Yahoo Finance Core Molding Technologies, Inc. (AMEX:CMT) Q1 2024 Earnings Call Transcript
Core Molding Technologies, Inc. (AMEX:CMT) Q1 2024 Earnings Call Transcript May 7, 2024
Core Molding Technologies, Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.26. Core Molding Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone. Welcome to the Core Molding Technologies First Quarter Fiscal 2024 Financial Results Conference Call. Today, all participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask your questions. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sandy Martin, Three Part Advisers. Please go ahead.
Sandy Martin: Thank you, and good morning, everyone. We appreciate you joining us for Core Molding Technologies conference call to review first quarter results for 2024. Joining me on the call today are the company’s President and CEO, Dave Duvall; and EVP and CFO, John Zimmer. This call is being webcast and can be accessed through coremt.com via an audio link on the Investor Relations’ Events and Presentations page. Today’s conference call, including the Q&A session will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today’s discussion that are not historical facts including statements or expectations or future events or future financial performance are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
By their nature, forward-looking statements are uncertain and outside of the company’s control. Actual results may differ materially from those expressed or implied. Please refer to today’s earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company’s filings with the Securities and Exchange Commission. Core Molding Technologies assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, including adjusted EPS, adjusted EBITDA, debt-to-trailing 12 months EBITDA ratio, free cash flow and return on capital employed. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release.
Finally, this release has been submitted to the SEC on Form 8-K. Now, I would like to turn the call over to the company’s President and CEO, Dave Duvall.
Dave Duvall: Thank you, Sandy, and thank you all for joining us to review our 2024 first quarter results. I want to start today with some positive highlights related to our Core Molding team in the first few months of 2024. This spring, Core was presented with BRP’s Gold Supplier Award related to its Sea-Doo Boats and Personal Watercraft Models. BRP or Bombardier Recreational Products is a global leader in power sports vehicles on land, water and snow. I’m proud of our team, and we are honored to be one of BRP’s key suppliers for the Sea-Doo Personal Watercraft and the Sea-Doo Switch. Our team has been awarded this prestigious recognition for Core’s manufacturing and logistics excellence, high-quality products and processes and superior customer service.
Being recognized as a gold supplier is a culmination of the complete business transformation that we’ve been executing and communicating over the past several years. I am proud of what the team has accomplished and the magnitude of this accomplishment can be seen in our tremendous improvements in our basic metrics. For safety, we reduced our incident rate by 44% in last two years and are much better than the industry average. For people, we continually improve our focus on individual and organizational development, which is reflected in our low turnover of salaried team members, now less than 12% annualized. We’ve implemented annual leadership development programs, organizational and career development programs, technical certification programs along with many other training and employee engagement initiatives.
Employee development is and always will be a key focus area for Core Molding. In quality, we’ve reduced our customer PPM by an incredible 89.6% in the last four years and 17% in the last two years. In delivery, we improved our on-time delivery by 21% in the last two years and are now at 99% on-time delivery. We have reduced scrap and rework costs by over 51%. We increased our production capacity by over 20% with existing assets and made strategic investments in our plants to increase capacity through efficiencies, automation, facility improvements, which increased our total current capacity to between $425 million to $475 million in annual sales. We first significantly improved our customer support and service levels, which then enabled us to make the necessary changes to our pricing to bring prices back in line with market rates, which provides us the financial resources necessary to continue to improve our operations and customer service levels.
As a company, I believe we’re in the best overall business operating condition in company history. Our focus has been on implementing robust business systems throughout the transformation. I am confident that our improvements are sustainable and that we have some of the highest service levels in the industry, that the company has the organizational capability, operational infrastructure and financial stability in place to drive revenue growth through new programs, acquisition opportunities and existing programs as demand levels rebound. We have prepared the organization for growth. The engine is ready. And now we’re at the invest-for-growth phase or better stated, our Must Win Battle is now invest for growth, which I will talk about later.
I’m also excited to share that we have published Core’s second sustainability report, which showed solid progress from last year. This comprehensive report published on our website offers an overview of our sustainability strategy and provides all Core stakeholders with a view of our progress against established goals and commitments. Sustainability is embedded into our values and business and is instrumental in driving organizational change that reduces both enterprise risks and costs. Also important is that our sustainability systems allow Core Molding to be a part of something bigger than ourselves by providing a structure for our organization to support environmental stewardship. Our second Annual Report details accomplishments in 2023 and progress on our important 30 x 30 targets.
We intend to reduce our company’s energy consumption, greenhouse gas emissions and landfill waste by 30% by the end of 2030. And we think this is a sustainable goal to attain. Turning to review of our top level financial results. We signaled a few weeks ago, during our year-end earnings call that 2024 sales expectations were lower than 2023. Today, we reported sales of $78 million, down 21.5% due to challenging 2023 comparisons and end market headwinds that we will discuss more in a moment. When we look at sales sequentially compared to the fourth quarter of 2023, sales for the first quarter of 2024 increased by 5.9%. Gross margin for the 2024 first quarter was 17% compared to 17.8% in the prior year first quarter and up 220 basis points from 14.8% in the fourth quarter of 2023.
Anticipating lower sales, the company reacted quickly and leaned on the operational improvements made over the past several years to offset lost fixed cost leverage. We also generated $8.8 million in adjusted EBITDA or 11.2% of sales and we reported positive free cash flows. In summary, for 2023, we completed the second Must Win Battle initiative, and the results are improved operational efficiencies and a solid foundation for continuous improvement in all of our plants. That work allowed us to operate with much more stability, consistency and translating to more stable margins and improved product line profitability. Our intense focus or Must Win Battle is on sales this year, and our business fundamentals remain strong. We continue to work on landing and diversifying into new business and increasing our opportunity pipeline.
With that, I’d like to turn it over to John to cover the financials in more detail.
John Zimmer: Thank you, Dave, and good morning, everyone. As Dave mentioned earlier, our total net sales for the first quarter were $78.1 million, down 21.5% compared to a year ago. And sequentially, our net sales improved by 5.9% up from the fourth quarter’s sales of $73.8 million. Seasonality and mix shifts produced growth from Q4, and we believe that including sequential performance comparison allows us to explain recent changes in customer demand. As expected, first quarter sales reflected tough prior year comparisons, notable mix shifts and rebalancing of customer inventory levels. Q1 medium and heavy-duty truck sales shifted from 50% of sales in 2023 to 55% this year, and power sports shifted from 22% of sales last year to 25% in the first three months of 2024.
In addition, other industries, including building products and industrial utilities continue to produce soft sales. The first quarter gross margin was $13.3 million or 17% of sales compared to 17.8% in the year ago quarter. With lower sales versus prior year, fixed cost operating leverage was negatively impacted in the first quarter by approximately 170 basis points. Due to the operational improvements and pricing changes, we were able to offset a significant portion of the lost fixed cost leverage. Before our operational improvements, volume decreases and mix shifts historically created more volatility in gross margin. However, we now have better operational efficiencies and profitability across all our plants, which allows us to offset fixed cost leverage decreases and maintain more stable margins and changing demand levels, as was demonstrated in this quarter.
We continue to expect gross margin to be in the 17% to 19% for the full year, with the potential for gross margins in a quarter outside of this range. SG&A expenses were $8.6 million compared to $9.7 million in the prior year, primarily due to lower bonuses, labor and benefit costs and favorable foreign currency translation. Operating income for the quarter was $4.7 million or 6.1% compared to $8.1 million or 8.1% in the year ago period. Net interest expense was $82,000 in the first quarter, down from $356,000 in the prior year quarter. Netted in the $82,000 net interest expense in the first quarter of 2024 is $252,000 of interest income from our accumulated cash balances. The quarterly interim effective tax rate was 21.5%, comprising the weighted tax costs from the three tax jurisdictions, which where we operate.
Our net income totaled $3.8 million or diluted EPS of $0.43 compared to $5.9 million or diluted EPS of $0.66 in the comparable year period. Our first quarter adjusted EBITDA was $8.8 million or 11.2% of sales compared to $12.2 million or 12.3% of sales in the prior year quarter. You can refer to our GAAP to non-GAAP reconciliation tables are at the end of our press release. Turning to the company’s financial position. We ended the quarter with $26.6 million of cash and cash equivalents. The company’s cash provided by operating activities was $5.1 million for the first quarter, which compared favorably to the $4.6 million in the 2023 first quarter. For the first three months, capital expenditures were $1.9 million and free cash flows were $3.2 million, an improvement from the $2.5 million in the prior year.
We currently expect 2024 capital expenditures to be approximately $13 million for the year. As of March 31, 2024, total outstanding liquidity was $76.6 million, which includes cash and $50 million available under the revolver and capital credit lines. The company’s term debt was $22.7 million at the end of the quarter, and our debt to trailing 12 months EBITDA ratio was less than 1 time. Our working capital continues to be well managed and netted to $61 million on March 31, 2024. Our return on capital employed, a pretax return metric was 14% on a trailing 12-month basis. Our capital allocation strategy remains consistent with prior guidance and includes investments in organic growth, share buybacks, acquisitions and repayment of debt. Now we will provide an update on our 2024 sales outlook.
Nothing has materially changed from our comments a few weeks ago, and we expect 2024 annual net sales to be down 10% to 15% compared to 2023. Our sales outlook includes a cyclical demand slowdown in truck, stabilizing customer inventory as well as consumer demand environment that returns to more normal seasonality. Customer inventories are leveling down in certain end markets like power sports, which may be impacted by Fed rates staying higher for longer. As a reminder, Volvo is transitioning from its existing truck model to a new one that Core is not part of beginning in the second half of 2024 and continue through 2026. We have a good relationship with Volvo and active bids. We believe we are positioned to secure programs outside the current programs.
We will continue working on profitability initiatives, focusing on additional continuous improvements across all product lines. I’ll let Dave further discuss our plans and outlook for the year. With that, I’d like to turn it back to Dave. Dave?
Dave Duvall: Thank you, John. We are highly focused on offsetting certain end market headwinds, truck cyclicality and the end-of-life programs. As John mentioned, we have seen inventories rebalancing down for power sports and the industrial and utilities markets. Even so, we are seeing a return to pre-pandemic levels. We have aggressively ramped up lead generation by partnering with a professional sales agency, added sales resources, ramped up trade show presence and we are streamlining our quote-to-cash processes to maximize our organic business growth. Actually, this week, I’ll be supporting our sales and marketing team at our display at the NPE show in Orlando. We are also in the process of vetting potential acquisitions that meet our strategic growth criteria for sales channel growth and footprint expansion.
Our current sales opportunity pipeline is over $200 million and I’m excited to report that we’ve been awarded over $25 million in new and replacement business that will launch near the end of 2024 through 2025. We know that in our industry, a quote to cash is over a year, so efforts today are most likely going to start delivering results in 2025 and beyond. We are also prepared for the ACT or Americas Commercial Truck Research forecasted truck increase in 2025 and 2026 which is driven by the 2027 emission regulations. Even though our customers are currently in a reduced demand period, our business is well positioned as we serve blue-chip customers with sole-source products that are foundational to our customers’ long-term growth plans.
We remain focused on continuous improvement to lower overall costs and prepare for higher demand levels. Our technical solution sales approach, provides our customers unique solutions for their highly specialized needs, and we have never been in a better position to benefit from our extensive portfolio of processes and industry serve. Our engineered solutions allow us to work on new environmentally friendly and sustainable products. And we are seeing opportunities in 2024 from the infrastructure bill that Core Molding is well suited to provide, including projects driven by the Buy America Build America or BABA Act. We have built a resilient organization well positioned for growth, and our strategy supports the creation of long-term shareholder value.
Our Must Win Battle in 2024 is invest for growth, and that is what we are driving today. We appreciate, and I want to thank our dedicated Core Molding team. Our team is our competitive advantage. We also appreciate and I want to thank our customers, shareholders and the board for their continued support. With that, I’d like to open the line for questions. Operator?
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