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Commercial Vehicle Group Announces Third Quarter 2019 Results

November, 06, 2019
Addition of First Source Electronics positions CVG for future opportunities

NEW ALBANY, Ohio, Nov. 6, 2019 /PRNewswire/ -- Commercial Vehicle Group, Inc. (the "Company" or "CVG") (NASDAQ: CVGI) today reported financial results for the third quarter ended September 30, 2019.

Commercial Vehicle Group, Inc. (PRNewsfoto/Commercial Vehicle Group, Inc.)


Third Quarter

($ in millions except EPS)

2019


2018

Revenues

$225.4


$225.0

Operating Income

$13.2


$16.2

Net Income

$8.5


$12.6

Basic EPS

$0.28


$0.42

Diluted EPS

$0.28


$0.41

"Continued strength in the North American heavy- and medium-duty truck markets was offset by ongoing weakness in the global construction markets, resulting in flat revenues compared to the prior year," commented Patrick Miller, President and Chief Executive Officer. "While we continue to be faced with ongoing cost headwinds, operationally the business performed as expected. We are starting to see the peak production levels in the North American Class 8 truck market recede and expect a return to more typical replacement levels for the medium term. As a result, we are highly focused on aligning our cost structure with lower build rates."

"In the third quarter, we enhanced our Electrical Systems segment with the strategic acquisition of the assets of First Source Electronics, LLC ("FSE"), an electronics system integrator (the "FSE Acquisition"). FSE complements our high complexity, low- to medium-volume electrical business, while extending our customer and market diversification. In addition, FSE will be a strong contributor to our long-term growth, providing us with the opportunity to leverage our global footprint and maximize cross selling opportunities," Mr. Miller concluded.

Tim Trenary, Chief Financial Officer stated, "The 50-basis point decline in gross profit margin for the quarter compared to the prior year period is attributable in part to the statutorily higher minimum wage in Mexico and costs associated with a troubled supplier. However, the impact of these costs have moderated. We continue to invest strategically in the business through corporate development activities, which includes our recent acquisition of FSE. These investments totaled $1.6 million in the third quarter, which largely drove the increase in selling, general and administrative expenses. With regards to the Company's balance sheet, net leverage at September 30, 2019 was 1.6 times trailing twelve months EBITDA; liquidity was $109 million."

Consolidated Results

Third Quarter 2019 Results

  • Third quarter 2019 revenues were $225.4 million compared to $225.0 million in the prior year period, an increase of 0.2%. The increase in revenues period-over-period reflects higher heavy- and medium-duty truck production in North America as well as $2.5 million of additional revenue from the FSE Acquisition, partially offset by a production decrease in the Asia Pacific construction equipment market. Foreign currency translation adversely impacted third quarter 2019 revenues by $2.1 million, or by 0.9% when compared to the prior year period.
  • Operating income for the third quarter 2019 was $13.2 million compared to $16.2 million in the prior year period. The decrease in operating income was due primarily to inflationary pressure on material and labor costs, and an increase in selling, general and administrative ("SG&A") expenses. Cost control and cost recovery actions reduced the impact on gross profit of these cost pressures. A new statutorily higher minimum wage in Mexico affecting the region encompassing our wire harness facility in Agua Prieta, Mexico (the "Border Minimum Wage"), a troubled supplier and costs associated with manufacturing investments adversely impacted results in the third quarter of 2019 by approximately $1.1 million. Regarding the increase in SG&A expenses, the third quarter of 2019 included $0.9 million in one-time costs associated with the FSE Acquisition. In addition, the strategic reorganization of the Company to, among other things, develop a platform from which to pursue business and corporate development activities gave rise to an approximate $0.7 million increase in costs in the quarter compared to the prior year period.
  • Interest and other expense was $3.8 million and $3.4 million for the three months ended September 30, 2019 and 2018, respectively. The increase is primarily a result of the mark-to-market impact on our interest rate swap agreements, partially offset by lower interest expense.
  • Net income was $8.5 million for the third quarter 2019, or $0.28 per diluted share, compared to net income of $12.6 million in the prior year period, or $0.41 per diluted share.

At September 30, 2019, the Company had liquidity of $109.2 million: $38.7 million of cash and $70.5 million of availability from our asset-based revolver.  There were no borrowings on our asset-based revolver at September 30, 2019.

Segment Results

Electrical Systems Segment

Third Quarter 2019 Results

  • Revenues for the Electrical Systems Segment in the third quarter 2019 were $131.4 million compared to $128.2 million for the prior year period, an increase of 2.5%, due primarily to revenues from the FSE Acquisition in the quarter. Foreign currency translation adversely impacted third quarter 2019 revenue by $0.7 million, or by 0.5% when compared to the prior year period.
  • Operating income for the third quarter 2019 was $14.6 million compared to operating income of $14.3 million in the prior year period. The increase in operating income period over period is primarily attributable to higher revenues partially offset by the impact of the Border Minimum Wage, a troubled supplier and costs associated with establishing additional manufacturing capacity. The net impact of the Border Minimum Wage on the third quarter of 2019 was approximately $0.2 million. A number of actions, including price adjustments on certain products, are underway to reduce the impact of the law. A troubled supplier adversely impacted costs in the third quarter of 2019 by approximately $0.6 million. Costs associated with manufacturing investments in our global wire harness and North American trim businesses adversely impacted third quarter results by approximately $0.3 million. SG&A expenses increased for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 due primarily to spending on strategic growth initiatives.

Global Seating Segment

Third Quarter 2019 Results

  • Revenues for the Global Seating Segment in the third quarter 2019 were $95.7 million compared to $101.0 million in the prior year period, a decrease of 5.2% due primarily to softening in Asia Pacific construction equipment markets partially offset by continued strength in the heavy- and medium-duty truck market in North America. Foreign currency translation adversely impacted third quarter 2019 revenues by $1.4 million, or by 1.3% when compared to the prior year period.
  • Operating income for the third quarter 2019 was $7.2 million compared to operating income of $8.1 million in the prior year period. The decrease in operating income period-over-period is primarily attributable to lower revenues. SG&A expenses decreased by $0.6 million compared to the prior year period reflecting a focus on cost discipline.

End Market Outlook

Management estimates that 2019 North American Class 8 truck production will approximate 345,000 units and 2019 North American Class 5-7 production will approximate 273,000 units. September 2019 year to date Class 8 production was 275,000 units and Class 5-7 production was 209,000 units.  These Class 8 projections reflect a reduction in fourth quarter build of approximately 20% from the average year to date.  Fourth quarter production is historically lower due to less work days.  Furthermore, there has been and we anticipate continued pullback in Class 8 truck builds in the quarter.  In addition, the construction markets we serve which have been lower in Asia Pacific are now softening in North America and Europe. Because of the slowing end market demand described above, our revenues are likely to decline in the fourth quarter compared to the prior year period, which is expected to have a negative impact on our reported earnings.

GAAP to Non-GAAP Reconciliation

A reconciliation of GAAP to non-GAAP financial measures referenced in this release is included as Appendix A.

Conference Call

A conference call to discuss this press release is scheduled for Thursday, November 7, 2019, at 8:00 a.m. ET. To participate, dial (844) 743-2497 using conference code 9970124.

This call is being webcast by NASDAQ. The webcast, as well as a supplemental earnings presentation, can be accessed through the "Investors" section of Commercial Vehicle Group's Web site at www.cvgrp.com, where it will be archived for one year.

A telephonic replay of the conference call will be available for a period of two weeks following the call.  To access the replay, dial (855) 859-2056 using access code 9970124.

About Commercial Vehicle Group, Inc.

Commercial Vehicle Group, Inc. (through its subsidiaries) is a leading supplier of electrical wire harnesses, seating systems, and a full range of other cab related products for the global commercial vehicle markets, including medium- and heavy-duty trucks ("MD/HD Truck") and medium- and heavy-construction vehicles. We also supply electrical wire harnesses, control panels, electro-mechanical and cable assemblies, seating systems and other products to automotive, military, bus, agriculture, transportation, mining, industrial and off-road recreational markets.  Information about the Company and its products is available on the internet at www.cvgrp.com.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. These statements often include words such as "believe", "anticipate", "plan", "expect", "intend", "will", "should", "could", "would", "project", "continue", "likely", and similar expressions. In particular, this press release may contain forward-looking statements about Company expectations for future periods with respect to its plans to improve financial results and enhance the Company, the future of the Company's end markets, including Class 8 and Class 5-7 North America truck build rates and performance of the global construction equipment business, expected cost savings, the Company's initiatives to address customer needs, organic growth, the Company's plans to focus on certain segments and markets and the Company's financial position or other financial information. These statements are based on certain assumptions that the Company has made in light of its experience as well as its perspective on historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Actual results may differ materially from the anticipated results because of certain risks and uncertainties, including but not limited to: (i) general economic or business conditions affecting the markets in which the Company serves; (ii) the Company's ability to develop or successfully introduce new products; (iii) risks associated with conducting business in foreign countries and currencies; (iv) increased competition in the medium- and heavy-duty truck markets, construction, agriculture, aftermarket, military, bus and other markets; (v) the Company's failure to complete or successfully integrate strategic acquisitions and the impact of such acquisitions on business relationships; (vi) the Company's ability to recognize synergies from the reorganization of the segments; (vii) the Company's failure to successfully manage any divestitures; (viii) the impact of changes in governmental regulations on the Company's customers or on its business; (ix) the loss of business from a major customer, a collection of smaller customers or the discontinuation of particular commercial vehicle platforms; (x) the impact of disruptions in our supply chain or delivery chain; (xi) the Company's ability to obtain future financing due to changes in the lending markets or its financial position; (xii) the Company's ability to comply with the financial covenants in its debt facilities; (xiii) fluctuation in interest rates or change in the reference interest rate relating to the Company's debt facilities; (xiv) the Company's ability to realize the benefits of its cost reduction and strategic initiatives and address rising labor and materials costs; (xv) a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements; (xvi) volatility and cyclicality in the commercial vehicle market adversely affecting us; (xvii) the geographic profile of our taxable income and changes in valuation of our deferred tax assets and liabilities impacting our effective tax rate; (xviii) changes to domestic manufacturing initiatives; (xix) implementation of tax or other changes, by the United States or other international jurisdictions, related to products manufactured in one or more jurisdictions where the Company does business; and (xx) various other risks as outlined under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for fiscal year ending December 31, 2018 and the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019.  There can be no assurance that statements made in this press release relating to future events will be achieved. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such cautionary statements.

###

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)



Three Months Ended September 30,


Nine Months Ended September 30,


2019


2018


2019


2018

Revenues

$

225,399



$

225,010



$

711,753



$

674,135


Cost of Revenues

194,195



192,833



612,207



575,550


Gross Profit

31,204



32,177



99,546



98,585


Selling, General and Administrative Expenses

17,531



15,613



48,976



45,177


Amortization Expense

437



321



1,080



980


Operating Income

13,236



16,243



49,490



52,428


Interest and Other Expense

3,800



3,442



15,687



8,404


Income Before Provision for Income Taxes

9,436



12,801



33,803



44,024


Provision for Income Taxes

916



218



6,976



8,393


Net Income

$

8,520



$

12,583



$

26,827



$

35,631










Earnings per Common Share:








Basic

$

0.28



$

0.42



$

0.88



$

1.18


Diluted

$

0.28



$

0.41



$

0.87



$

1.17


Weighted Average Shares Outstanding:








Basic

30,581



30,219



30,547



30,219


Diluted

30,852



30,638



30,829



30,575


 

 

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)



September 30, 2019


December 31, 2018

Assets

Current Assets:




Cash

$

38,703



$

70,913


Accounts receivable, net of allowances of $5,627 and $5,139, respectively

153,190



134,624


Inventories

90,186



92,359


Other current assets

24,496



16,828


Total current assets

306,575



314,724


Property, plant and equipment, net of accumulated depreciation of $151,620 and  $143,781, respectively

73,059



65,099


Operating lease right-of-use assets, net

23,333




Goodwill

25,188



7,576


Intangible assets, net of accumulated amortization of $10,600 and $9,568, respectively

28,841



12,800


Deferred income taxes, net

12,061



15,348


Other assets

2,394



2,583


Total assets

$

471,451



$

418,130



Liabilities and Stockholders' Equity

Current Liabilities:




Accounts payable

$

88,835



$

86,645


Current operating lease liabilities

5,485




Accrued liabilities and other

38,885



36,969


Current portion of long-term debt

3,335



9,102


Total current liabilities

136,540



132,716


Long-term debt

154,950



154,656


Operating lease liabilities

19,192




Pension and other post-retirement benefits

13,417



12,065


Other long-term liabilities

7,607



3,655


Total liabilities

331,706



303,092


Stockholders' Equity:




Preferred stock, $0.01 par value (5,000,000 shares authorized; no shares issued and outstanding)




Common stock, $0.01 par value (60,000,000 shares authorized; 30,581,274 and 30,512,843 shares issued and outstanding, respectively)

319



318


Treasury stock, at cost: 1,334,251 shares

(10,245)



(10,245)


Additional paid-in capital

245,207



243,007


Retained deficit

(43,816)



(70,571)


Accumulated other comprehensive loss

(51,720)



(47,471)


Total stockholders' equity

139,745



115,038


Total liabilities and stockholders' equity

$

471,451



$

418,130


 

 

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
BUSINESS SEGMENT FINANCIAL INFORMATION
(Unaudited)
(Amounts in thousands)



Three Months Ended September 30, 2018










Electrical Systems


Global Seating


Corporate / Other


Total


2019


2018


2019


2018


2019


2018


2019


2018

Revenues
















External Revenues

$

129,710



$

125,220



$

95,689



$

99,790



$



$



$

225,399



$

225,010


Intersegment Revenues

1,732



2,996



30



1,173



(1,762)



(4,169)






Total Revenues

$

131,442



$

128,216



$

95,719



$

100,963



$

(1,762)



$

(4,169)



$

225,399



$

225,010


Gross Profit

18,932



18,304



12,331



13,903



(59)



(30)



31,204



32,177


Amortization Expense

303



186



134



135







437



321


Selling, General & Administrative Expenses

4,030



3,790



5,043



5,692



8,458



6,131



17,531



15,613


Operating Income

$

14,599



$

14,328



$

7,154



$

8,076



$

(8,517)



$

(6,161)



$

13,236



$

16,243





Nine Months Ended September 30,




Electrical Systems


Global Seating


Corporate / Other


Total


2019


2018


2019


2018


2019


2018


2019


2018

Revenues
















External Revenues

$

409,471



$

378,649



$

302,282



$

295,486



$



$



$

711,753



$

674,135


Intersegment Revenues

7,529



7,055



2,774



2,765



(10,303)



(9,820)






Total Revenues

$

417,000



$

385,704



$

305,056



$

298,251



$

(10,303)



$

(9,820)



$

711,753



$

674,135


Gross Profit

58,915



57,598



40,797



41,512



(166)



(525)



99,546



98,585


Amortization Expense

676



559



404



421







1,080



980


Selling, General & Administrative Expenses

11,855



11,323



15,558



16,870



21,563



16,984



48,976



45,177


Operating Income

$

46,384



$

45,716



$

24,835



$

24,221



$

(21,729)



$

(17,509)



$

49,490



$

52,428


 

 

COMMERCIAL VEHICLE GROUP, INC. AND SUBSIDIARIES
Appendix A: Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
(Amounts in thousands, except per share data)



Trailing Twelve Months
Ended September 30,


2019


2018

Net Income

$

35,708



$

28,404


Interest

18,387



12,565


Provision for Income Taxes

7,579



21,246


Depreciation

13,208



14,389


Amortization

1,400



1,311


EBITDA

$

76,282



$

77,915







As of September 30,


2019


2018

Term Loan Debt per Balance Sheet

$

158,285



$

164,557


Plus: Original Issue Discount

1,981



2,583


Plus: Prepaid Financing

1,834



2,391


Total Debt

$

162,100



$

169,531


Less: Cash

38,703



57,525


Net Debt

$

123,397



$

112,006


Divide by Trailing 12 Months EBITDA

$

76,282



$

77,915


Net Leverage

1.6x


1.4x

 

Use of Non-GAAP Measures

This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Management uses these non-GAAP financial measures internally to evaluate the Company's performance, engage in financial and operational planning and to determine incentive compensation.

Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on the Company's financial and operating results and in comparing the Company's performance to that of its competitors and to comparable reporting periods. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. The financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.

 

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