Commercial Vehicle Group Inc. has reported financial results for the first quarter ended March 31, 2017.
Patrick Miller, President and CEO, states, "In comparison to Q3 and Q4 of 2016, we are seeing top line improvements resulting from better than expected order levels in heavy-duty truck production in North America as well as the strengthening of the global construction segments we serve. Generally, our customers who produce large construction machinery including earth moving, mining, and paving are driving higher orders. We are encouraged by these positive market dynamics."
Tim Trenary, Chief Financial Officer, states, "Sales are off 4% period-over-period, but up 16% sequentially reflecting improving heavy-duty truck build in North America and global construction equipment build. This improvement in our two largest end markets, when taken together with our operational improvement and restructuring efforts and cash build on the balance sheet positioned us to refinance the company's $235 million in senior secured notes. Accordingly, last month we closed a $175 million institutional term loan facility with a maturity date of April 2023. Pro forma for this refinancing, we were able to deliver the company and reduce the company's interest expense by about $6 million annually. We also took this opportunity to upsize our revolving credit facility to $65 million from $40 million and to extend the facility to 2022. We are happy to have completed this refinancing and expect it to contribute to value creation for our shareholders in the future."
Consolidated Results
First Quarter 2017 Results
First quarter 2017 revenues were $173.4 million compared to $180.3 million in the prior-year period, a decrease of 3.8%. The decrease in revenues period-over-period reflects lower heavy-duty truck production in North America offset somewhat by improvement in the global construction markets the company serves. Foreign currency translation adversely impacted first quarter 2017 revenues by $2.8 million, or by 1.5% when compared to the same period in the prior year.
Operating income for the first quarter 2017 was $4.6 million compared to operating income of $8.6 million in the prior year period. The decrease in operating income period-over-period was primarily the result of lower revenues, the increased reserve reflecting the recent litigation settlement of a contract dispute with a consultant, and approximately $4.0 million as a result of the production challenges in North American wire harness operations, partially offset by operational improvements and the benefit of cost reduction and restructuring actions. First quarter 2017 results include $1.1 million of costs associated with ongoing restructuring initiatives and other related expenditures, and $2.4 million associated with the litigation settlement. First quarter 2016 results include $0.3 million of costs associated with the restructuring initiatives, and $0.6 million related to the write-down of assets held for sale.
Net income was $0.6 million for the first quarter 2017, or $0.02 per diluted share, compared to net income of $2.6 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 first quarter 2017 compared to $0.10 per diluted share in the prior-year period.
For the period ending March 31, 2017, the company did not have any borrowings under its asset-based revolver. At March 31, 2017, the company had liquidity of $157 million: $119 million of cash and $38 million of availability from its asset based revolver.
On April 12, 2017 the company closed a $175 million Term Loan and Security Agreement (TLS Agreement) with interest at LIBOR plus 600 and a maturity date of April 12, 2023 to refinance the company's $235 million 7.875% notes due April 2019 (the 7.875% notes). Concurrent with the closing of the TLS Agreement, a notice of redemption of the 7.875% notes, the proceeds from the term loan and approximately $74 million of cash was delivered to the trustee to retire the 7.875% notes and to pay accrued interest. On the same date, the company also entered into a Third Amended and Restated Loan and Security Agreement upsizing its revolving credit facility to $65 million from $40 million and extending the maturity date to April 2022 from April 2018.
Segment Results
Global Truck and Bus Segment
First Quarter 2017 Results
Revenues for the Global Truck and Bus Segment in the first quarter 2017 were $102.1 million compared to $116.5 million for the prior year period, a decrease of 12.4% primarily resulting from lower North American heavy-duty truck production when compared to the same period in the prior year.
Operating income for the first quarter 2017 was $8.3 million compared to operating income of $11.0 million in the prior year period. The decrease in operating income period-over-period is primarily the result of the decrease in revenues and launch costs associated with new product ramp-ups. First quarter 2017 results include $1.0 million of costs associated with ongoing restructuring initiatives and other related expenditures. First quarter 2016 results include $0.1 million of costs associated with the restructuring initiatives.
Global Construction and Agriculture Segment
First Quarter 2017 Results
Revenues for the Global Construction and Agriculture Segment in the first quarter 2017 were $73.5 million compared to $65.8 million in the prior year period, an increase of 11.8%. The global construction markets for which the company manufactures products are generally improving. Foreign currency translation adversely impacted first quarter 2017 revenues by $2.9 million, or by 4.4% when compared to the same period in the prior year.
Operating income for the first quarter 2017 was $3.3 million compared to operating income of $3.8 million for the prior year period. The decrease in operating income period-over-period resulted primarily from the production challenges in North American wire harness operations, partially offset by the increase in volume and the benefit of the cost reduction and restructuring actions. First quarter 2017 and 2016 results each include $0.1 million of costs 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 215,000 - 235,000 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 it serves in Europe, Asia, and North America are improving.
