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Saturday, July 22, 2006

Miller Industries (MLR) revisited

MLR (sec) I last looked at MLR here. "This was the Chattanooga area based manufacturer of vehicle towing and recovery equipment. Seems like a good company in a potentially bad competitive situation."

They announced Q1 results, 10-Q. Period ending March 31, 2006.
11.4 million shares on April 28, 2006. Based on no new options in Q1, my estimate of totally diluted shares remains at 12 million.

AR is up. Inventories are up. Balance sheet continues to be strong.

Revenues are up 21%. Gross margin is up to 15.1% (from 11.7% in prior year) and it's up for apparently good reasons. SG&A is up 20%, unfortunately, but at least it's down as a percentage of net revenues. 8.1% operating margin (vs 4.5% in prior year).

Increased backlog.

They paid down some (not much) junior debt and approved some more paydown. Senior debt interest rate decreased from LIBOR+2 to LIBOR+1.75.

But the market only seems to care about this:
While we continue to increase production of our commercial lines, the timing of the receipt of additional military trailer orders and the chassis delivery dates for add-on military wrecker orders will have short-term effects on timing of production and revenues over the remainder of the year. As a result, we anticipate revenues in the second quarter could be somewhat lower than the first quarter.
And perhaps even worse is this:
However, we continue to feel substantial price pressure from our suppliers across a wide range of products, including aluminum, steel and all petroleum based materials, making further margin expansion more difficult in the coming quarters.
Ah, inflation. This is where you need pricing power to pass those costs on.

They had a conference call, but I think I missed it.

Net income was $5.88 million, but with no taxes paid. NOL valuation is $6.8 million. They provisioned for 12.6% tax (vs 10.5% last year), increased due to foreign income.

AR and inventories and prepaid stuff killed cash flow from operations. But it stunk far worse during the same period last year. Capex about matches depreciation. Some long-term debt was paid off.

No stock options issued during the period.

Senior credit facility (big revolver, smaller term loan) is LIBOR+(1.75 to 2.5). Revolver expires June 15, 2008, term loan expires 2010. Secured by all assets. $11 million in debt expires in 2009.

Bill Miller loaned the company some money as junior debt. 9.0% interest. After Q1, MLR decided to borrow more senior debt to repay $5 million of this related party junior debt.

There's a bunch of other related party details.

In 2004, MLR started a project with DataPath (satellite communications) for mobile trailer communications. This ramped up to $4 million from $2.9 million in the prior Q1 but with substantial accounts receivable. DataPath had little impact on the revenue increases seen here. Most of the increase was due to general market conditions (i.e. not an increased market share or new markets).

Hotchkis and Wiley Capital Management owns 10.4% of the stock.

They'll be expanding manufacturing in Ooltewah, TN and in Hermitage, PA due to increased demand for products. Cost is $10 million to be funded by operating cash flow and unused senior credit.

I had estimated the stock to be worth $22 and I suppose that still holds. Demand might be increasing, but cost of materials is increasing and I still fear Asian competition. The last stock trade was at $18.26, so it's not cheap enough.

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