecting raw-material and labor inflation also contributed. Product sales rose to $89.9 million from $69.1 million, while tooling sales fell to $0.7 million from $3.7 million. Management attributed the gross-margin decline to selling price/raw-material cost changes and product mix/production inflation, partly offset by improved fixed-cost leverage. SG&A increased to $8.5 million from $7.4 million, principally due to labor and benefits, insurance, and professional fees. Interest expense declined to $0.5 million from $0.6 million.
Balance sheet and liquidity
- Cash was $1.3 million at March 31, down from $6.1 million at year-end 2021. Operating cash use reflected a $9.4 million working-capital outflow, mainly higher receivables and inventory, partly offset by higher accounts payable.
- Current assets were $89.2 million and current liabilities $63.3 million. Receivables were $52.3 million and inventory $28.4 million.
- Term-loan principal was $25.6 million before deferred loan costs; revolving borrowings were $4.8 million. The balance sheet reports $24.2 million of current and long-term debt after deferred loan costs, plus revolving debt. The company had $24.3 million of stated revolving availability and a $160,000 letter of credit outstanding.
- Management expects up to $20 million of 2022 capital spending, including capacity expansion in Mexico, Minnesota, and Ontario. It said cash, operating cash flow, available credit and equipment financing should meet current liquidity needs. The company was in compliance with debt covenants.
Outlook, risks, and other matters
- Management expects 2022 sales to increase from 2021, citing customer forecasts and new program launches, while noting that supply-chain disruptions and higher interest rates could adversely affect demand; timing and impact were not quantified.
- Raw-material costs, including thermoset resins and fiberglass, were expected to remain elevated. The company recovered much of the increases in Q1 and was pursuing further cost recovery. Labor constraints began improving, but wage inflation was expected to continue.
- Key exposures include commodity prices, variable interest rates, foreign exchange, customer concentration, supply availability, labor, customer production and order changes, and program-launch execution. The five identified major customers were BRP, Navistar, PACCAR, UFP, and Volvo; together they represented a substantial portion of sales.
- U.S. operations incurred a net loss for tax purposes in Q1, and the related tax benefit was fully offset by a valuation allowance. The reported income-tax expense was $1.6 million, or 29.8% of pretax income; a $3.3 million valuation allowance was disclosed.
- No material legal proceedings, significant off-balance-sheet arrangements, or material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether pricing actions and cost recovery can offset continued material and wage inflation, given the lower year-over-year gross margin.
- Whether working-capital investment reverses and operating cash flow improves as sales grow.
- Customer demand forecasts, supply-chain conditions, and the timing and execution of new program launches and capacity expansions.
- Revolving-credit availability, borrowing-base constraints, variable-rate exposure, and continued covenant compliance.
- Customer concentration and the company’s ability to preserve margins while serving its major customers.