The Company had a net loss of $3.8 million in the first quarter of 2019 compared to net income of $0.5 million for the first quarter of 2018. “Spending to stabilize operations, while the Company is undertaking its turnaround, continued to be elevated in the first quarter of 2019,” said David Duvall, President and Chief Executive Officer. “The business is more stable than it was six months ago, as our output levels have increased, allowing us to meet increasing customer demand while significantly improving on time delivery and reducing past due orders by 80%. During the first quarter we began to decrease spending on third party technical services that we added in the fourth quarter of 2018 to stabilize the business. We expect to continue to decrease these costs moving forward and begin seeing gross margin improvement,” Duvall continued.
Net sales were $72.3 million compared to $63.0 million.
Product sales were $71.5 million compared to $59.7 million.
Gross margin was 4.4% compared to 12.5%.
Selling, general and administrative expenses were $7.2 million compared to $6.8 million.
Operating loss was $4.0 million compared to operating income of $1.1 million.
Net loss was $3.8 million, or $0.49 per diluted share, compared with net income of $0.5 million, or $0.07 per diluted share.
First quarter 2019 gross margin was negatively affected by operational inefficiencies and higher costs, including a higher-than-normal union employee bonus payment made in 2019 as a result of a regulatory adjustment doubling the minimum wage rates in Matamoros, Mexico. “The Company has seen higher costs, especially labor costs, as it has implemented wage rate increases at several of its facilities in order to stay competitive with local wages. These wage increases coupled with the Matamoros facility union employee bonus payment, which was approximately $1.4 million more than in 2018, negatively affected gross margin in the first quarter of 2019,” said John Zimmer, Chief Financial Officer. The Matamoras union employee bonus payment is paid once a year in the first quarter, and therefore will not be a reoccurring cost for the remainder of 2019. In addition, the increased wage rates have assisted with lower employee turnover levels, which we believe will be beneficial to further stabilization of operations,” Zimmer concluded.
Financial Position at March 31, 2019:
Total assets of $211.3 million.
Total debt of $57.8 million.
Stockholders’ equity of $95.6 million.
The Company’s debt to equity ratio is 61%. The Company’s debt obligations contain a covenant provision related to fixed charge coverage. As of March 31, 2019, the Company was in compliance with its debt covenant, however, due to uncertainty of timing of improvements with the ongoing turnaround the Company is undertaking, management continues to monitor the Company’s ability to meet this covenant in the future and the possible need for additional capital.
Based on industry analysts’ projections and customer forecasts, the Company expects sales levels to remain strong in 2019. Industry analysts are projecting 2019 heavy-duty truck production levels to be approximately 337,000 units compared to 324,000 units in 2018.
Vice President & Chief Financial Officer