Good day, ladies and gentlemen, welcome to the Miller Industries Fourth Quarter 2017 Results Conference. Please note, this event is being recorded. 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 Badgley, Co-CEO, Will Miller, President and Co-CEO, Debbie Whitmire, Executive VP and CFO, and Frank Madonia, 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 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 fourth 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% revenue growth in the fourth quarter. Our results were driven by positive order trends across our customer base and our ability to successfully capitalize on this increased activity. 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 utilized. Our bottom-line results also benefited from the recent change in tax legislation, which Debbie will cover in detail shortly. We reported 2017 fourth quarter sales of $159.7 million, an increase of 7.5% compared to $148.6 million in the prior year period.
Net income was $9.3 million, or $0.81 per diluted share, compared to net income of $4.5 million, or $0.38 per diluted share in the 2016 fourth quarter. Our profitability improved, with operating margins slightly higher in the fourth quarter as a result of continued operational efficiency gains. Fourth quarter earnings per share were also up over 100%, primarily related to income tax benefits. 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. 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 $159.7 million versus $148.6 million for the 2016 fourth quarter, a 7.5% year-over-year increase. Cost of operations increased 5.9% to $141.3 million for the 2017 fourth quarter, compared to $133.4 million for the 2016 fourth quarter. Gross profit was $18.5 million, or 11.6% of net sales for the 2017 fourth quarter, compared to $15.2 million, or 10.2% of net sales for the 2016 fourth quarter. SG&A expenses were $8.9 million for the 2017 fourth quarter, compared to $7.5 million for the 2016 fourth quarter. As a percentage of sales, SG&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 a net loss of $174,000 for the 2016 fourth quarter. As Jeff mentioned earlier, lower taxes related to the recent change in tax legislation provided a benefit of $343,000 in the fourth quarter, which I'll address in more detail in a moment. Net income for the 2017 fourth quarter was $9.3 million, or $0.81 per diluted share. Net income for the 2016 fourth quarter was $4.5 million, or $0.38 per diluted share. Let me briefly review our results for the full year ended December 31st, 2017. Net sales for the 2017 full year were $615.1 million compared to $601.1 million for the 2016 full year, an increase of 2.3%. Gross profit for 2017 was $67.1 million or 10.9% of sales compared to $64.3 million or 10.7% of sales in 2016.
Net income for the 2017 full year was $23.0 million or $2.02 for diluted share, which is an increase of 15.5% over net income for the 2016 full year of $19.9 million or $1.75 for diluted share. The year-over-year and fourth quarter increases in net income is primarily due to tax benefits related to the remeasurement of deferred taxes under the Tax Cuts and Jobs Act of 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 rate of 24.1% for the full year of 2017 as compared to a 35.8% effective tax rate for the full year of 2016, and a tax benefit of $343,000 in the fourth quarter of 2017. Turning to our balance sheet.
Cash and cash equivalents as of December 31st, 2017 were $21.9 million compared to $33.5 million as of September 30th, 2017. The decrease during the quarter was a result of paying down $10 million on our revolving credit facility. Cash and cash equivalents as of December 31st, 2016 were $31.1 million. Accounts receivable at December 31st, 2017 totaled $132.7 million compared to $135.4 million as of September 30th, 2017, and $125.4 million at December 31st, 2016. Inventories were $68.6 million as of December 31st, 2017 compared to $64.6 million as of September 30th, 2017, and $64.1 million at December 31st, 2016. Accounts payable at December 31st, 2017 were $79.3 million compared to the same $79.3 million of September 30th, 2017, and $85.1 million at December 31st, 2016.
As of December 31st, 2017, our outstanding balance under our $50 million unsecured revolving credit facility was $10 million, reduced from $20 million as of September 30th, 2017. The company also announced that its board of directors approved our quarterly cash dividend of $0.18 per share payable March 26th, 2018 to shareholders of record at the close of business on March 19th, 2018. 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 commitment to our shareholders through continuing to grow revenue and earnings. During the year, we substantially completed several expansions, including our Pennsylvania manufacturing plant consolidation and various others in Ooltewah and Greeneville, Tennessee. These expansions will be instrumental in serving our customers during 2018 and beyond. As we enter 2018, our backlog remains strong and our underlying activity continues to be positive. Offsetting some of these positive fundamentals are cost pressures related to raw materials and employee benefit costs, which we will continue to monitor and attempt to actively mitigate. We will also monitor current discussions related to tariffs 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 potential impact of any tariffs, it is too early to make any meaningful assessment. In closing, I'd like to thank our employees, our shareholders, our suppliers, our customers for ongoing support of Miller Industries. With that, we're ready to take your questions.
Thank you. Ladies and gentlemen, to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Our first question will come from James Lee with Potrero Capital. Please go ahead.
Thank you. Could you comment on domestic versus international sales outlook for 2018? It looks like in 2017 international was up but 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 placeholders of the orders we have internationally versus domestically and how they fall out 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. I really think in the domestic market, the market itself is strong, our backlog is strong, I would not expect any trailing off on the domestic side of our business.
Could you remind us why domestic was down, as demand in 2017 if demand was strong?
Obviously, Jim, we went through several plant realignments and construction projects. 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. Now that you guys
Also, I would point you to fourth quarter where we started, Jim, to see the ability with these construction projects and plant modernizations. Your sales level did go up. 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, what kind of sales increase could it handle? Not saying that you will do that sales increase, but could you double your sales based on current capacity?
In terms of what capacity has been increased, right at the moment, we have capacity. We're struggling as we move forward, not with the ability to produce more of our own product, but the ability for our suppliers to keep up with our attempts to increase our production rate. I don't want to answer Go ahead.
No, you go. I cut you off.
I don't want to try to answer a question about capacity without looking at the total environment. I believe that would be misleading to you and others on the call. We do have capacity. We are building more product. 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. The only way we can do that is to expand our supplier base, which takes some time and some effort.
I think you guys did mention 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, does it severely impact it or not? Do you think you can deal with it at this point?
James, I didn't understand the first part of your question. You said something about the 10-K.
Yeah. You referenced just now, I think I read it in the K as well, that you mentioned the delay in supply of truck chassis starting in late 2017.
Well, truck chassis themselves, their lead times have moved out. In my previous comments, I'm not really talking about just chassis. The metal components, cylinders, valves, all our suppliers are at capacity or close to capacity, and as we attempt to raise production rates, we're finding those constraints.
Okay. On cost pressure, how do you think you'll be able to mitigate these? Would you be able to raise prices? Have you been able to communicate potential price increase to your customers?
We have, in fact, instituted a price increase. We did that either late January or early February to help mitigate cost pressure. I would caution you as you look forward, remember our backlog is sold prior to that price increase. You have to work through the backlog to get to the result of an increased price on your product.
Got it. Early on in your prepared remarks, you talked about you being the operating leverage. 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, 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 2016 and 2017 obviously impact our labor expense, increase our ability to build more product. A big component of our margin is cost of goods. I'm not going to forecast what our margins may or may not be in 2018 at this point.
Okay. Your CapEx, capital expenditure, was elevated in the last couple of years as you expand and improve your manufacturing facility. Should we see a step-down of that in 2018, and what's your outlook for that, for CapEx?
Our CapEx will step down in 2018. Yes, sir.
Would it be more similar to what it was before 2016? Like below $10 million per year?
Jim, I have a good memory, but I don't remember what our CapEx was in 2015 and 2016, nor did I go back and look, but it will drop substantially.
Okay, got it. Last question from 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. 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 calls, well, I know we have, that as we grow, we eat cash. When the business turns down, we garnish cash.
Okay. I meant with your tax rate.
I'm sorry. I thought you said cash.
No, your cash tax rate. That was helpful as well, your comment earlier.
I am sorry, I did not hear the word tax at the end of the word cash. Debbie, do you
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. We do get the benefit of our domestic and manufacturing tax credits. I think you'll see a more normalized level around that corporate tax rate. 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.
What do you think that'll be, the corporate tax rate?
Obviously, the U.S. rate is now 21. With our manufacturing credits and the European rates that we have, obviously, the U.K. is similar. The French tax rate's a bit higher, so I'm estimating somewhere in the 23-24 range.
Okay, great. Thank you.
Thanks for your questions, Jim.
There are no further questions at this time. With that, ladies and gentlemen, this does conclude today's conference call. We'd like to thank you again for your participation. You may now disconnect.