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ROCK > SEC Filings for ROCK > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for GIBRALTAR INDUSTRIES, INC.

Form 10-Q for GIBRALTAR INDUSTRIES, INC.


2-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore, are or may be deemed to be, "forward-looking statements." These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "anticipates," "expects," "estimates," "seeks," "projects," "intends," "plans," "may," "will" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the "Risk Factors" disclosed in our Annual Report on Form 10-K. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Overview

Gibraltar is a leading manufacturer and distributor of products that provide structural and architectural enhancements for residential homes, low-rise retail, other commercial and professional buildings, industrial plants, bridges and a wide-variety of other structures. These products include roof and foundation ventilation products, mail and package storage products, rain dispersion products and roofing accessories, fabricated bar grating, expanded and perforated metal, plus expansion joints and structural bearings for roadways and bridges.

We serve customers primarily throughout North America and Europe, and, to a lesser extent, in Asia, Africa, Australia, and Central and South America. Our customers include major home improvement retailers, wholesalers, and industrial distributors and contractors. As of March 31, 2014, we operated 43 facilities in 23 states, Canada, England, and Germany, giving us a base of operations to provide customer support, delivery, service and quality to a number of regional and national customers and providing us with manufacturing and distribution efficiencies in North America, as well as a presence in the European market.

The Company operates and reports its results in the following two operating segments, entitled "Residential Products" and "Industrial and Infrastructure Products".

Our Residential Products segment focuses on the new residential housing construction and residential repair and remodeling activity. Its products are sold through major retail home centers, building material wholesalers, buying groups, roofing distributors, and residential contractors.

Our Industrial and Infrastructure Products segment focuses on a variety of markets including discrete and process manufacturing, highway and bridge construction markets, energy and power generation. This segment's products are distributed through industrial, commercial and transportation contractors, industrial distributors and original equipment manufacturers.


Table of Contents

Our strategy is to position Gibraltar as a low-cost provider and market share leader in product areas that offer the opportunity for sales growth and margin enhancement over the long-term. We focus on operational excellence including lean initiatives throughout the Company to position Gibraltar as our customers' low-cost provider of the products we offer. We continuously seek to improve our on-time delivery, quality, and service to position Gibraltar as a preferred supplier to our customers. We also strive to develop new products, enter new markets, expand market share in the residential markets, and further penetrate domestic and international industrial and infrastructure markets to strengthen our product leadership positions.

The end markets served by our business are subject to economic conditions that are influenced by but are not limited to interest rates, commodity costs, demand for residential construction, the level of non-residential construction and infrastructure projects and demand for related repair and remodeling. Current end market conditions overall are equivalent to those in 2013 and 2012, as the Company was still impacted by historically low levels of activity in its core markets. Although unevenly improving over the past few years, many economic indicators, such as residential housing starts, non-residential construction starts, industrial shipments and home repair and remodeling activity, continue to remain at levels well below long-term averages.

In response to these market conditions, we have restructured our operations, including the closing and consolidation of facilities, resulting in reductions in employees and overhead costs, and managed the business to generate cash. Investments in ERP systems have enabled us to react better to fluctuations in commodity costs and customer demand, thus improving margins, along with curtailing our investments in inventory. We have used these positive cash flows to maintain lower levels of debt and improve our liquidity position.

Results of Operations

Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

The following table sets forth selected data from our statements of operations and the related percentage of net sales for the three months ended March 31 (in thousands):

                                                         2014                           2013
Net sales                                       $ 191,032         100.0 %      $ 196,801         100.0 %
Cost of sales                                     161,168          84.4 %        160,624          81.6 %

Gross profit                                       29,864          15.6 %         36,177          18.4 %
Selling, general, and administrative expense       29,531          15.4 %         30,981          15.8 %

Income from operations                                333           0.2 %          5,196           2.6 %
Interest expense                                    3,640           1.9 %         11,160           5.6 %
Other expense (income)                                 30           0.0 %            (66 )         0.0 %

Loss before taxes                                  (3,337 )        (1.7 )%        (5,898 )        (3.0 )%
Benefit of income taxes                            (1,251 )        (0.6 )%        (2,255 )        (1.1 )%

Loss from continuing operations                    (2,086 )        (1.1 )%        (3,643 )        (1.9 )%
Loss from discontinued operations                      -            0.0 %             (4 )         0.0 %

Net loss                                        $  (2,086 )        (1.1 )%     $  (3,647 )        (1.9 )%

The following table sets forth the Company's net sales by reportable segment for the three months ended March 31 (in thousands):

                                                                             Total
                                                2014           2013          Change
     Net sales:
     Residential Products                     $  86,983      $  89,664      $ (2,681 )
     Industrial and Infrastructure Products     104,346        107,467        (3,121 )
     Less: Intersegment sales                      (297 )         (330 )          33

                                                104,049        107,137        (3,088 )

     Consolidated                             $ 191,032      $ 196,801      $ (5,769 )


Table of Contents

Net sales decreased by $5.8 million, or 2.9%, to $191.0 million for the three months ended March 31, 2014 from net sales of $196.8 million for the three months ended March 31, 2013. The decrease was the result of a 2.1% decrease in volume along with a 1.0% decrease in pricing to customers.

Net sales in our Residential Products segment decreased 3.0%, or $2.7 million to $87.0 million in the first quarter of 2014 compared to $89.7 million in the first quarter of 2013. The decrease was a result of a 2.0% decrease in volume along with a 1.3% decrease in pricing to customers, slightly offset by a 0.3% increase due to sales generated by an acquisition completed in 2013. The Company experienced decreased demand from residential new construction as well as repair and remodeling activity, primarily due to particularly harsh and prolonged winter weather conditions experienced in the first quarter for this year. The lower selling prices were primarily the result of a decline in commodity costs for aluminum and meeting selective competitive situations.

Net sales in our Industrial and Infrastructure Products segment decreased 2.9%, or $3.1 million to $104.3 million in the first quarter of 2014 compared to $107.5 million in the first quarter of 2013. The decrease was primarily the result of a 2.2% decrease in volume, primarily to the transportation infrastructure market. Pricing to customers decreased 0.7%, the result of meeting selective competitive situations.

Our gross margin decreased to 15.6% for the three months ended March 31, 2014 compared to 18.4% for the three months ended March 31, 2013. Both segments were impacted by lower volumes, an unfavorable mix of products with lower margins as compared to the prior year, and less favorable alignment of material costs to customer selling prices. Increased costs for resins in our Residential Products segment also contributed to the margin compression. Competitive pressures on pricing and increased steel costs in our industrial markets contributed to the margin compression in our Industrial and Infrastructure Products segment.

Selling, general, and administrative expenses (SG&A) decreased by $1.5 million, or 4.7%, to $29.5 million for the three months ended March 31, 2014 from $31.0 million for the three months ended March 31, 2013. The $1.5 million decrease was largely the result of a $2.5 million decrease in equity based compensation expense as compared to the first quarter of 2013, the result of the lower degree of change in the Company's stock price during the first quarter of 2014. SG&A expenses as a percentage of net sales decreased to 15.4% in the first quarter of 2014 compared to 15.8% in 2013.

The following table sets forth the Company's income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended March 31 (in thousands):

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