Q3 2022 Miller Industries Inc Earnings Call
Adjust production to the proper levels for our products.
However, we continue to experience significant supply chain challenges, we still had difficulty sourcing certain parts that are critical to the completion of finished goods that was slightly fewer than we had in prior quarters. Despite these continued challenges we have taken steps to strengthen our supply chain in recent quarters that we.
Beth will yield positive results going forward.
Our backlog remains strong and despite the macroeconomic environment. We have had an insignificant number of cancellations to date, which gives us confidence in the resiliency of our business and our end markets.
Moving onto our international business demand remains strong for our products. Despite the ongoing conflict in Ukraine, while we are experiencing some impacts of increased raw material and component pricing higher freight and energy cost and unfavorable unfavorable exchange rates net only impacts our international operations.
<unk> have performed steadily to meet customer demand customer demand in spite of headwinds.
Now I'd like to turn to the review of the third quarter financial results in more detail.
Net sales for the third quarter 2022 were $205 6 million versus $164 7 million for the third quarter of 2021 at 24, 8% year over year increase driven largely by the continued strong demand for our products, our pricing actions and an ability to ship more.
Finished goods.
Cost of operations increased 24, 2% to $182 4 million for the third quarter 2022, compared to $146 9 million for the third quarter 2021.
Cost of operations as a percentage of net sales decreased approximately 45 basis points from the prior year period to 88, 7%.
Gross profit was $23 2 million or 11, 3% of net sales for the third quarter 2022, compared to $17 8 million or 10, 8% of net sales for the prior year period.
Year over year increase in gross margin was driven largely by a more favorable product mix.
SG&A expenses were $14 7 million in the third quarter 2022, compared to $12 million in the third quarter 2021.
However, as a percentage of sales SG&A decreased approximately 14 basis points to seven 1% from seven 3% in the prior year period.
The dollar increase was due to onetime expenses to support our strategic initiatives as well as increases in employee wages and benefit costs, including training and development.
Net interest expense for the third quarter 2022 was $1 million up from $286000 for the third period 2021, primarily related to increases in distributor floor plan financing cost, which flex up and down with revenue as well as the increase in our outstanding debt and rising interest rates.
Okay.
Other expense for the third quarter, 2022 was $666000 compared to $206000.
For the third quarter 2021 attributed largely to currency exchange rate fluctuations and the relative strength of the U S. Dollar.
Net income for the third quarter of 2022 was $5 2 million or <unk> 46 per diluted share compared to net income of $3 8 million or <unk> 34 per diluted share in the third quarter of 2021 increases of 36% and 35, 3% respectively.
Before moving to the balance sheet I'd like to quickly recap our results for the first nine months of the year.
Net sales for the first nine months of 2022, or $622 6 million compared to $515 $8 million in the prior year period, an increase of 27%.
Gross profit for the nine months ended in September 30 of 2022 was $56 9 million or nine 1% of sales compared to $54 3 million or 10, 5% of sales compared to the same period last year.
Net income for the first nine months of 2022 was $11 $1 million or <unk> 97 per share compared to net income for the first nine months of 2021, a $13 5 million or $1 19 per share representing decreases of 18, 4% 18, 5% respectively.
Turning to the balance sheet cash and cash equivalents as of September 32022 was $33 2 million compared to $31 1 million as of June 32022.
And $50 4 million as of September 32021.
Accounts receivable as of September 32022 was $167 9 million compared to $191 2 million as of June 32022, and $131 1 million.
As of September 32021.
Inventories were $144 4 million as of September 32022, compared to $141 2 million as of June 32022, and $108 8 million as of September 32021.
Accounts payable as of September 32022 was $107 5 million compared to 137 7 million as of June 32022, and $87 $8 million as of September 32021.
We are hopeful that we have hit the peak of our working capital requirements as inventory increased only moderately compared to the prior quarter.
Traditionally we are a debt averse company. However, we feel that increasing our debt to fund our working capital and age is in the best interest of our customers and our shareholders given our significant backlog.
We will continue to invest in our working capital as necessary to have the critical parts available for us to turn inventory into finished goods and get product into the customer's hands as quickly as possible.
Lastly, the board of directors approved a quarterly cash dividend of <unk> 18 per share payable December 12, 2022 to shareholders of record at the close of business on December five 2022, marking the 48th consecutive quarter that the company has paid the dividend.
And finally, some closing remarks.
Third quarter was extremely encouraging as we saw sequential revenue growth saw the effects of our pricing actions flow through our results and began to experience success of our actions to alleviate and supply chain constraints as I mentioned earlier getting product to the customers is our top priority.
We are working closely with all of our customers distributors and partners to ensure that we further strengthen these relationships.
While there are still many issues related to parts sourcing rising interest rates conflict in Europe , and foreign exchange headwinds, we remain encouraged by the strength of our business.
In closing, we'd like to thank all of our stakeholders for their continued support of Miller industries at.
At this time, we will open the line for any questions.
Thank you.
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One moment, please while we poll for questions.
Our first question comes from Arnie <unk> with <unk> family Office. Please proceed with your question Hi.
Hi, Good morning can you hear me okay.
Yes, good morning, Arnie great. Thanks for taking my questions I have a few really quick simple wants to knock out of the way is there any margin difference between your domestic and international business.
Typically that margin is very similar.
Obviously, the strength of the U S dollar right now is definitely challenging.
And with the increased pricing and the European operations due to energy costs and those things.
It is fluctuating some but typically it is very similar.
Perfect. Thank you.
Simple question on backlog shrinking or expanding.
Remaining steady.
Order entry is slightly outpacing our shipments.
Mainly because of the supply chain constraints.
Kind of ebbs and flows right now as we start to see pockets of improvement in certain areas, we're able to deliver but I would say it is remaining steady.
In Q2, you mentioned volume was down but pricing has made up the difference and in Q3, you had indicated that it would be impacted by wind component parts were arriving can you give us.
A little more thorough update on things like hydraulics Winches valves cylinders items that you had highlighted earlier.
You've mentioned you were looking for additional suppliers give us an update on the process of getting additional suppliers and how.
Perhaps you look at current time thanks.
Arnie This is James Linden How're, you doing great. Thanks.
Wonderful just a quick update we have seen some pockets of improvement within the supply chain, mostly related to the metals market and castings.
We still are seeing significant delays in hydraulic cylinders valves and winches.
We have made some inroads with new product being designed by engineering and bringing a few suppliers. So we are hopeful that in the upcoming months and quarters, we will see some improvements but right now it is still very challenging, but we have made some improvements.
So so you have product shifting if you will on your on your Doctor can't get out because they are missing certain parts.
What do you tell the customer what's the timing on when these would be likely to shift what are there certain products literally holding up shipments going out.
That is correct, we have component parts that are shortages.
Delay us from delivering to our product.
We give them the best answers that we can depending on the components. So it's.
It's a different answer depending on the component.
Got it.
My next question relates to pricing of your product and orders that you are taking in so you had a 5% price increase in June you had a 3% to 11% surcharge in April .
You indicated in your filing that you intend to have an 8% price increase effective Q1, 2023, so I have a couple of questions related to pricing.
If I place an order today.
And your costs are going up quite dramatically now why would that price increase be deferred till Q1, 2023, why aren't you I.
I guess my question is with shareholders why arent you trying to be a little more immediate getting price recovery on the orders you are taking in.
Orders that we're taking in today.
The price increase in January is dependent on delivery date. So we can take an order today and if that unit is delivered by the end of the year. It would not be subject to the 22023 price increase if it is delivered after January of 2023, it would be subject to that price increase.
So it's not dependent on order intake date, it's dependent on delivery date.
Which goes to the key point I was trying to make your margin recovery. If you are getting.
Price recognition for your increased costs on deliveries when your margins should be improving as we go into next year is that a fair statement.
That is the intent yes.
Obviously with all of the macroeconomic conditions.
It is.
It is volatile for sure but that is the intent.
I just want to be clear in my mind your price increases are not replacing the surcharge is that correct.
George is rolled in plus an increase.
Okay. Thank you.
I guess my last question maybe Mark.
One other is really simple one of the trends you saw in Q3 are they continuing in October .
As far as.
Really from some of the pockets of the supply chain issues and deliveries and manufacturing no additional glitches of come up and again you showed some nice improvement in Q3.
Relative to last year, when you have major challenges I'm, assuming the current trends are continuing.
It is it is an ever changing scenario is <unk>.
Mr. <unk> mentioned, there are pockets of relief, but it seems that as you get one pocket of relief.
Another challenge.
Presents itself. So yes, we are seeing some positive trends, but there are also some headwinds that we're facing.
<unk>.
They seem to be.
Balancing each other out at this point, but it is very challenging steel is Jameson said.
Okay. I know you don't provide guidance, but I'm going to try to ask questions. We still rationally because investors like myself, we're thinking about 2023 at this point, you've obviously put in massive price increases during the course of 2022.
Many of which will continue or even go further in 2023.
If I assume Q4 revenues are lower than Q3 for seasonal and other reasons and building something in the mid to high teens almost entirely based on price for next year.
I assume your gross margin returns, another 50, or 60 or 80 basis points to what has been your historic going back to 2016.
If you can control your operating expenses.
Mid fives.
Which again you should be getting leverage you spent $82 million on an expansion and other factors that are productivity enhancing.
Full tax rate.
That would lead me to an earnings model somewhere between four and $5 what about my thinking about next year are you uncomfortable with.
Well.
As you clearly said there are a lot of assumptions in there and.
A lot of uncertainties.
Correct.
Given you any volume improvement I'm, not giving you the benefit of getting.
The PA.
Part of the parts that have held back your productivity.
So I think my my assumptions are and if anything I think they are reasonable with maybe one exception the SG&A, which I'm assuming you can get some leverage on.
That is.
We're doing all the things that we can to make the business profitable and get back to the margins that we have seen in the past there are many uncertainties facing us and.
<unk>.
If you are trying to model.
Certainly taking all of those challenges and the consideration is is front of our mind.
But we are taking steps to move in that direction. As you said, we don't give guidance but.
Based on the initiatives that we have be a pricing being VA.
Automation, we are certainly moving.
And moving in that direction and that is our goal.
As I said, it's not whether you do it in 2023, maybe in the 'twenty three 'twenty four time table I'm not trying to pin you down.
What I am trying to figure out the earnings power of Miller in a more normal environment. My last comment and I don't expect you to necessarily speak to this but.
One thing that engine control is executive compensation, you put out a comment where your compensation Committee on October 2nd raised a few a few salaries base salaries.
Miller to about a 16% increase Debbie you got an 18% increase your CIO.
And Chief manufacturing officer about 28% price increases.
At least I noticed this and I would hope your compensation Committee is aware of it I'd rather see much more performance based compensation, which you have in place excellent RSV program than base salary increases of the magnitude that you put in.
That's all I have for today. Thank you.
Are there any other questions.
Yeah.
There are no. Other question. We've reached the end of the question and answer session I would now like to turn the call back over to Debbie Whitmire for closing comments.
I'd like to thank everyone again for joining us and joining the call today and we look forward to speaking with you on our fourth quarter and year end conference call.
Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.