Accuride Corp. reported strong financial results for the second quarter ended June 30, 2014, as its ‘Fix & Grow’ strategy supports delivery of continued margin and profitability improvement.
Second quarter 2014 results
Second quarter 2014 net sales from continuing operations were $181.6 million, compared with $179.9 million in the same period in 2013, an increase of 0.9%. The company achieved operating income of $12.3 million for the quarter, compared to operating income of $6.0 million in the second quarter of 2013. The company reported net income from continuing operations of $5.1 million, or $0.11 per share, during the quarter, compared to a 2013 second-quarter net loss of $5.1 million, or $0.11 per share. Net income in second quarter of 2014 included a benefit of $2.2 million, or 0.04 per share, related to Mexico tax reform and a reduction in our long-term income tax payable. Second quarter Adjusted EBITDA improved year-over-year to $23.2 million, or 12.8% of net sales, compared to $17.8 million, or 9.9% of net sales, in the same quarter of 2013. As of June 30, 2014, Accuride had $31.9 million of cash plus $40.1 million in availability under its ABL Credit Facility, for total liquidity of $72.0 million.
Commenting on Accuride’s second quarter results and business conditions, President and Chief Executive Officer Rick Dauch said, “We are pleased with our overall results for the quarter, which again demonstrated the return on our strategic investments to ‘Fix & Grow’ Accuride in anticipation of the commercial vehicle industry recovery now underway. Equipment orders were higher each month this quarter over the prior year, extending backlogs and filling build schedules in the segments we serve, while freight demand and the aftermarket stayed healthy. As the industry outlook solidified this quarter, so did Accuride’s profit-generation power. We doubled operating income, aiding further expansion of net income and Adjusted EBITDA margins. Accuride was net income positive on a year-to-date basis through June for the first time since the onset of the industry recession in 2007. Wheels and, particularly, Gunite saw continued incremental margin expansion in the quarter due to reduced costs and improved operating efficiency.”
Commercial vehicle OEMs further increased production in the second quarter in line with net order growth within each segment Accuride serves. Carriers continue to replace older equipment and expand fleets to meet rising freight demand. Class 8 net orders for the entire quarter increased 19% year-over-year for the strongest showing in eight years. Class 5-7 and Trailer net orders also improved, with year-over-year increases of 7% and 35%, respectively. Production also grew at a healthy pace in the quarter, with Class 8 and 5-7 truck builds both increasing 10%, and Trailers up by 11% year over year. Based on continued order strength, we anticipate strong, steady equipment builds across all segments in the second half of 2014. Demand in Brillion’s core industrial end markets remains essentially flat this year due to global economic forces, with a sustained recovery not expected until 2015-16.
Second quarter business segment results
Accuride Wheels segment net sales were $101.2 million, up $1.7 million, or 1.7%, from the same period in 2013, primarily due to stronger OEM truck and trailer demand that was partially offset by market share changes between truck OEMs and lower OEM light duty and military demand. Wheels’ Adjusted EBITDA was $20.9 million, an increase of $0.2 million, or 1%, from the second quarter of 2013. Wheels continued its pace of product innovation by introducing its new Accu-Flange treatment to limit flange wear in aluminum wheels. Also during the quarter, we reached a new four-year collective bargaining agreement with the UAW Local 1186 at our Erie, Pa., plant.
Gunite segment net sales were $48.3 million, down $2.9 million, or 5.7%, from the second quarter of 2013, primarily due to weaker-than-expected aftermarket demand for brake drums. Gunite’s Adjusted EBITDA was $8.3 million, or 17.2% of net sales, up from $4.6 million in the second quarter of 2013. Gunite’s continued margin expansion reflects its normal seasonally higher mix of aftermarket business and reduced breakeven point, and supports our target for Gunite to become a 10 to 12% Adjusted EBITDA business in 2014.
Brillion Iron Works
Brillion Iron Works’ second quarter net sales were $32.1 million, up $2.8 million, or 9.6%, from the second quarter of 2013. Brillion’s Adjusted EBITDA was $1.6 million, a decrease of $1.7 million from the second quarter of 2013. Brillion’s results were impacted by $1 million in non-cash inventory adjustments and higher-than-expected maintenance costs.
Liquidity and debt
As of June 30, 2014, total debt was $340.7 million, consisting of $305.7 million of our outstanding 9.5% senior secured notes, net of discount, and a $35.0 million draw on our ABL Credit Facility. Accuride had $31.9 million of cash plus $40.1 million in availability under its ABL Credit Facility, for total liquidity of $72 million.
Business and market outlook
“Our ‘Fix & Grow’ strategy has repositioned Accuride as an agile, competitive and more operationally disciplined supplier today, with a reduced cost structure that drives higher profitability,” Rick Dauch said. “We are providing products that provide real value to customers, whether by extending service life and reducing maintenance costs, or lowering weight and improving fuel economy. Nearly all of our facilities are supplying these products at world-class levels on the metrics that matter most to our customers: quality, warranty, lead times, competitive pricing and on-time delivery. This dependability and value is restoring customer confidence and enabling us to secure additional new business. As the economy and industry continue to strengthen, we have adequate and competitive capacity to meet customer demand and recapture additional share in the process.”
2014 financial guidance
Accuride Chief Financial Officer Greg Risch stated, “Based on the expectation of continued strengthening in our commercial vehicle end markets and additional incremental new business, we are increasing our guidance range for 2014 net sales to $675 million to $700 million. We also are increasing our full-year Adjusted EBITDA guidance range by $10 million to $70 million to $80 million, due primarily to the impact of expected increase in net sales and business unit operating improvements.”
This revised 2014 guidance is based on projected North American Class 8 production levels in the range of 280,000 to 290,000 units, North American Class 5-7 production levels in the range of 210,000 to 215,000 units and North American Trailer production in the range of 250,000 to 260,000 units. Accuride expects net sales for its Brillion business unit to be approximately 5% higher than 2013, while its end markets are still not expected to recover until 2015-16.