Douglas Dynamics Overcomes a Weak Winter

By Dan Caplinger Markets Fool.com

Douglas Dynamics (NYSE: PLOW) thrives when winter conditions are harsh, but the company has now had to deal with two straight winters with fairly benign weather. Coming into Monday's fourth-quarter financial report, Douglas Dynamics investors were prepared to see falling earnings from year-ago levels, but they still wanted to see signs that the company's latest acquisition was successful in helping it diversify its seasonal exposure. Douglas Dynamics' results were largely as expected, and a mixed outlook for 2017 was still sufficient to satisfy investors.

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Let's look more closely at Douglas Dynamics to see how it did and what the winter specialist expects in the future.

Image source: Douglas Dynamics.

Douglas Dynamics posts record sales

Douglas Dynamics' fourth-quarter results were mixed. On one hand, revenue was up nearly 10% to $130.1 million, which represented a record for the fourth quarter. Net income, however, fell by about a third from year-ago levels to $10.1 million, and that worked out to $0.44 per share. That figure topped the consensus forecast for $0.37 per share despite being well below what Douglas Dynamics earned a year ago.

Taking a closer look at the numbers, the winter specialist once again owed its top-line growth to its recent acquisition of Dejana, which it is now referring to as its work truck solutions segment. The segment brought in $37.9 million, which was almost 30% of Douglas Dynamics' total revenue. However, the division's margin figures are much weaker than what Douglas gets in the rest of its business, as operating income of just $3.45 million represented only about 15% of the company's overall income from operations.

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By contrast, Douglas Dynamics' core work truck attachments business had better margin, but it also had to deal with falling sales and income. Segment revenue of $97.8 million was down by more than a sixth from the year-ago quarter, and operating income was down about 16% to $23.3 million. Again, Douglas Dynamics blamed poor snowfall levels over two straight years, which led some customers to cut back on their orders.

CEO James Janik gave a summary of the ups and downs of the business. "There is no question that the lower than average snowfall over the past two winters negatively impacted our business in 2016," Janik said. "However, several other factors, including the favorable defense of our intellectual property, ongoing positive light truck sales, and the successful acquisition of the work truck solutions segment, had a positive impact on our results."

How will Douglas Dynamics do when winter ends?

Douglas Dynamics isn't giving up on its future. As the CEO noted, "The backlog and runway for growth for these products and services continues to indicate a positive future," and work to implement internal efficiencies has already paid off.

Investors also took some encouragement from Douglas Dynamics' new guidance. The company said that it expects net revenue of between $470 million and $530 million, which compared fairly well to the consensus forecast for just shy of $490 million on the top line for Douglas Dynamics in 2017. However, the earnings picture is a little cloudier, as earnings guidance of $1.20 to $1.80 per share is a bit below the $1.61 per share that most investors expect.

Even with the mixed guidance, Douglas Dynamics investors seemed pleased by the report, and the stock climbed more than 3% in after-hours trading following the announcement. In order for the company to rebound fully, though, it will take some years of harsher winter conditions to remind Douglas Dynamics' customers that the company's products are essential in helping them meet the demands of their constituents and keep their infrastructure functioning during the coldest months of the year.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Douglas Dynamics. The Motley Fool has a disclosure policy.