MLR - Miller Industries Inc

[Castanza]

Opened a small starter position. No analyst coverage

 

Miller Industries Inc. specializes in the manufacturing, distribution and sales of towing equipment. They are the world’s largest manufacturer of Towing and Recovery equipment. They operate through the following brands (many best in class) Century, Vulcan, Challenger, Holmes, Champion, Chevron, Eagle, Titan, Jige, and Boniface. They have manufacturing facilities in Tennessee (headquarters), Pennsylvania, France, and the UK. They serve all 50 states, Canada, Mexico, Europe, Pacific Rim, Middle East, SA, and Africa. Recently have expanded to pursue contracts with military entities.

 

Jige and Boniface are two companies (Fra and UK) which Miller has acquired and operates through. Have had a hard time finding any information on regarding these two companies. At surface level they seem best in class companies and a general good distribution network.

 

They primarily sell through independent distributors. Per management “85% of our independent distributors choose to carry our products on an exclusive basis.” Product lines include wreckers ranging from 4-75 tons, car carriers, and transport trailers. They also sell parts and offer services to customers. Of the 80 distributors in North America, no single distributor accounts for more than 10% of sales. Management is confident in the backlog of sales and currently account for 5 months of backlogs.

 

In short they manufacture the body and functionality of a wrecker to retrofit on pre-built chassis from 3rd party vendors. The only in-house manufacturing is the assembly of the hydraulics (obtained from 3rd party) and the bending of sheet metal to build the cab etc.

 

Management has good standing with multiple suppliers and does not feel vulnerable or reliant on any single source of products. They have experienced no issues obtaining adequate supplies and raw materials, but have seen marginal increases in price of materials (which are passed on to customers).  I believe this is part of the reason the stock is having a pullback. The towing industry is a very competitive industry but management feels they are well positioned and hold the top position and maintain strong relations with suppliers, distributors, and customers.

 

Marketing is done primarily through commission sales reps who demonstrate the product to or at independent distributors. They also heavily market through trade shows by utilizing the distributors through this channel. They market primarily on the ideology of reputation and quality rather than price but they feel their products are regarded as best in class for their respective price points. They have recently began to pursue and bid on government contracts with local, state, and federal level organizations as well as military contracts.

 

1240 employees (non-union) except for the UK and French employees. Management has good standing with employees.

 

Long standing CEO who has taken a below average salary (compared to industry)

 

- Current Price: 30.91

- Market Cap: 342.29M

- P/E: 9.71

- P/B: 1.48

- P/S: 0.46

- EBITDA: 6.67 (5 yr average 5.46)

- 19M cash

- 32.52M debt

- Debt/Equity 2.27

- Tangible Book 33.63 (31ish without Goodwill)

- P/IV .7ish (numbers varied slightly)

- ROE: 16.12%

- ROE: 1.53% yoy growth 4yr average

- Diluted EPS: 3.13

- Owner’s earnings: 3.72

 

Revenue, profits, operating margin have all shown positive steady trends. Meanwhile debt has been decreasing. Need to do some more digging, but on the surface this seems like a good little company. Anyone else ever look at this?

 

[Spekulatius]

MLR - looks cheap, but you tangible book is off and is around $20/ share (not that it matters). I agree it looks like a decent company.

 

One issue I see with this company is that the gross margin is very slim - only about 12%. This means that the income statement easily can get wrecked by cost inflation or capacity utilization issues.

[Astrea]

I find it odd that the two co-CEOs have zero equity in the business (actually one has 300k worth of shares, the other has zero as per 2019 proxy statement).

[Castanza]

MLR - looks cheap, but you tangible book is off and is around $20/ share (not that it matters). I agree it looks like a decent company.

 

One issue I see with this company is that the gross margin is very slim - only about 12%. This means that the income statement easily can get wrecked by cost inflation or capacity utilization issues.

 

Costs of operations increased 14.7% to $628,370 for the year ended December 31, 2018 from $548,000 for the year ended December 31, 2017, which was attributable to increased production resulting from the strong demand levels. Overall, costs of operations as a percentage of net sales decreased from 89.1% for the year ended December 31, 2017 to 88.3% for the year ended December 31, 2018, primarily due to product mix and continued efforts to increase production efficiencies and monitor costs while meeting customer demand.

 

You make a good point about margins. So far they have had to raise prices a bit to compensate for higher prices raw materials. But they have been able to pass this along to the consumer. Time will tell if the consumer reacts to these higher prices. I wouldn't find it out of the question to assume their competition is also experiencing similar margins. Perhaps the recent pullback is the market signaling some hesitation with this? It does make me feel a little more confident knowing non of their operating facilities are located in targeted tariff zones. But without a doubt some of their raw materials most likely come from areas which are experiencing tariffs.

 

Management did state per 10k(their word) that they felt confident with their suppliers that they shouldn't see any major impact in the near future. They felt confidently hedged and diversified. But they also did say that their business if heavily cyclical. When the economy is growing they do well and when it takes a turn they do poorly (who doesn't?).

 

It is interesting to see that auto repossessions have been climbing. This certainly can't be bad for business. But the extent of which it is good will take some more digging. At the end of the day it's just speculation (difficult to know who already owns wreckers etc.)

https://alsresolvion.com/22-repo-industry-statistics-trends-analysis/

 

- Domestic sales have only grown 9% while International sales have grown 36% yoy.

 

- No single customer accounted for 10% or more of consolidated net sales for 2018, 2017 and 2016.

 

I like both of these metrics. Shows that they are actively expanding outside of their primary market (US) and have a nicely diversified customer portfolio.