Douglas Dynamics sees growth despite low snowfall By Investing.com



Douglas Dynamics (NYSE: NYSE:), a leading manufacturer of work truck equipment and solutions, has reported a notable performance in the first quarter of 2024, with an increase in net sales and gross profit despite challenges in the Work Truck Attachments segment due to significantly below-average snowfall.

The company has expanded its cost savings program in response to the weather conditions, expecting to achieve over $10 million in annualized savings. The net sales increased by 16% to $95.7 million, and the gross profit increased by 67.3% to $18.9 million compared to the same quarter in the previous year.

Key Takeaways

  • The Solutions segment continued to grow for the seventh consecutive quarter.
  • Unfavorable weather led to a 40% decrease in snowfall, impacting the Work Truck Attachments segment.
  • Annualized savings of over $10 million expected from an expanded cost savings program.
  • Net sales rose by 16% to $95.7 million, and gross profit increased by 67.3%.
  • Operating activities improved by 62% to $21.6 million, while free cash flow was negative $22.9 million.
  • The company adjusted its 2024 guidance, with net sales expected between $600 million and $640 million.

Company Outlook

  • Volumes in 2024 anticipated to be similar to 2023, despite lower preseason orders.
  • Adjusted EBITDA forecasted to be between $70 million and $90 million.
  • Adjusted earnings per share expected to range from $1.20 to $1.70.
  • Financial targets for segments remain consistent, aiming for growth in sales and EBITDA margins.

Bearish Highlights

  • Work Truck Attachments segment affected by lower snowfall.
  • Free cash flow reported as negative $22.9 million.

Bullish Highlights

  • Continued growth in the Solutions segment.
  • Improved operating results and favorable changes in working capital.
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Misses

  • The Work Truck Attachments segment did not meet expectations due to weather-related issues.

Q&A Highlights

  • Orders and backlog at Dejana remain strong with only a 10% decrease from the record high.
  • The company is confident in covering their dividend with free cash flow.
  • Long-term growth prospects and financial targets are deemed achievable, focusing on continuous improvement.

Douglas Dynamics has effectively managed the challenges of the first quarter with strategic cost savings and a focus on areas of growth within the company. Despite the decrease in snowfall affecting one segment of the business, the company has shown resilience and adaptability, reflected in the improved financial results. The company’s representatives expressed confidence in the strength of their orders, backlog, and the ability to maintain dividends, indicating a positive outlook for the future.

InvestingPro Insights

Douglas Dynamics (NYSE: PLOW) has demonstrated a strong commitment to shareholder returns, as evidenced by its consistent history of dividend payments. The company has not only raised its dividend for 11 consecutive years but also maintained these payments for 15 consecutive years.

This is particularly noteworthy for income-focused investors, especially in light of the company’s significant dividend yield of 5.21% as of the first quarter of 2024. Such a yield is attractive in the current market environment, where income generation is a key investor focus.

The company’s prudent financial management is further highlighted by its liquidity position, with liquid assets surpassing short-term obligations. This indicates a robust balance sheet and positions the company well to navigate any short-term economic headwinds.

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Moreover, Douglas Dynamics is trading near its 52-week low, which might signal a potential entry point for value investors, considering that analysts predict the company will be profitable this year and it has been profitable over the last twelve months.

InvestingPro Tips also include additional insights into the company’s financial health and future prospects, with a total of 7 tips available on the InvestingPro platform. For those interested in a deeper analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

From a valuation standpoint, the P/E ratio stands at 18.74, with a slight adjustment in the last twelve months as of Q1 2024 to 17.98. The company’s market capitalization is currently at 521.97M USD, which, when paired with its revenue of 581.29M USD during the same period, may offer a perspective on its size and market presence relative to its earnings.

Douglas Dynamics’ ability to maintain dividend payments, coupled with its strong liquidity position and the potential undervaluation reflected by its proximity to a 52-week low, provide a multifaceted view of the company’s current standing and future outlook. These factors are essential for investors to consider in light of the company’s first-quarter performance and strategic responses to sector challenges.

Full transcript – Douglas Dynamics Inc (PLOW) Q1 2024:

Operator: Good day and welcome to the Douglas Dynamics First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nathan Elwell, VP of IR. Please go ahead.

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Nathan Elwell: Thank you. Welcome, everyone, and thank you for joining us on today’s call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday’s press release and in our filings with the SEC. Joining me on the call today is Bob McCormick (NYSE:), President and CEO; and Sarah Lauber, Executive Vice President and CFO. Bob will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that, we’ll open up the call for questions. With that, I’ll hand the call over to Bob. Please go ahead.

Bob McCormick: Thanks, Nathan. Our results for the first quarter of 2024, reflect a continuation of trends we saw last year. Work Truck Solutions continues to deliver improved results, while Work Truck Attachments, is being hindered by unprecedented weather conditions. Having said that, we are pleased to report improved performance across the board this quarter compared to last year. The performance of our Solutions segment was again the highlight. This is the seventh consecutive quarter of improved performance versus the prior year same quarter. I’d like to thank the Solutions teams for their continued hard work. When chassis supply was at its worst, they stayed focused on what they could control and used DDMS to get better every day, knowing that when chassis supply improved, they’d exit stronger and more profitable. Great job. Now let me run through our performance in each segment. Despite experiencing the second winter in a row with significantly below average snowfall in all of our core markets, our Work Truck Attachments team still managed to deliver improved results compared to last year. Snowfall in the first quarter this year was better than the fourth quarter of 2023, and on the East Coast, conditions were better than the previous winter. We were glad to break the record 700-plus day gap between measurable snowfalls in the important cities, along the I-95 corridor. However, after a positive start to snowfall in the first quarter, with above average snowfall in many markets during January, and the first nor’eastern 2 years in early February, there was a lack of snowfall through the rest of February and March, so the season ended as poorly as it began. I should reiterate, we’ve never seen back-to-back seasons of this magnitude over the 75-plus years we’ve been in business, and we are in unchartered territory to some extent. While we already expected to finish the season with below average snowfall, the final totals were at the low end of our expectations and 40% below the 10-year average. Again, weather is the reason we are bringing down the top end of our guidance range, and Sarah will speak to that more later. Given the deterioration in winter weather late in the season, we have expanded the 2024 cost savings program, with total annualized savings growing to $10-plus million, with $8 million to $9 million coming in this year. Our teams are committed to making the right decisions that will allow us to manage through this situation, without compromising our ability to operate and grow. One bright spot during the quarter was the NTEA Work Truck Show in Indianapolis. Our teams launched several innovative new products that were well-received by dealers, including a straight blade plow, a poly hopper spreader, and a hydraulic wing pusher plow, which is sitting in every one of our major product categories. It’s also worth remembering that we expect the emerging industry demand dynamics to continue. First, customers are more demanding and willing to pay more, for faster snow and ice removal. Second, winter weather continues to expand further south. And third, the landscapers need more equipment to get their jobs done faster and more efficiently, and often with the same number of employees, which means they’re expanding their fleets to include non-truck equipment. These positive trends are creating opportunity that just didn’t exist in our industry 5 years ago. Today, our broader product offering covers virtually every aspect of commercial snow and ice control, with the leading brands and new products and opportunities on the horizon. Listen, there is no doubt it’s been difficult recently for the Attachments team, but as always and just like our Solutions team, with our focus on baseline profit improvements, new product development, and DDMS continued improvement initiatives, we will exit stronger from this environment, knowing our team will be ready to drive profitable growth again when more normal weather conditions return. The future possibilities for the Attachment segment remain incredibly exciting. Now let’s talk about Work Truck Solutions, where the recent results and outlook are very encouraging. After completing a strong finish to 2023, the solutions team continued to build upon that momentum, delivering another strong core to the start of 2024. Our Dejana and Henderson teams are increasing the velocity of trucks through their upfit centers, which is really key to us improving our baseline profitability. There are several positive trends we are seeing, which collectively help driving our improved results. Speaking about Dejana, it’s clear that our OEM partners are more focused on fleet and dealer business today. Our teams are adjusting our focus and business mix to match the industry trends, driving improvements in the fleet business where chassis are easier to come by today. So both our fleet truck and cargo truck business are growing, which we expect to be a trend that lasts throughout 2024. At Henderson, I’m pleased to report that the low margin contracts we’ve been battling through in recent years are virtually complete, and are no longer a drag on our profitability. Overall chassis supply is stable, starting to show signs of improvement in certain areas. Additionally, the dependable parts program we launched last year has been well received, by our customer base and continues to gain traction. We continue our focus on internal profit drivers as we do every year, including product redesigns, sourcing improvements, and DDMS initiatives. As you would expect, the improved results mean we are starting to eat into our backlog, but I’m pleased to say new order trends also remain positive. We still have a great backlog, significantly higher than historical averages, and if chassis supply improvements continue during the year, we’re poised to move increased velocity through our upfit center. Our recent performance bodes well for the coming year, especially as overall demand outlook, and backlog remain positive. While the progress may not always be linear, things are clearly moving in the right direction. In short, it’s great to see the Solutions group going from strength-to-strength. In closing, we continue to navigate through external headwinds in a logical and effective manner. I am so proud of how our teams work together to find solutions to challenges, while making improvements to the factors that are within our control. Our culture of continuous improvement will not only see us through these tough times, but ensure we emerge in a better position, stronger and smarter than before. I think the combination of our team’s creativity, collaboration and CI mindset, is a recipe for long-term success and will be a key factor in driving progress, towards our long-term targets. With that, I’d like to pass the call to Sarah to walk through our financials. Sarah?

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Sarah Lauber: Thanks, Bob. I’m pleased to report that, when compared to the first quarter of last year, our results improved across all metrics. Net sales increased 16% to $95.7 million, and gross profit increased 67.3% to $18.9 million. SG&A expenses decreased 4.3% to $21.5 million compared to first quarter 2023. The improvement was driven by higher volume and price realization at Solutions and higher parts and accessory volumes at Attachments. In addition, expenses came in lower based on the successful implementation of the 2024 cost savings program, which was partially offset by related severance and impairment costs. In conjunction with the implementation of the 2024 cost savings program, we recorded restructuring and impairment charges of $2.1 million, which was in-line with our expectations. Interest expense was $3.5 million for the quarter compared to $2.9 million incurred in the same period last year. We recorded a GAAP net loss for the quarter, which is typical, given the seasonality of our business. The net loss for the first quarter 2024 was $8.4 million compared to net loss of $13.1 million last year, an improvement of $4.7 million. On an EPS basis, this translates to negative $0.37, a significant improvement compared to negative $0.58 in 2023. On an adjusted basis, we generated net loss of $6.5 million, or negative $0.29 per diluted share compared to an adjusted net loss of $12.5 million, or negative $0.55 per diluted share. Similarly, we generated a consolidated adjusted EBITDA of $1.5 million, compared to negative $7.4 million in the corresponding period of the prior year. Let’s review results for the two segments. Work Truck Attachments results improved across the board, compared to the prior year, despite the ongoing weather issue. Net sales increased 23.9% to $23.8 million, and adjusted EBITDA increased $5.7 million to negative $4.5 million. The improvements were driven by increased sales of parts and accessories, plus the implementation of the 2024 cost savings program. The above average snowfall in January, led to record parts and accessories sales for that month. Now I’m pleased to report that our results at Work Truck Solutions continue to improve. Net sales increased approximately 13% to $71.8 million compared to the same period last year based on higher volume, improved chassis availability, and increased price realization. This led to adjusted EBITDA margins increasing to 8.4%, which is the highest point in any first quarter since 2019. While some component supply issues linger, the overall situation continues to stabilize, and slowly improve. With demand and backlog remaining positive, we’re pleased to see the improvements we’ve worked hard for, start to show up in our financials. While we still have a ways to go to reach our goals, things are moving in the right direction at Solutions. With segment results covered, I’ll turn to the balance sheet liquidity figures. Net cash used in operating activities improved by 62% to $21.6 million for the quarter, and free cash flow for first quarter 2024 was negative $22.9 million, an increase of $36.8 million compared to negative $59.7 million in the same quarter last year. The improvement was primarily due to favorable changes in working capital, including a decrease in cash used in accounts payable and inventory, and improved operating results. Inventory at the end of the quarter of $174.8 million was 5.3% lower than the $184.6 million at the end of first quarter 2023, as we held less finished goods at attachments this year compared to last. Inventory typically grows in the first quarter as Attachments build inventory in advance of preseason activity, and this year we are keenly focused on adjusting our manufacturing as needed to flex inventory. Accounts receivable at the end of the quarter were $58.6 million, compared to $48.2 million at the end of the first quarter 2023. The increase compared to last year is a holdover from the elevated level at the end of 2023 and the current number is now much lower than the $83.8 million at year end. Capital expenditures in the first quarter were $1.3 million as expected, which is about half of the $2.7 million incurred in the same quarter last year, as we continue to curtail our spending as part of our 2024 cost savings program. We expect to be on the low end of our targeted range of CapEx of 2% to 3% of revenue, and we will be prudent with the timing of the investment. Turning to capital allocation, our priorities remain consistent. As always, we paid our quarterly cash dividend of $0.295 per share at the end of March. The dividend remains our top priority, and we expect to produce enough free cash flow during the year, to cover the cost of the dividend, which is approximately $27 million. The effective tax rate was 16% for the quarter compared to 21.1% for the first quarter last year. Both rates are lower than typical based on discrete tax expense related to excess tax from stock compensation. At the end of the first quarter, we had a net debt leverage ratio of 3.3x, a couple of points lower than the 3.5x at the end of 2023. The amended credit facility is providing us greater financial flexibility, with a higher leverage ratio covenant at 4x until June 30, 2024, returning to 3.5x at September 30, 2024. We are well positioned to manage through this temporary situation. Finally, I’ll walk through our updated guidance. First, I’d like to revisit comments I made last quarter. I noted that the largest assumption in our 2024 guidance was that approximately half of the weather-driven volume decline in 2023 would be recovered in 2024. As you saw in our earnings release, we are tightening our guidance ranges. Following the poor conclusion of the 2023-2024 snow season, and early indications of the preseason at attachments, we’ve lowered our expectations for preseason orders. Although we are early in our preseason ordering period, we are tracking to our revised lower forecast. We now expect 2024 volumes to be similar to 2023. However, we’re expecting preseason to be closer to historical shipments of a 55-45 split, between Q2 and Q3, while last year’s preseason split was closer to 65-35. This means we expect Q2 volumes, to be lower than 2023. We have also found opportunities to expand the 2024 cost savings program, which is now expected to yield annual pre-tax savings of more than $10 million. We still expect to recognize approximately 75% of the expanded cost savings amount this year, which equates to $8 million to $9 million. The outlook for Solutions has not changed for the year, and they remain on track, to deliver improved top and bottom line full-year results for the third year in a row, with stronger improvements in the first half of this year when compared to last year, with the back half of the year looking similar to 2023. And finally, it’s worth reiterating that dividend remains our top capital allocation priority. So just to confirm the details, our updated 2024 financial outlook is as follows: net sales are now expected to be between $600 million and $640 million, compared to the previous range of $600 million to $660 million. Adjusted EBITDA is now predicted to range from $70 million to $90 million, versus the previous range of $70 million to $100 million. And adjusted earnings per share is now expected to be in the range of $1.20 per share to $1.70 per share, compared to the previous range of $1.20 to $2.10. The effective tax rate is expected to be approximately 24% to 25%. It’s worth noting our outlook includes underlying assumptions, such as relatively stable economic conditions, stable to slightly improving supply of chassis and components, and our core markets will experience average snowfall in the fourth quarter of 2024. However, looking longer-term, our segment financial targets remain consistent. For attachments, we believe we can deliver low to mid-single-digit sales growth, and adjusted EBITDA margins in the mid-to-high 20s. For Solutions, we expect to maintain mid-to-high single-digit sales growth, along with continued improvement towards double-digit EBITDA margins. In 2024, both segments are expected to improve over 2023, due to continued success on baseline profit improvements, and greater price realization. These actions keep us on the path, towards both segments achieving their margin profiles, over the longer-term. With that, we’d like to open up the call for questions. Operator?

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Operator: [Operator Instructions] The first question today comes from Robert Schultz with Baird. Please go ahead.

Robert Schultz: Hey guys. Good morning.

Bob McCormick: Good morning.

Robert Schultz: So, it’s now been about two seasons now with lower snowfall totals and attachments. I just wanted to ask, during the past two seasons here, have you noticed any changes in the competitive environment, or anything you would call out from that perspective?

Bob McCormick: No. Terrific question. We do formal market share surveys with our dealer base every year. As you know, we have got 50% to 60% market share and our market share is holding very solid. Our growth in some of our non-truck segments is adding some market share in those areas. So, we think that the competitive landscape is fairly stable, Bobby, even in this environment.

Robert Schultz: Got it. And then on the solutions side, I think last quarter you guys had called out some expected impact from the UAW strike. Were you guys able to quantify the impact on Q1, and maybe could have solutions performance even been a little bit better this quarter, had you not seen any impact?

Sarah Lauber: We actually saw very little impact from the UAW strike. I think from the standpoint of maybe some delayed chassis, those types of things, the teams were really creative, and we have enough backlog to work around some of those interruptions we experienced. It probably was no different than some of the other chassis delays that we experienced prior to the strike, which was good.

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Bob McCormick: Yes. I think to Sarah’s point, certainly we saw some chassis delays. Now, the OEMs were not jumping up and saying, here is exactly the impact. But hats off to the team for moving some other chassis and reprioritizing the mix, so that we could still get decent flow through our upfit centers. So, we are pleased that the impact in total was pretty negligible and now appears to be behind us.

Robert Schultz: Got it. That’s good to hear. And then one last one from me, solutions margins were pretty strong this quarter. Does it change at all your expectations from that segment perspective for the remainder of the year? And I guess how do you kind of see the margin playing out for the rest of the year?

Sarah Lauber: Yes, no, it does not change our expectations for the year. So, I still expect full year margins for solutions will improve over 2023, making progress towards the double-digit long-term margin profile. But the front half of the year, I expect to be better than prior year, whereas in the back half of the year, those are a little bit tougher comps, I expect those margins to be a little more flat to last year.

Robert Schultz: Got it. Thanks guys. I will leave it there.

Operator: The next question comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Linda Weiser: This is Linda for Mike. Thank you for taking my questions. So, my first question is, can you give us some thoughts from the NTEA Show? What were some customer reactions to some of your new products? And what do you think there are? Do you think there are any growth tailwinds this year from those?

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Bob McCormick: Oh, yes, absolutely. In my comments, I made reference to a number of new product launches that we had. Probably the one that sticks out most for me is the hydraulic pusher plow product that we launched, which rounds out our new pusher plow line, very, very positive dealer sentiment there. This will turn out to be the most productive, efficient pusher plow in the industry. So, we have got lots of excitement there. Now, we have to temper that a little bit in this calendar year, because with the two back-to-back historic low snowfalls and still some elevated retail inventories, it’s going to take some of our dealers a little bit of time to work through existing inventory before they grab our new product lines. But the long-term prospects there are just terrific.

Linda Weiser: Great. That’s good to hear. And then on that, what are you hearing from dealers about the financial health of end users? Have you had multiple years of low snowfall affected their ability to buy equipment, or have some of their businesses, other businesses like landscaping supported cash flow enough that it doesn’t seem like many of them have financial distress?

Sarah Lauber: Yes, I would say the reaction this year is similar to last year. We are partnered with very strong dealers. And what they are experiencing, I guess from their end users has not changed dramatically in the last couple of years. We have not had a lot of, I guess dealer input to us that would be negative, because of the weather patterns.

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Linda Weiser: Okay. Thank you for the color there. And then my last question is what has been the order cadence at Dejana, have backlogs increased so far this year?

Sarah Lauber: Yes, I can speak to solutions in total. Solutions in total, our orders have been very strong. Our backlog is still very high. It really has only come down about 10% from its record high, so we have not seen softening of demand.

Linda Weiser: Got it. And then my last question, I know it’s not the most likely outcome, but if it doesn’t snow next winter, how do you think your balance sheet and attachment segments are positioned? And what’s your view on solutions? Do you think you have enough backlog, or visibility that it could be an offset next year?

Sarah Lauber: Yes, if we look to another year that would be similar to last year, there is a lot of things that have changed in the business that would be, I would say, tailwinds for us. One, you mentioned, I mean we have backlog in solutions. And our backlog in solutions still is a year, and possibly a little bit greater than a year. And then when you look at the cost savings program that we have implemented of $10 million plus savings a year, in addition to other baseline profit improvements that we have made. So, from that standpoint, I mean at this point, I do not have any concerns on the ability for our free cash flow in a similar year to cover our dividend like it will this year.

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Linda Weiser: Great. Thank you for your time today.

Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Bob McCormick for any closing remarks.

Bob McCormick: Thanks. Thank you for your continued interest in Douglas Dynamics. Let me finish with a few brief thoughts. We are encouraged by our positions in all the markets we serve today and our long-term growth prospects remain intact. We are confident that our continuous improvement mindset will allow us to thrive as the external headwinds subside. And we continue to execute effectively, manage through the weather uncertainty, and focus on factors within our control. I guess for those of you that have been around us quite a while, you know that we are focused on continuous improvement, you know that we have a get better every day mentality. We are also a weather driven company, right. And this weather challenge we are navigating through, while we have never seen something like this before, remember it is short-term, weather will come back, and our attachments group will come back stronger when those weather conditions come back. The solutions group is showing ongoing continuous improvement in terms of results. I say all of that just to remind everybody of two things. Number one, our dividend remains our top priority and always will be, and we will generate enough free cash flow to cover that dividend in 2024. And number two, when these weather headwinds subside, our long-term financial targets are still clearly within our reach. So, with that, thank you for your support. We look forward to speaking with you soon.

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Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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