Douglas Dynamics Inc.'s Earnings Plow Higher Despite Weak Snowfall Totals

By Markets Fool.com

Image source: Getty Images.

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While this past winter produced some of the lowest snowfall totals in the last 10 years, that didn't dent enthusiasm for Douglas Dynamics' (NYSE: PLOW) products. Instead, pre-season orders have been robust, driving record second-quarter results for the company. Because of the strong start to the year, the company is pushing its full-year guidance higher.

Douglas Dynamics' results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Net sales

$113.8 million

$107.1 million

6.3%

Net income

$16.3 million

$13.1 million

24.4%

Earnings per share

$0.71

$0.57

24.6%

YOY = year over year. Data source: Douglas Dynamics Inc.

What happened with Douglas Dynamics this quarter?

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Strong pre-season sales drove financial results:

  • Revenue plowed higher as a result of stronger pre-season sales of snow and ice control equipment. Typically pre-season sales are split evenly between the second and third quarter, however, this year the company sees those sales skewed toward the second quarter.
  • The company did experience slightly weaker sales of parts and accessories due to low snowfall totals in 2016 compared to the historical averages.
  • The robust pre-season sales certainly helped drive the company's earnings growth. However,lower commodity prices and an improvement in the company's performance through its proprietary Douglas Dynamics Management System (DDMS) boosted margins from 34.5% of netsales to 36.5%.
  • Cash flow from operating activities jumped 172.1% to $28.3 million. A $10 million gain from the successful conclusion of a patent infringement lawsuit against a rival provided a huge boost to cash flow.

What management had to say

As CEO James Janik said about the company's results:

I am pleased to report that, despite experiencing one of the lowest snowfall environments in the past decade, we have produced a tremendous start to our pre-season order period and record second quarter results. While we have seen slight increases in field inventory and slightly lower growth levels for light truck sales, we believe that both dealers and end users remain cautiously optimistic about the future and that our ongoing efforts to improve both service and quality through DDMS are paying off.

Apparently, none of Douglas Dynamic's customers expects that last winter's weak snowfall totals are part of a trend. Instead, customers appear to be preparing for the worst by getting their equipment orders in early, which drove much stronger pre-season sales than anticipated.

Looking forward

Janik also provided his updated outlook on full-year by saying:

Although we still have a long way to go in 2016, our pre-season period is exceeding our initial expectations and the Henderson Products operations continue to see strong growth and has a robust pipeline. Across the board, our team is executing our strategy effectively and producing excellent results. Combining these factors with the addition of the Dejana business in mid-July, we have the confidence to increase and narrow our outlook ranges and expect to produce strong results again in 2016. While we expect the impact of weather on our overall business to be diminished going forward, we anticipate that our fourth quarter results will still be impacted by the magnitude, timing and location of snowfall.

Below are the company's updated guidance ranges reflecting both the updated expectations for its legacy business as well as the impact of the recent Dejana acquisition:

2016 Updated Outlook (Unaudited)

Revenue*

Earnings Per Share

Original Douglas Dynamics Only Outlook (March 2016)

$310

$370

$1.05

$1.65

Updated Douglas Dynamics Only Outlook (Aug. 2016)

$335

$370

$1.45

$1.80

Dejana Truck and Utility Equipment Only Outlook

$60

$80

($0.09)

($0.01)

Combined Outlook (Douglas Dynamics + Dejana)

$395

$450

$1.36

$1.79

* In millions. Data source: Douglas Dynamics.

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