Core Molding Technologies, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012; unaudited consolidated results. The company manufactures sheet molding compound and molded reinforced-plastic products at five facilities, serving truck, marine, automotive and other commercial markets.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $44.5m | $35.3m | $89.1m | $64.3m |
| Gross profit / margin | $7.0m / 15.8% | $7.7m / 21.9% | $14.7m / 16.5% | $14.3m / 22.3% |
| Income before interest and taxes | $3.4m | $4.6m | $7.5m | $8.2m |
| Net income | $2.3m | $2.8m | $5.0m | $5.1m |
| Diluted EPS | $0.32 | $0.39 | $0.67 | $0.70 |
- Six-month product sales rose 37%; total sales rose 39%, including tooling revenue of $3.5m versus $1.8m. Q2 total sales increased 26%.
- Despite higher sales, gross margin contracted by about six percentage points in both comparisons. Management cited lower-margin product mix, Warsaw start-up costs and inefficiencies, production inefficiencies elsewhere, and higher raw-material costs.
- Six-month operating cash flow was $1.3m, versus $0.6m a year earlier. Working-capital changes used $5.8m, principally from higher receivables and inventories and lower accrued liabilities. Capital spending was $5.3m.
- At June 30, cash was zero. Total debt was $13.0m, including $2.2m drawn on the $8.0m revolver; the $10.0m Mexican expansion revolver was undrawn. Current assets were $43.5m and current liabilities $27.4m. The company reported covenant compliance.
- Assets totaled $97.6m and stockholders’ equity $55.2m. Capital expenditures in progress were $9.1m.
Changes, outlook and notable items
- Revenue growth reflected stronger North American truck demand, new business awards, and increased marine sales. Heavy- and medium-duty truck markets accounted for 86% of six-month sales, compared with 91% a year earlier.
- Navistar and PACCAR represented approximately 37% and 36% of six-month sales, respectively—about 72% combined—creating significant customer concentration.
- Management expected truck production to slow in the second half of 2012 and anticipated lower product sales than in the second half of 2011. It cited analyst forecasts of higher truck production in 2013 and expected new product launches in Q3 and Q4 2012.
- The Warsaw, Kentucky operation was idled after its customer said it would not continue purchases beyond the June shipment. Through June, the company recorded $355,000 of sales and approximately $1.5m in pre-tax start-up losses. Management did not anticipate further expenses or impairment related to idling or likely closure.
- The company planned a $14.5m expansion at its Matamoros, Mexico facility, with approximately $10.7m spent by June 30, and anticipated approximately $4.5m of property, plant and equipment purchases for all operations during the remainder of 2012. It expected available operating cash flow and credit facilities to meet liquidity needs, subject to forecast and business risks.
- On July 9, 2012, the company extended the $8.0m revolving line commitment to May 31, 2014; the Mexican expansion revolver was scheduled to mature May 31, 2013.
- Key risks include truck-industry and broader economic conditions, customer concentration, raw-material price and availability, Mexico-related operating and currency exposure, order cancellations or rescheduling, and the ability to meet delivery, covenant and capital requirements. The filing reported no material change to previously disclosed risk factors and no legal proceedings.
Important facts for investors to verify
- Whether truck production and customer demand weaken as management anticipated, and how concentrated customer exposure evolves.
- Whether new product launches and the Matamoros expansion generate expected sales and returns, and whether remaining capital needs are funded as planned.
- Whether lower gross margins persist, particularly given product mix, raw-material costs and production efficiency.
- Whether the company maintains covenant compliance and adequate liquidity with no cash on hand and ongoing investment needs.
- Whether the Warsaw closure creates costs, asset impairment or other effects beyond management’s stated expectations.