Noble International Posts Record Second Quarter 2006
WARREN, Mich., July 19 -- Noble International, Ltd. ("Noble" or the "Company") posted earnings of $4.4 million, or $0.31 per diluted share, for the second quarter ended June 30, 2006. In the second quarter of 2005, Noble reported earnings of $3.8 million, or $0.27 per diluted share. Net income for the first half of 2006 was $7.5 million, or $0.54 per diluted share, versus $7.6 million, or $0.54 per diluted share, a year ago.
Second Quarter Results
Revenue in the second quarter of 2006 increased 19.6% to $109.6 million compared to $91.6 million last year. The launch and production ramp-up of newer laser welding programs generated most of the increase in revenue in the second quarter of 2006.
Gross margin for the second quarter increased to $12.0 million from $10.0 million last year. Gross margin as a percentage of sales for the second quarter of 2006 was 10.9% compared to 10.9% in the second quarter of 2005. Gross margin increased due to higher production volumes and gains in manufacturing efficiency in the second quarter of 2006. Noble made significant progress during the quarter in improving efficiency in its manufacturing operations, including reducing labor and scrap, which had a positive impact on the gross margin. These gains offset the gross margin percentage pressures of a revenue mix shift toward larger laser-welded blanks ("LWB") with a higher steel content as a percentage of total revenue.
Selling, general and administrative expense ("SGA") increased to $4.5 million in the second quarter of 2006 from $3.6 million in the second quarter of 2005. SGA increased slightly as a percentage of sales to 4.1% from 3.9% year over year. Growth in SGA expense compared to 2005 is due to higher costs for research and development as well as expanded staffing expense related to three new production facilities. For 2006 overall, management expects SGA expense to be consistent with 2005 levels as a percentage of sales.
Operating profit increased 17.7% to $7.5 million in the second quarter of 2006 from $6.4 million a year ago. Earnings before interest, taxes, depreciation and amortization ("EBITDA") in the second quarter of 2006 totaled $9.9 million versus $9.2 million in the year-ago second quarter. Net interest and other expense for the second quarter of 2006 was $0.5 million compared to $0.6 million last year, which included impairment charges of $0.2 million.
Pre-tax income for the second quarter of 2006 was $7.0 million versus $5.8 million in the year-ago second quarter. Income tax expense for the second quarter of 2006 was $2.3 million versus $2.0 million in the second quarter of 2005.
First Half Results
First-half revenue for 2006 totaled $210.0 million, up 17.7% from $178.3 million a year ago. Revenue growth came from the addition of three new production facilities, new laser welding programs and the ramp-up of programs that entered production in late 2005.
Gross margin for the first half of 2006 was $21.9 million versus $19.7 million last year. The gross margin as a percentage of sales declined to 10.4% of sales from 11.0% in the first half of 2005. The decline in gross margin percentage was due in part to the addition or expansion of three production facilities in late 2005 and first quarter of 2006 as well as some customer delays in new vehicle programs for which Noble supplies LWBs. Also contributing to the gross margin decline as a percentage of sales during the first six months of 2006 was the revenue mix shift toward larger LWBs with greater steel content as a percentage of total revenue.
SGA expense increased to $9.3 million for the first six months of 2006, up from $6.8 million last year. The increase was due to growth in the Company's business, staffing and associated expense from the addition of new production facilities, higher compensation expense as well as higher research and development spending. As a percentage of sales, SGA expense for the first half of 2006 was 4.4% compared to 3.8% a year ago.
Operating income declined slightly to $12.7 million in the first half of 2006 from $12.9 million a year ago. EBITDA for the first half of 2006 was $17.4 million versus $18.5 million in 2005. Net Interest and Other expense for the first six months of 2006 was $1.1 million, up from $0.9 million a year ago.
Pre-tax income for the first half of 2006 was $11.5 million versus $12.0 million a year ago. Income tax expense for the first six months of 2006 was $3.8 million versus $4.4 million a year ago.
Management Commentary and Guidance
Thomas L. Saeli, Noble's Chief Executive Officer, commented, "Noble's business continued to grow during the second quarter as production ramped up at our newer facilities. We are on track to launch more laser welding programs at these facilities during the second half of this year, driving additional revenue growth.
"Converting revenue growth into profitability continues to be the focus of our operations. Our facilities continued to show significant improvement in their operating metrics during the quarter. These gains allowed us to offset the margin percentage pressures of a continuing trend toward larger LWBs with higher steel content as a percentage of total revenue.
"We are cautiously optimistic about the outlook for the automotive industry for the rest of the year. Although high fuel prices have impacted sales in some vehicle segments, especially larger SUVs, our diversified revenue base and newer programs have generated earnings growth. We believe that upcoming launches, including the production launch of our first structural tube program and the superior value proposition we offer our customers, position us well for the future.
"Noble's financial strength also positions us well for the future. By focusing on making continuous improvements throughout the Company, we have been able to fund internal growth and increase our dividend while building cash to fund future growth. Noble's future growth may include expansion of current facilities, the addition of production facilities in new locations or complementary acquisitions to expand our product range of 21st Century Auto Body Solutions(SM)."
Noble's Chief Financial Officer, David J. Fallon, commented on the Company's second quarter financial results, "Financial performance for the second quarter met the expectations we set at the end of 2005 despite challenges that included rising fuel prices and interest rates. We achieved greater leverage on our fixed costs as we launched new laser welding programs and increased production volume at our newer facilities. We expect a greater contribution from these newer plants as we launch additional new business later this year."
Mr. Fallon also commented on a recent change in material pricing, "At the end of the second quarter, one of our customers increased the price of steel used in its vehicles. The price increase affected both the price we are charged for the steel and the price we charge to the customer. The higher steel price equally impacts both revenue and cost of goods sold, so there is no impact on our profitability in terms of dollars. However, since both revenue and cost of goods sold increase, our gross margin percentage will decrease in future quarters due to the price change. For this reason, we are increasing our revenue guidance for 2006, although our earnings guidance is unchanged."
Financial Guidance
Management has updated its guidance for 2006 to reflect higher revenue due to changes in steel pricing under one customer's steel resale program. Revenue is projected to be approximately $435 million due to higher steel pricing. Earnings guidance is unchanged, with projected earnings from continuing operations of $1.11 - $1.16 per diluted share. This guidance is based on a forecast for 2006 North American light vehicle production of approximately 15.8 million units.
For 2007, management expects total revenue of approximately $480 - $490 million based on projected North American light vehicle production of 15.8 - 16.0 million units. This revenue guidance includes the impact of some programs expected to end production at the end of 2006 that will not be immediately replaced by the automaker, as well as the delay of some customer programs into 2008.
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
Net sales $109,556 $91,596 $209,991 $178,346
Cost of sales 97,593 81,612 188,081 158,676
Gross margin 11,963 9,984 21,910 19,670
Selling, general and
administrative expenses 4,452 3,600 9,254 6,777
Operating profit 7,511 6,384 12,656 12,893
Interest income 364 134 649 242
Interest expense (725) (709) (1,457) (1,387)
Impairment charges --- (180) --- (180)
Other, net (133) 159 (309) 453
Earnings before income
taxes 7,017 5,788 11,539 12,021
Income tax expense 2,315 1,980 3,812 4,421
Earnings before minority
interest 4,702 3,808 7,727 7,600
Minority interest (294) --- (179) ---
Net earnings $4,408 $3,808 $7,548 $7,600
Basic earnings per share $0.31 $0.27 $0.54 $0.55
Diluted earnings per share $0.31 $0.27 $0.54 $0.54
Dividends declared and
paid per share $0.08 $0.07 $0.15 $0.13
Basic weighted average
shares outstanding 14,075,270 13,922,757 14,053,314 13,908,653
Diluted weighted average
shares outstanding 15,984,959 14,035,805 14,094,579 14,025,716
Reconciliation of EBITDA
to Earnings before Income Taxes
Earnings before income
taxes $7,017 $5,788 $11,539 $12,021
Depreciation 2,438 2,590 4,878 5,081
Amortization 63 52 127 104
Impairment charges --- 180 --- 180
Net interest expense 361 575 808 1,145
EBITDA $9,879 $9,185 $17,352 $18,531
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited
June 30 December 31
2006 2005
ASSETS
Current Assets:
Cash and cash equivalents $26,919 $21,978
Accounts receivable trade, net 73,906 78,659
Inventories, net 29,136 21,952
Other current assets 4,742 5,044
Total Current Assets 134,703 127,633
Property, Plant & Equipment, net 59,471 57,253
Other Assets:
Goodwill 21,085 20,972
Other intangible assets, net 2,219 2,303
Other assets, net 830 1,158
Total Other Assets 24,134 24,433
Total Assets $218,308 $209,319
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $69,208 $69,797
Accrued liabilities 5,752 5,853
Income taxes payable 2,769 666
Current maturities of long-term
debt 39,461 10
Total Current Liabilities 117,190 76,326
Long-Term Liabilities:
Convertible subordinated
debentures, net of discount --- 39,094
Long-term debt, excluding current
maturities 2,605 2,176
Deferred income taxes 5,235 5,308
Other long-term liabilities 64 ---
Total Long-Term Liabilities 7,904 46,578
Minority interest 3,730 3,551
Stockholders' Equity
Common stock 9 9
Additional paid-in capital 55,694 54,988
Retained earnings 31,030 25,551
Accumulated other comprehensive
income, net 2,751 2,316
Total Stockholders' Equity 89,484 82,864
Total Liabilities & Stockholders'
Equity $218,308 $209,319