Miller Industries, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Amounts below are in millions of dollars, except per-share data. Miller Industries manufactures towing and recovery equipment and sells through domestic and international distributors.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $105.8 | $87.3 | $190.8 | $182.3 |
| Gross profit | $11.7 | $10.6 | $20.4 | $21.4 |
| Net income attributable to Miller Industries | $2.9 | $2.5 | $4.2 | $4.6 |
| Basic / diluted EPS | $0.26 / $0.26 | $0.23 / $0.23 | $0.38 / $0.38 | $0.41 / $0.40 |
- Q2 sales rose 21.2%, which management attributed to stronger domestic commercial demand and higher production. First-half sales increased 4.7%.
- Gross margin was approximately 11.1% in Q2 versus 12.1% a year earlier, and 10.7% for the first half versus 11.8%. Management cited a greater share of lower-margin chassis sales. Costs of operations rose faster than sales in both comparisons.
- Q2 SG&A was $7.2 million, roughly unchanged year over year; as a share of sales it fell to 6.8% from 8.3%. First-half SG&A declined to $13.9 million from $14.2 million.
- Q2 interest expense fell to $84,000 from $214,000. Other expense was $18,000, compared with $1.039 million of other income in Q2 2012, which management associated with foreign-currency transaction gains. First-half other income was $5,000 versus $703,000.
Cash, liquidity and capital
- At June 30, cash and temporary investments were $43.4 million, down from $48.6 million at December 31, 2012. Current assets were $180.8 million and current liabilities $64.3 million.
- Operating cash flow was negative $0.8 million for the first half, compared with negative $4.8 million in 2012. Receivables and inventory absorbed cash, partly offset by higher payables and accrued liabilities.
- Investing cash outflow was $1.7 million, primarily for property and equipment; financing cash outflow was $2.6 million, primarily dividends. Capital expenditures were $1.7 million.
- No borrowings were outstanding under the $25 million unsecured revolving credit facility, which matures March 31, 2015. The company reported $1.4 million of non-cancelable operating lease obligations and $0.4 million of property and equipment commitments.
- Cash dividends declared were $0.14 per share in Q2, versus $0.13 in Q2 2012. The board declared a further $0.14 quarterly dividend on August 5, payable September 23, 2013.
Outlook, risks and notable items
- Management expected cash on hand, operating cash flow and the available credit facility to meet cash needs during 2013 and for the next several years, while cautioning that performance depends on economic and other factors beyond its control. No specific sales or earnings guidance was provided.
- Management cited the industry’s cyclical nature, slow economic recovery, customer access to credit and floor-plan financing, fuel and insurance costs, and the cost and availability of steel, aluminum and other raw materials as risks.
- Customer-product repurchase arrangements had a maximum potential exposure of approximately $26.2 million, up from $22.0 million at year-end; management said the products’ value mitigates the exposure and the related liability was not material. Ordinary-course litigation was disclosed; management did not expect uninsured exposure beyond accruals to materially affect results or financial position.
- Foreign-currency movements affected results and comprehensive income. The company used forward contracts, including cash-flow hedges; it reported a $365,000 first-half decrease in the foreign-currency translation adjustment.
- Management said disclosure controls were effective, and reported no material change in risk factors from its 2012 Form 10-K. It also stated that interim results may not indicate full-year results.
Important facts for investors to verify
- Whether chassis mix and related lower gross margins persist as sales volumes change.
- Whether receivables and inventory convert to cash, given the first-half operating cash outflow.
- Customer financing conditions, raw-material costs, and the company’s exposure under product repurchase arrangements.
- Foreign-currency impacts, dividend affordability and compliance with credit-facility covenants.
- The filing reports no outstanding facility borrowings; confirm available capacity and covenant status in subsequent filings.