Earnings Call: Q3 2018

Nov 8, 2018

Good day, ladies and gentlemen, and welcome to Miller Industries Third Quarter 2018 Results Conference Call. Please note this event is being recorded. And now at this time, I would like to turn the call over to Ben Heskovitz at FTI Consulting. Please go ahead, sir. Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2018 third quarter results, which were released after the close of market yesterday. With us from the management team today are Chairman of the Ward Will Miller, President and Co CEO, W. Whitmire, Executive Vice President, CFO and Frank Mondonia, Executive Vice President, Secretary And General Counsel. Today's call will begin with formal remarks from management followed by a question and answer period. Please note in this morning's conference call management may make forward looking statements in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in the company's annual report filed on Form 10 K and other filings with the Securities And Exchange Commission. With these formalities out of the way, I'd like to turn the call over to Will. Please go ahead. Thank you and good morning. Unfortunately, our co CEO, Jeff Badley, will be unable to join us today. Since his father passed away earlier this week. Please keep Jeff and his family in your prayers. We are pleased to discuss our third quarter results with you today. This was another strong quarter for Miller Industries, and we achieved solid top line growth, gross margin expansion and an increase in earnings per share. Our profitability continues to be improved as a result of our disciplined cost management as we realized incremental benefits associated with increased production capacity and efficiency gains on the back of our plant consolidation and expansion efforts. As evidenced by our 37.2 percent increase in gross profit and our 94.7 percent increase in net income as compared to the third quarter of 2017. Results this quarter were driven by the continued strong demand in our domestic and international markets. We continue to see strong activity in international markets as our backlog continues to strengthen. We reported 2018 third quarter sales, $195,700,000, an increase of 27.6%. Compared to the $153,400,000 in the prior year period. Net income was $8,700,000 or $0.76 per share. Compared to net income of $4,500,000 or Gross profit as a percentage of total sales this quarter was Concurrently, selling, general and administrative expenses decreased 80 basis points as a percentage of the total sales to 4.8%. As of September 30, our plant expansion and consolidation efforts are complete, which has increased efficiency and boosted production levels, allowing us to meet increased customer demand. Our balance sheet remains healthy and we continue to strategically deploy our resources to drive organic growth and profitability to create sustainable shareholder value. We remain confident in our competitive position and our financial outlook. Now I'll turn the call over to Debbie, who will review the 3rd quarter financial results. After that, I'll be back with comments on the market environment and some closing remarks. Then we'll go to Q And A. Debbie? Thanks, Will, and good morning, everyone. Net sales for the 2018 third quarter were $195,700,000 versus $153,400,000 in the 2017 third quarter, a 27.6 percent year over year increase. Cost of operations increased 26 point 5 percent to $174,200,000 for the 2018 third quarter compared to $137,700,000 for the 2017 third quarter, reflecting increased costs associated with higher demand. However, cost of operations as a percentage of net sales contracted approximately 80 basis points to 89% from prior year period. Reflecting our continued cost management efforts. Gross profit was $21,500,000 3rd quarter compared to $15,700,000 or 10.2 percent of net sales for the 2017 third quarter. SG and A expenses were $9,500,000 for the 2018 third quarter compared to $8,600,000 for the 2017 third quarter. As a percentage of sales, SG and A decreased to 4.8% from 5.6% in the prior year period. Other income and expense net for the 2018 third quarter was an expense of $76,000 compared to income of $106,000 for the 2017 third quarter. Reflecting unfavorable currency translation. Interest expense for the 2018 third quarter was $525,000, compared to $469,000 for the 2017 third quarter due to increased interest on distributor floor planning. Net income for the 2018 third quarter was $8,700,000 or $0.76 per diluted share. Net income for the 2017 third quarter was $4,500,000 or $0.39 per diluted share. Now let me briefly review our results for the 9 months ended September 30, 2018. Net sales for the 1st 9 months of 2018 or $531,700,000 compared to $455,400,000 in the prior year period, an increase of 16.8 percent. Gross profit for the 9 months ended September 30, 2018 was $61,200,000 or 11.5 percent of sales compared to $48,600,000 or 10.7% of sales for the 1st 9 months of 2017. Net income for the 1st 9 months of 2018 was $22,900,000 or $2.01 per diluted share, an increase of 67.3 percent to net income for the 1st 9 months of 2017 of $13,700,000 or $1.21 per diluted share. Turning now to our balance sheet. Cash and cash equivalents as of September 30, 2018, were $18,700,000, compared to $19,700,000 as of June 30, 2018 $21,900,000 at December 31, 2017. Accounts receivable at September 30, 2018 totaled $155,700,000 compared to $148,000,000 as of June 30, 2018, and $132,700,000 at December 31, 2017. Inventories were $84,100,000 as of September 30, 2018 compared to $81,200,000 as of June 30, 2018. And $68,600,000 at December 31, 2017. Accounts payable at September 30, 2018 were $100,900,000 compared to $92,000,000 as of June 30, 2018 $79,300,000 at December 31, 2017. We decreased the line of the balance of the unsecured revolving credit facility by $5,000,000 during the 2018 third quarter. As of November 1, 2018, we have borrowed $10,000,000 under the $50,000,000 credit facility to help fund our working capital needs as we work to make customer demand. The company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share payable December 10, 2018 to shareholders of record at the close of business on December 3, 2018. Now I'll turn the call back to Will for further remarks. Thank you, Debbie. Our performance this quarter was very encouraging as the effects of our capital projects allow us to better meet increasing demand. Which has resulted in strong sales growth and margin expansion. Associated enhanced operational efficiency and increased production capacity has resulted in increased profitability. These factors combined with continued strong demand globally, bode well for the company's long term outlook. As always, disciplined operations, cost reduction, balance sheet management and targeted capital deployment continue to remain central to our strategy. To underscore our commitment, to returning shareholder value. Our Board of Directors cleared a quarterly dividend of $0.18 per share. As we move into the 4th quarter, who will continue to deploy our resources in a manner that heightens our operational efficiency allows us to sufficiently meet growing demand for our products and maximize shareholder value. Lastly, while our growth and profitability has yet to be affected, the effects from steel and aluminum tariffs on raw material pricing are increasingly noticeable. We will continue to monitor current dynamics related to tariffs on steel and aluminum to determine any further impacts they may have on our raw material costs in the future. While we are concerned about the potential impact of tariffs and remain in constant communication with our customers and pliers, we continue to be disciplined in our cost management efforts and will respond as needed. In closing, I'd like to thank our employees shareholders, suppliers and customers for their ongoing support of Miller Industries. With that, we are ready to take your questions. We will now begin session. The first question comes from Bruce Baumann of Franklin. Good morning. Thanks for taking my question. Thanks for taking my question and congratulations on a another very nice quarter. And also my sympathy to, to Jeff. My question has to do with CapEx. Would you walk us through the spending you've done over the last couple of years? I guess beginning at the end of 2015, What were you spending it on? What was the result? And then, what are CapEx plans for the next couple of years? Since 2015, we've spent a significant amount of money. I think that I think the number is about $54,000,000 on CapEx, revolving mostly around production capacity. In our Pennsylvania facility. We expanded that facility from 100,000 square feet to 227,000 square feet. And implemented, state of the art robotics and, fabrication equipment to increase, our overall capacity, as well in Voudewa, we spent significant money on focusing on our bottlenecks, which revolve predominantly around our paint process, so that we could increase, production and throughput out of our facility in Ottawa, Tennessee. At this time, we believe that our future, capital expenditures will go back to a more normalized rate. The next comes from the line of James Lee of Portrero Capital. Hi, guys. On the gross margin, when do you expect raw material price increases start hitting your gross margin and by how much? James, I believe we've already started to see increases in the raw material pricing starting back in August of last year. And to try to counter that, we did put in effective to August, a price increase to try to help combat those raw material prices. Okay. And then in terms of chassis, one of your peers, talked about not getting enough supply of chassis. Have you guys seen that issue, whether you were able to get enough supply of chassis to meet demand? We've done a very good job of, meeting with our suppliers from all the major chassis OEMs. And, I believe that we have, looked far enough in the future that we shouldn't have any major issues with, supply for our needs. This concludes our question and answer session. I would like to turn the conference back over to Ben Haskell for closing remarks. Thank you. Go ahead, Ben, or I'll take it. Thank you again. We look forward to discussing our The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.