Core Molding Technologies, Inc. — Q1 2015 Form 10-Q
Business and period: The company manufactures sheet molding compound and molded reinforced-plastic products, serving truck, marine, automotive, and other markets. This unaudited report covers the three months ended March 31, 2015, compared with the three months ended March 31, 2014.
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $49.6 million | $41.1 million |
| Product sales | $47.9 million | $40.7 million |
| Tooling sales | $1.7 million | $0.4 million |
| Gross margin | $9.0 million; 18.2% of sales | $6.6 million; 16.2% of sales |
| Income before interest and taxes | $4.9 million | $3.1 million |
| Net income | $3.2 million | $2.1 million |
| Diluted earnings per share | $0.42 | $0.28 |
| Cash provided by (used in) operating activities | $2.1 million | ($0.9 million) |
| Capital expenditures | $1.5 million | $3.4 million |
Total sales grew about 21% and product sales about 18% year over year. Net income increased about 51%. Gross margin improved by 2.0 percentage points; management attributed the improvement to product mix and production efficiencies, favorable foreign exchange, higher-volume fixed-cost absorption, and selling-price/material-cost changes.
At March 31, 2015, cash was $1.2 million, current assets were $53.1 million, and current liabilities were $29.2 million. Total debt was $18.0 million, compared with $5.2 million at December 31, 2014; the increase primarily reflects a new term loan used to fund the CPI acquisition. The company had $17.0 million available on its revolving credit line. It was in compliance with its debt covenants and reported a $26,000 interest-rate-swap liability.
Material changes and notable items
- On March 20, 2015, the company acquired substantially all assets of CPI Binani, Inc. for a net cash purchase price of $14.512 million after working-capital adjustment. The acquisition added direct long-fiber thermoplastics capabilities. Purchase-price allocation, including approximately $1.057 million of goodwill and unidentified intangibles, was preliminary. Acquisition-related expense was $240,000.
- Sales growth was attributed principally to stronger demand from Volvo and PACCAR and sales contributed by CPI. Volvo sales were $14.6 million and PACCAR sales were $10.3 million. Heavy- and medium-duty truck markets accounted for 80% of company sales, and the filing identifies dependence on major customers as a risk.
- Tooling revenue increased to $1.745 million from $411,000. Management notes tooling sales are sporadic and fluctuate with customer approval and acceptance of tools.
- Operating cash flow improved from an outflow in the prior-year quarter, but working-capital changes reduced Q1 2015 operating cash generation. Investing cash outflow was $16.0 million, including the CPI purchase; financing cash inflow was $12.8 million.
- SG&A rose to $4.135 million from $3.529 million, including higher labor and benefits, profit sharing, and professional fees primarily related to CPI. The effective income-tax rate was approximately 34%, versus 31%; the prior-year rate benefited from tax effects of stock-option disqualifying dispositions.
Outlook, risks, and contingencies
Management expected 2015 product sales to exceed 2014 levels, citing industry forecasts for higher truck production and additional CPI sales. It anticipated up to $7.62 million of remaining-2015 capital spending, funded by operating cash flow and the revolving credit line. Management believed available cash flow and borrowing capacity would meet liquidity needs and forecast covenant compliance for the following 12 months. These expectations depend on industry production, sales, expenses, and other assumptions.
Key risks include exposure to truck-market demand, significant customer concentration, raw-material costs and availability, variable interest rates, Mexican peso fluctuations, supply and labor issues, and the ability to meet delivery schedules. A hypothetical 10% increase in commodity prices would adversely affect margins; management said a hypothetical 10% short-term interest-rate change would not materially affect pretax earnings. The company reported no material change to previously disclosed risk factors, no legal proceedings, and no impairment of long-lived assets or goodwill in the quarter.
Important facts for investors to verify
- Whether truck-production forecasts and demand from major customers support the stated 2015 sales outlook.
- The final CPI purchase-price allocation, integration results, and contribution to future revenue and earnings.
- Working-capital trends and whether operating cash flow can support planned capital spending and debt service.
- Debt-covenant headroom, variable-rate exposure, and continued availability under the revolving credit facility.
- The effect of customer concentration, raw-material cost changes, and tooling revenue volatility on margins and results.