Douglas Dynamics Makes a Surprise Profit From a Cold Winter

By Markets Fool.com


Image: Douglas Dynamics.

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Winter was harsh for much of the East Coast, making it seem as though there couldn't possibly be better conditions for a company in the snow-plow business. Yet for Douglas Dynamics , 2015's winter months actually weren't quite as favorable as the previous year's conditions, and coming into Monday afternoon's first-quarter earnings report, investors believed that Douglas Dynamics would end up losing money for the quarter. In the end, though, the company defied those calls, posting a surprise profit on much better sales results than most anticipated. Let's look more closely at Douglas Dynamics and what its latest results say about its future prospects.

How winter helped drive Douglas Dynamics forward
Douglas Dynamics had solid results across the board. Sales of $53.9 million were up 48% from the year-ago quarter and were more than double the growth rate that many of those following the stock had anticipated. Net income fell by three-quarters to $400,000, or a single penny per share, but after adjusting the nickel-per-share downward impact of a one-time charge related to its acquisition of Henderson Enterprises Group, Douglas Dynamics' earnings results were far better than the $0.07 per share loss consensus among investors.

Looking more deeply at Douglas Dynamics' results, the company actually downplayed the effect of what many saw as a cold winter. Admittedly, harsh winter conditions likely contributed to the increase in snow-plow shipments that the company saw during the quarter. But the manufacturer also said that it saw lower shipments of parts and accessories during the period, because even though snowfall levels were above average, they were lower in many areas than the 2013-2014 winter months provided.

CEO James Janik. Source: Douglas Dynamics.

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CEO James Janik pointed largely to the Henderson acquisition as responsible for a big part of the company's overall gains. As Janik said, "Henderson performed in line with our expectations and has a very healthy backlog of business." Janik was also pleased that "the integration of the business is progressing well, and while we are early in the process, the initial results are positive."

What should Douglas Dynamics expect for the future?
For the most part, Douglas Dynamics expects further positive results throughout the year. In its latest guidance, the company said that it expects sales for the full year to come in between $320 million and $380 million, the midpoint of which is above the $344 million that investors currently expect from Douglas Dynamics. Earnings of $0.80 to $1.45 per share are admittedly in a wide range that includes the current consensus of $1.25, but it would nevertheless represent a setback from the $1.77 per share that the company posted in 2014.

One big key to Douglas Dynamics' future is how well the integration of Henderson goes. When the company announced the deal last fall, Douglas Dynamics argued that buying Henderson would strengthen its market position in the snow and ice control market, given Henderson's focus on providing a wide array of pre-customized snow and ice control equipment packages to state transportation departments as well as local government entities. In addition to original equipment, Henderson also provides replacement parts and other related products to help customers deal with winter issues effectively and efficiently. With Henderson having produced $76 million in net sales, Douglas Dynamics hopes that its purchase price of $95 million will prove to be a smart deal in the long run.

Douglas Dynamics' results didn't produce a huge response from investors, with shares rising about 1% in after-hours trading following the announcement. Even with winter over, though, the second quarter is historically an important one for Douglas Dynamics' business, and so it'll be important to keep an eye on the company throughout the spring months to see how well it can do at making the most of its opportunities beyond immediate winter needs. With the stock having gained so much ground from the cold winter, it's possible that shares will fall back with warmer weather -- giving long-term investors an even better entry point for buying Douglas Dynamics.

The article Douglas Dynamics Makes a Surprise Profit From a Cold Winter originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Douglas Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.