Earnings Call: Q4 2017

Mar 8, 2018

Good day, ladies and gentlemen, and welcome to the Miller Industries 4th Quarter 2017 Results Conference. Please note this event is being recorded. And now, at this time, I would like to turn the call over to Ben Herskowitz 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 2017 fourth quarter and full year results, which were released after the close of market yesterday. With us from the management team today are Bill Miller, Chairman of the Board Jeff Badgwick, Co CEO Will Miller, President and Co CEO Debbie Whitmire, Executive VP and CFO and Frank Medonia, 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 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 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 Jeff. Please go ahead, Jeff. Thank you, Ben, and good morning. We're pleased to discuss with you our 4th quarter and full year 2017 performance. 2017 was a solid year in which we grew our top line revenue by 2.3% capped off by 7.5 percent revenue growth in the 4th quarter. Our results were driven by positive order trends across our customer base and our ability Our plant expansion projects were substantially completed during the quarter, and we expect to benefit from higher production levels as well as improved operating leverage as these facilities become change in tax legislation, which Debbie will cover in detail shortly. We reported 2017 fourth quarter sales of 159,700,000, an increase of 7.5% compared to $148,600,000 in the prior year period. Net income was $9,300,000, or $0.81 per diluted share compared to net income of $4,500,000 or $0.38 per diluted share in the 2016 fourth quarter. Our profitability improved with operating margin slightly higher in the 4th quarter as a result of continued operational efficiency gains. 4th quarter earnings per share were also up over 100% primarily related to income tax benefit. Overall, we are encouraged by our strong performance this quarter. We continued to deliver both solid top and bottom line growth as we met growing demand for our products and improved our operating margins through an increase in operating leverage. Now I'll turn the call over to Debbie, who will review the fourth quarter and 2017 full year results. After that, I'll be back with comments on the market environment and some closing remarks. Debbie? Thanks, Jeff and good morning, everyone. Net sales for the 2017 fourth quarter were 159 point $7,000,000 versus percent year over year increase. Cost of operations increased 5.9 percent to $141,300,000 for the 2017 fourth quarter compared to $133,400,000 for the 2016 fourth quarter. Gross profit was $18,500,000 or 11.6 percent of net sales for the 2017 fourth quarter compared to $15,200,000 or 10.2 percent of net sales for the 2016 fourth quarter. SG and A expenses were $8,900,000 for the 2017 fourth quarter compared to $7,500,000 for the 2016 4th quarter. As a percentage of sales, SG and A increased to 5.6% from 5.0% in the prior year period. Interest expense for the 2017 fourth quarter was $426,000 compared to $345,000 for the fourth quarter of 2016. Other income expense net for the 2017 fourth quarter was a net loss of $203,000 compared to As Jeff mentioned earlier, lower taxes related to the recent change in tax legislation provided a benefit of $343,000 in the 4th for the 2017 fourth quarter was $9,300,000 or $0.81 per diluted share. Net income for the 2016 fourth quarter was $4,500,000 or $0.38 per diluted share. Now let me briefly review our results for the full year ended December 31, 2017. Net sales for the 2017 full year were $615,100,000 compared to $601,100,000 for the 2016 full year. An increase of 2.3%. Gross profit for 2017 was $67,100,000 or 10.9 percent of sales compared to $64,300,000 or 10.7 percent of sales in 2016. Net income for the 2017 full year was $23,000,000 or $2.02 per diluted share which is an increase $1,000,000 or $1.75 per diluted share. The year over year and 4th quarter increases in net income is primarily due to tax benefit related to the remeasurement of deferred taxes under the Tax Cut And Jobs Act 2017 and the release of unrecognized tax benefits both of which are reflected in the fourth quarter of 2017. The resulting impact of these tax benefits was an effective tax percent effective tax rate for the full year of 2016 and a tax benefit of $343,000 in the fourth quarter of 2017. Turning now to our balance sheet. Cash and cash equivalents as of December 31, 2017 were $21,900,000 compared to $33,500,000 as of September 30, 2017. The decrease during the quarter was 16 were $31,100,000. Accounts receivable at December 31, 2017 totaled $132,700,000 compared to $135,400,000 as of September 30, 2017. And $125,400,000 at December 31, 2016. $1,000,000 as of December 31, 2017 compared to $64,600,000 as of September 30, 2017. And $64,100,000 at December 31, 2016. Accounts payable at December 31, 2017 $79,300,000 compared to the same $79,300,000 of September 30, 2017. And $85,100,000 at December 31, 2016. As of December 31, 2017, Our outstanding balance under our $50,000,000 unsecured revolving credit facility was $10,000,000 September 30, 2017. The company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share payable March 22, 2018, excuse me, March 26, 2018 to shareholders of record at the close of business on March 19, 2018. Now, I'll turn the call back to Jeff for further remarks. Thank you very much Debbie. Our progress in 2017 is a good reflection of our employees dedication to growing the company and serving our customers as well as our During the year, we substantially completed several expansions, including our Pennsylvania Manufacturing plant consolidation and various others in Ultaua and Greenville, Tennessee. These expansions will be instrumental in serving our customers during 2018 and beyond. As we entered 2018, our backlog remains strong and our underlying activity continues to be positive. Offsetting some of these positive fundamentals our cost pressures related to raw materials and employee benefit cost, which we will continue to monitor and attempt to actively mitigate. We will also monitor current discussions related on steel and aluminum in order to determine the impact they may have on our raw material costs in the future. While we are concerned about the In closing, I'd like to thank our employees, our shareholders, our suppliers, our customers for ongoing supportive Miller Industries. With that, we're you. We'll pause for just a moment to allow everyone an opportunity And our first question will come from James Lee with Protero Capital. Please go ahead. Thank you. Could you comment on domestic versus international sales outlook for 2018? Because it looked like in 2017, international was up at domestic was down. Would you expect domestic to grow in 2018? I think the overall market, domestically quite honestly, probably if I look at backlog, I would say that domestic continues to be strong, in terms of the place of the placeholders of the orders we have internationally versus domestically and how they fall out quarter over quarter to quarter or year over year because the backlog is strong. Jim, I haven't looked back to see what proportion are scheduled early for domestic and what are scheduled for international. But I I really think in the domestic market, the market itself is strong. Our backlog is strong. So I would not expect any trailing off on the domestic side of our business. Could you remind us why domestic was down of demand in 2017 if demand was strong? Well, obviously, Jim, we went through several, plant realignments and construction projects. So I mean, if you were to compare, our backlogs from the end of 2016 to the end of 2017, you would say that Although we didn't deliver, our sales effort and backlog is stronger. Okay. And now that you guys have Also, I would point you to 4th quarter where we started to see the ability with these construction projects and plant modernizations, your sales level did go up. So, we're starting to see the impact, I believe, of our past efforts Got it. Now that your planned expansion is pretty much complete, let's say if it's operating at full utilization, does get it handled? What kind of sales increase get it handled? I'm not saying that you will do that sales increase, but could it, could you double your sales based on current capacity? Well, I don't, in terms of what capacity has been increased. Right at the moment, we have capacity. We're struggling as we move forward, not not with the ability to produce more of our own products but the ability for our suppliers to keep up with So I don't want to answer. Go ahead. No, you go ahead. Your students cut you off. I don't want to try to answer a question, about capacity without looking at the total environment. I mean, because I believe that would be misleading to you and others on the call, we do have capacity we are building more products of the mitigating factor today as we attempt to raise production more and more is getting components to raise that production because suppliers are at capacity. And the only way we can do that is to expand So I think you had mentioned that in the 10 K about the delay in supply of truck chassis. Could you talk about how that could possibly impact your sales outlook for 2018? I mean, is it really impacted or is it not? Do you think you can deal with it at this point? Jim, I didn't understand the first part of your question. You said something about the 10 K? Yes. You referenced just now and I think I read in K as well that there's a you mentioned a delay in supply of truck chassis starting in late 2017. Well, they're, they're, it's truck chassis themselves have their lead times have moved out. But I'm in my previous comments, I'm not really talking about just chassis. The metal components, cylinders, valves, all our suppliers are at, capacity. And as we attempt to or close to capacity, and as we attempt to raise production rates, we're fighting those constraints. Okay. And on cost pressure, have you how do you think you'll be able to mitigate these? Would you be able to raise prices, how do you even communicate potential price increase to your customers? We have. We have, in fact, instituted a price increase. We did that either late January or early February. To help mitigate cost pressure. Now I would caution you as as you look forward. Remember, our backlog, is sold prior to that price increase. So you have to work through the price increase You have to work through the backlog to get to the result of an increased price on your product. Got it. And early on in your prepared remarks, you talked about you being the operating leverage. Would you they would would you do you think you'll be able to increase your operating margin in 2018 in spite of the cost pressure that you guys talked about? Well, I'm, you know, it's hard to talk about margin without looking at the total scope of those things that impact margin. I believe that our investments that we have made through 'sixteen and 'seventeen, obviously impact our labor expense, increase our ability to build more product. But a big components of our margin is cost of goods. So I'm not going to forecast Okay. Your CapEx capital expenditure was elevated in the last last couple of years as you expand and improve your manufacturing facility. Should that should we see a step down of that in 'eighteen and what's your outlook for that or CapEx? Our CapEx will step down in 'nineteen. Yes, sir. Is it more would have been more similar to why it was before 2016. So I think that low below $10,000,000 per year. Jim, I have a good memory, but I don't remember what our CapEx was in 2015 2016 nor did I go back and look, but it will drop substantially. Okay, got it. Last question for me is, how should we think about your cash tax rate going forward? I think Debbie reviewed the fact that We have paid down on our debt. So, we would expect to continue to pay down that debt We do believe if we are successful in growing the business, if our suppliers and components, and we can raise production, I think we have always said in our call on in our calls, well, I know we have, that as we we garnish cash. Right. But what I meant with your tax rate Oh, I'm sorry. I thought you said cash. No, no, your cash tax rate, but no, but that was helpful as well as your comment earlier. I'm sorry. I did not hear the word tax at the end of the word cash. So Debbie, do you Well, obviously we have a blended rate because we have our European operations as well as the U. S, but obviously it will step down with the new tax impact and we do get the benefit of our domestic and manufacturing tax credits. So I think you will see a more normalized level around that corporate tax rate, but there were obviously some major adjustments with the new legislation this year, but it should be normalized somewhere around the corporate tax rate going forward. So what do you think that'll be the corporate tax rate? Well, obviously the US rate is now 21 and with our manufacturing credits and the European rates that we have, obviously the UK is similar. The French tax rate is a bit higher. So estimating somewhere in the 'twenty three-'twenty four range. Thanks for your questions, Jim. There are no further questions at this time. And with that ladies and gentlemen, this does conclude today's conference call. We like to thank you again for your participation. You may now disconnect.