Commercial Vehicle Group, Inc. (the “Company”) (Nasdaq: CVGI) today reported financial results for the second quarter ended June 30, 2017.
Patrick Miller, President and CEO, stated, “As seen by our top line performance, both our truck and construction segments are seeing increased sales in the core markets we serve resulting in a 10 percent improvement in sales in the second quarter as compared to the same period last year. Our largest end market, North American Heavy Duty Truck, is showing particularly strong demand ‒ OEM truck orders are up 37% in the first half of this year compared to last year. As a result, second quarter truck build was 30% higher quarter-over-quarter and we expect the improvement in orders to continue to be reflected in build for the remainder of this year and perhaps into next year. With respect to our construction and agriculture segment, heavy construction equipment build volumes continue to improve in every geography we serve contributing to approximately 14% segment sales growth in the second quarter as compared to the same period last year.”
Tim Trenary, Chief Financial Officer, stated, “Conversion of improving sales into operating income, or pull through, in the second quarter was well below our past experience. This is primarily attributable to a shortage of labor in our North American wire harness business and the associated cost to satisfy customer production demand. We have increased our wire harness production capacity by maintaining production capability in the Monona, IA facility and by establishing a new facility in Mexico with better access to labor. Admittedly, it is taking longer than previously anticipated to manage down the cost associated with the labor shortage ‒ the burden on second quarter results was on the order of $4 million and there may be another $3 million to $6 million of cost coming in the last half of the year. Additionally, rising commodity prices and some production inefficiencies from the spike in North American truck build adversely impacted pull through in the second quarter.”
Miller continued, “For the most part, our cost reduction and facility restructuring efforts have been very successful. Notwithstanding the difficulty we are experiencing with the wire harness business, we continue to expect savings resulting from the cost reduction and facility restructuring to be at the upper end of the range initially disclosed; that is, $8 million to $12 million annually. Importantly, our two largest end markets continue to improve, sales are up and we expect pull through on the improving sales to return to historical levels in due course.”
Consolidated Results
Second Quarter 2017 Results
Second quarter 2017 revenues were $195.1 million compared to $178.3 million in the prior year period, an increase of 9.5 percent. The increase in revenues period-over-period reflects higher heavy-duty truck production in North America and improvement in the global construction markets we serve. Foreign currency translation adversely impacted second quarter 2017 revenues by $2.1 million, or by 1.2 percent when compared to the same period in the prior year.
Operating income for the second quarter 2017 was $7.6 million compared to operating income of $8.4 million in the prior year period. The decrease in operating income period-over-period was primarily the result of approximately $4.0 million in production challenges in our North American wire harness operations, partially offset by higher revenues and the benefit of cost reduction and restructuring actions. Second quarter 2017 results include $0.9 million of cost associated with our ongoing restructuring initiatives and other related expenditures. Second quarter 2016 results include $0.5 million of cost associated with the restructuring initiatives.
Net income was $0.1 million for the second quarter 2017, or $0.00 per diluted share, compared to net income of $2.7 million in the prior year period, or $0.09 per diluted share. Earnings per share, as adjusted for special items, were $0.08 per diluted share in the second quarter 2017 compared to $0.10 per diluted share in the prior year period.
During the three months ending June 30, 2017, the Company did not have any borrowings under its asset-based revolver. At June 30, 2017, the Company had liquidity of $115 million: $52 million of cash and $63 million of availability from our asset-based revolver.
On April 12, 2017, the Company closed a $175 million Term Loan and Security Agreement with interest at LIBOR plus 600 and a maturity date of April 12, 2023, concurrently redeemed the Company’s $235 million 7.875% notes due April 2019 and settled accrued interest with the proceeds and approximately $74 million of cash. On the same date, the Company also entered into a Third Amended and Restated Loan and Security Agreement upsizing its asset-based revolver to $65 million from $40 million and extending the maturity date to April 2022 from April 2018.
Segment Results
Global Truck and Bus Segment
Second Quarter 2017 Results
Revenues for the Global Truck and Bus Segment in the second quarter 2017 were $119.9 million compared to $112.1 million for the prior year period, an increase of 6.9 percent primarily resulting from higher North American heavy-duty truck production in the second quarter when compared to the same period in the prior year.
Operating income for the second quarter 2017 was $11.1 million compared to operating income of $8.5 million in the prior year period. The increase in operating income period-over-period is primarily the result of the increase in revenues. Second quarter 2016 results include $0.3 million of cost associated with the restructuring initiatives.
Global Construction and Agriculture Segment
Second Quarter 2017 Results
Revenues for the Global Construction and Agriculture Segment in the second quarter 2017 were $78.2 million compared to $68.5 million in the prior year period, an increase of 14.1 percent primarily as a result of improvement in the global construction markets in which we manufacture products. Foreign currency translation adversely impacted second quarter 2017 revenues by $2.4 million, or by 3.6 percent when compared to the same period in the prior year.
Operating income for the second quarter 2017 was $1.9 million compared to operating income of $5.5 million for the prior year period. The decrease in operating income period-over-period resulted primarily from the production challenges in our North American wire harness operations, partially offset by the increase in volume and the benefit of the cost reduction and restructuring actions. Second quarter 2017 and 2016 results include $0.9 million and $0.2 million, respectively, of cost associated with our ongoing restructuring initiatives.
2017 End Market Outlook
Management estimates that the 2017 North American Class 8 truck production will be in the range of 220,000 – 240,000 units, as compared to 228,000 units in 2016; North American Class 5-7 production is expected to be up slightly year-over-year. The global construction markets we serve in Europe, Asia, and North America are improving.
GAAP to Non-GAAP Reconciliation
A reconciliation of GAAP to non-GAAP financial measures referenced in this release is included as Appendix A to this release.
CONFERENCE CALL
A conference call to discuss this press release is scheduled for Tuesday, August 8, 2017, at 10:00 a.m. ET. To participate, dial (844) 743-2497 using conference code 60243191.
This call is being webcast by Nasdaq and can be accessed at 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 60243191.
