Commercial Vehicle Group Inc. (CVG) has reported financial results for the second quarter ended June 30, 2020, including revenues of $126.9 million, net loss of $12.5 million, EPS of $(0.40), pre-tax special charges of $7 million, and adjusted EPS of $(0.24).
“We navigated through an incredibly difficult quarter, which was exacerbated by the COVID-19 pandemic that led to a rapid contraction in our end markets and the temporary shutdowns of our customers’ operations. However, we moved quickly to align the business to the new realities we are facing, and as a result of our actions, we generated positive adjusted EBITDA and free cash flow during the quarter, while maintaining liquidity of greater than $100 million,” said Harold Bevis, president and CEO of CVG.
“Importantly, we had significant new business wins with a large e-commerce customer to deliver warehouse automation and material handling equipment, and seating systems for last mile delivery electric vehicles, which we expect will come online in the next few quarters. We are also seeing strong signs of recovery in our core end markets. We continue to feel effects of the global pandemic throughout our operations and we believe we are taking necessary precautions to keep our employees safe and healthy and to keep our operations running efficiently. Our cost optimization efforts, including permanent and temporary cost reduction measures, coupled with the significant new business wins during the quarter have created new momentum and energy within the company,” said Bevis.
Consolidated Results
Second Quarter 2020 Results
Second quarter 2020 revenues were $126.9 million compared to $243.2 million in the prior year period, a decrease of 47.8%. The decrease in revenues reflects the sharp declines in sales due to the COVID-19 pandemic and market declines, and more specifically lower heavy-duty truck production in North America and in the global construction markets we serve, partially offset by an increase in industrial and military revenues primarily attributable to the First Source Electronics (FSE) business. Foreign currency translation adversely impacted second quarter 2020 revenues by $1.8 million, or by 0.7%.
Operating loss for the second quarter 2020 was $10.5 million compared to operating income of $15.9 million in the prior year period. The operating loss is primarily attributable to lower sales volume, and the second quarter results include charges of $2.9 million associated with ongoing restructuring initiatives, a $3.5 million charge for future milestone payments related to the performance of the FSE business and charges of $0.4 million associated with the 2019 restatement investigation. The second quarter of 2020 adjusted operating loss was $3.6 million when excluding special charges. The impact of the decline in sales and second quarter specific costs were partially offset by cost-reduction initiatives.
Net loss was $12.5 million for the second quarter 2020, or $0.40 per diluted share, compared to net income of $6.1 million in the prior year period, or $0.20 per diluted share.
At June 30, 2020, the company had $15 million outstanding under its revolving credit facility and liquidity of $106.6 million; $63.4 million of cash and $43.2 million of availability from the revolving credit facility.
Strategic Footprint Repositioning
The company announced the strategic repositioning of its operations to grow faster, innovate rapidly and lower its costs. This repositioning involves 12 facilities.
The company’s business in the warehouse automation and military markets continues to grow with solid long-term outlook. CVG says it has taken strategic actions to significantly expand our footprint, capacity and product complexity to serve these diverse markets. These actions are expected to support between $100 million to $150 million of new business, depending on the mix. Anchor customer business has already been established for this multi-plant expansion with key actions underway.
“The goal of our strategic footprint realignment is to expand in growth areas, reduce costs in mature areas and increase our ability to innovate. We are on track to permanently reduce our annualized costs by over $15 million in mature markets through a combination of staff reductions, facility consolidations, and operational improvements.” said Bevis. “We believe these actions will make us stronger, increase our competitiveness, accelerate the speed of our innovation and increase our opportunities to win. We are leveraging our know-how to serve top tier OEMs with high-quality, on-time delivery of complex subsystems into new areas. We believe these actions will enable new value and new growth. We look forward to sharing updates on these activities as we execute our long-term plan,” concluded Bevis.
Third Quarter Outlook
According to ACT Research, third quarter 2020 North American heavy-duty and medium-duty truck build is expected to increase approximately 50% and 30%, respectively, as compared to the second quarter of 2020, as the North American Truck OEMs rebound from the impacts of COVID-19. Although the COVID-19 pandemic creates forecasting uncertainties, CVG said it currently anticipates revenues to increase 25% to 35% for the three months ending Sept. 30, 2020, as compared to the three months ended June 30, 2020.
