Accuride Corporation, a leading supplier of components to the commercial vehicle industry, has reported financial results for the fourth quarter and fiscal year ended December 31, 2011.
Fourth Quarter 2011 Results
Accuride achieved fourth quarter 2011 net sales from continuing operations of $242.5 million, compared with $175.7 million in the same period in 2010, an increase of 38.0%, with each business segment posting double-digit gains. Net income for the quarter was $4.1 million, while Adjusted EBITDA was $24.3 million, an increase of $11.9 million, or 96.0%,, over the fourth quarter of fiscal year 2010. The company’s fourth quarter Adjusted EBITDA margin was 10.0%, compared to 7.1% in the same quarter of 2010. Cash and cash equivalents were $56.9 million at quarter end. Free cash flow was $18.2 million for the quarter.
“Increasing production volumes, driven by rapidly recovering Class 8 truck and trailer demand, helped drive our fourth quarter performance and gave us solid momentum going into 2012,” says Accuride President and CEO Rick Dauch. “The increased demand had the greatest impact on the performance of our Accuride Wheels business and validates our decision to expand our aluminum wheel capacity. In addition, our margins are beginning to reflect the impact of greater operating efficiencies and working capital performance as we execute our ‘Fix and Grow’ strategy.”
Fiscal Year 2011 Results
Net sales from continuing operations for the fiscal year ended December 31, 2011 were $936.1 million, compared with $674.0 million in the prior year, an increase of 38.9%. The sales growth resulted from the continued strong demand from the company’s commercial vehicle customers, as well as the benefits of increased pricing in the company’s Gunite and Brillion businesses. The company reported a fully diluted loss per share of $0.36 for the year ended December 31, 2011. Included in the loss per share was $0.30 related to losses recognized as part of the sale of assets of the company’s Fabco Automotive and Bostrom Seating businesses, and acquisition costs related to the assets in Camden, SC. Adjusted EBITDA from continuing operations for fiscal-year 2011 was $80.9 million, compared to $49.6 million in the prior year, an increase of 63.1%. Cash was $56.9 million at year end, while free cash flow was negative $59.9 million for the year which included $58.4 million of capital expenditures.
“2011 represented a year of transformation for Accuride,” Dauch continues. “Our new leadership team has developed and is executing a ’Fix and Grow’ strategy aimed at restoring our reputation as a dependable supplier to our customers and as a reliable, profitable investment for our shareholders. In an effort to increase our focus on our core wheel and wheel-end systems businesses we divested non-core businesses and acquired new aluminum wheel production capacity in Camden, SC. We also developed and began the execution of a two year, $110 million capital investment program to restore operational excellence in our core businesses. This means that we will have production capacity available where and when our customers need it, using more standardized processes to achieve higher levels of product quality and reliability.”
Industry Conditions
The commercial vehicle industry segments Accuride supplies (North America Class 5 to 8 vehicles, U.S. Trailers, and the related aftermarket channels) continued their year-over-year improvement in the fourth quarter due to a historically high fleet age, healthy fleet profitability, and strong equipment replacement demand. Production rose across all segments during the fourth quarter, with Class 8 builds up 71.5% year-over-year, and the Class 5 to 7 and U.S. Trailer segment production increasing 24.4% and 45.2%, respectively. Overall, each commercial vehicle segment is expected to continue to increase production into 2012. The risks associated with supply constraints within the industry and the continued slow pace of economic expansion still remain, but they appear to be diminishing.
Fourth Quarter Business Segment Results
Accuride Wheels
Our Wheels segment net sales were $106.2 million, up $30.8 million, or 40.8%, from the same period of 2010. Wheels Adjusted EBITDA was $29.8 million, an increase of $14.1 million, or 89.8% from the fourth quarter of 2010. The improvements were driven largely by increased sales of both steel and aluminum wheels to North American OEM and aftermarket customers. We continue to see strong demand for aluminum wheels being driven by the need for fleets to reduce fuel and maintenance costs, along with total vehicle weight. Increasing demand for aluminum wheels validates the aluminum wheel capacity investments Accuride made during 2011. The company plans further aluminum wheel capacity investments in 2012-2013.
Gunite
Gunite segment net sales were $61.4 million, up $11.8 million, or 23.8%, from the fourth quarter of 2010 on higher industry volumes. Gunite’s Adjusted EBITDA was $1.2 million, compared to $0.7 million in the same period of 2010. Gunite’s new leadership team is having a positive impact on the operations, while preparing for the on-time arrival of new machining equipment. The operational improvements have helped Gunite recover from its earlier manufacturing constraint situation by improving the productivity of Gunite’s existing hub and drum machining operations. This output enabled the business to build an inventory bank of brake drums for the traditional spring truck maintenance season. Costs from customer-required on-site inspections stemming from Gunite’s earlier quality issue dampened earnings; however, Gunite is on track to satisfy all requirements for discontinuing the additional inspections in the first half of 2012.
Brillion Iron Works
Brillion Iron Works’ fourth quarter net sales were $36.7 million, up $7.1 million, or 24.0%, from the same period in 2010, while Adjusted EBITDA declined slightly year-over-year to $1.9 million. In October, Brillion experienced a significant equipment failure that disrupted operations on a major casting line for seven to 10 days and resulted in higher maintenance and overtime costs. However, the business is seeing the benefit of increased pricing as capacity remains tight in the North American casting industry. We are currently assessing strategic options for Brillion – which is non-core to Accuride’s wheel and wheel-end systems business – including its potential divestiture.
Imperial
At $38.3 million in the fourth quarter, Imperial’s net sales increased 81.5% over the same period in 2010 due to higher customer build rates. Adjusted EBITDA for the business improved to $0.6 million in the fourth quarter from $0.2 million in the same period last year. Imperial completed the physical consolidation of certain assets from its Portland, TN, and Chehalis, WA, facilities into its Decatur, TX plant by year-end. However, the Decatur facility experienced significant operating inefficiencies in adjusting to the higher production volumes and expanded product portfolio. The Imperial team is focused on achieving optimal output from its transferred equipment, and we expect Imperial’s profitability to improve significantly in early 2012.
2011 Liquidity and Debt
As of December 31, 2011, the company had cash of $56.9 million and total debt of $323.1 million. This consisted of our $310.0 million senior secured notes, net of discount, and a $20.0 million draw on its ABL facility. In the fourth quarter of 2011, the company had cash from operations of $33.6 million and capital spending of $15.4 million, resulting in free cash flow of $18.2 million. Total liquidity at the end of the quarter was $99.0 million. On February 7, 2012, the company entered into an incremental commitment agreement in which lenders agreed to provide an additional $25.0 million in aggregate commitments under the company’s asset-backed loan (ABL) credit agreement. Additionally, on February 10, 2012, Gunite Corporation, a wholly owned subsidiary of Accuride Corporation, entered into an agreement to lease $15.0 million in equipment.
Outlook and Summary – 2012 A Year of Execution
“With the restructuring efforts to fix the business that we initiated in 2011 setting the stage, 2012 becomes a year of execution for the Accuride team,” Dauch adds. “Because the commercial vehicle market is projected to continue growing through 2014-2015, our work this year focuses on executing the plans that will enable us to capitalize on rising market demand. Our highest priorities are completing Gunite’s operational turnaround, successfully launching the additional aluminum wheel capacity, improving Imperial’s operating performance, and implementing common LEAN Manufacturing systems companywide. In addition, we will target additional cost reductions and working capital improvements by fully revamping our supply chain, which today represents more than half of our cost of goods sold.”
Chief Financial Officer Greg Risch states, “We are projecting 2012 net sales to be in the range of $1,000 to $1,025 million, and fully diluted earnings per share to be in the range of $0.07 to $0.15. We expect Adjusted EBITDA to be in the range of $100 to $105 million for the year. Our ‘Fix and Grow’ strategy is focused on serving the North American commercial vehicle market in a cost-effective manner, while creating sustainable improvements in quality and delivery.”
