Supreme Industries, Inc. (NYSE Amex: STS) announced that net sales for the fourth quarter rose 23% to $54.5 million from $44.5 million in last year's comparable period. For the full year, net sales reached $220.9 million, up 19% from $186.1 million in 2009.
During 2010, Supreme continued to experience improved demand for all major product lines including truck, bus and armored vehicles. Sales order backlog at Dec. 25, 2010 grew 49% to $102 million from $68 million a year ago, and continues to grow into the first quarter of 2011.
Compared with last year's fourth quarter, sales in Supreme's core dry-freight truck and armored vehicle divisions advanced 53% and 31%, respectively. Supreme's bus division posted a 12% sales decline versus the prior-year period. For the full year 2010, net sales improved for each of Supreme's primary product lines, with dry-freight trucks, buses and armored vehicles reporting gains of 27%, 5% and 31%, respectively.
The fourth-quarter pre-tax loss from continuing operations was $6.7 million, or $0.47 per share, compared with the $4.6 million pre-tax loss, or $0.32 per share, reported for the year-ago quarter. For the full year 2010, the pre-tax loss from continuing operations was $8.1 million, or $0.57 per share, compared with the pre-tax loss of $9.5 million, or $0.67 per share, in 2009's comparable period.
Commenting on the results, newly appointed President and Chief Executive Officer Kim Korth said: "We are obviously extremely disappointed with our fourth quarter operating results and the overall losses for 2010. While our sales levels showed continued improvement throughout the year, our operating results were negatively impacted by a number of factors including continued inefficiencies at several of our plants as well as effectively processing our dramatic increase in orders. We have been doing an intensive review of all aspects of the business and we recently made a series of leadership changes we believe will help us do a much better job of managing our costs and improving profitability going forward."
To help ensure that Supreme has adequate liquidity during a period of the largest backlog in its history, Supreme has enacted a plan that includes:
- The divestiture of certain idled properties in a more aggressive fashion, which included significant downward adjustments in the market listing prices that resulted in significant impairment of the net carrying values associated with these facilities;
- A recent decision to shut down its Oregon bus facility, which also included significant downward adjustments to the carrying value of various assets.
"We have reviewed in detail all aspects of our business and have clearly identified any costs associated with previous and current restructuring activities," Korth said. "With our continued growth in sales and our focus on improving the operational effectiveness of our plants, we are confident we are well positioned to take advantage of the improving economic outlook in 2011."
As a percentage of sales, Selling, General and Administrative (SG&A) expenses dropped from 13.3% in the fourth quarter of 2009 to 11.7% for the 2010 fourth quarter, and declined from 11.6% in 2009 to 10.5% for the full year. SG&A totaled $6.4 million for the fourth quarter and $23.2 million for the full year, compared with $5.9 million and $21.6 million for the respective 2009 periods. The lower SG&A expenses as a percentage of sales for both periods are associated with a major focus on increasing Supreme's productivity in this area as well as the benefit received from higher sales volumes, offset by significant increases in group health and legal costs.
As of the end of November and December, 2010, Supreme was not in compliance with its minimum EBITDA and its Tangible Net Worth financial covenants under its senior bank loan agreement which constitute events of default under such agreement. Supreme is in negotiations with the bank to obtain a waiver of such events of default and is seeking restructured credit facilities maturing not earlier than the end of 2011. The bank has not yet made any commitment to restructure any of the credit facilities provided under the credit agreement or waive the events of default, but is currently negotiating the restructuring terms with Supreme. $25.5 million was the current outstanding principal balance at Dec. 25, 2010 under the credit agreement. There are no payment defaults under the credit agreement. There can be no assurances that an agreement will be reached with the bank for the credit facilities to be restructured maturing not earlier than the end of 2011 and waiving the existence of the events of default.
Fourth-quarter gross profit from continuing operations increased 20% to $2.4 million from $2.0 million last year. Gross profit margin as a percentage of net sales was 4.4% for the 2010 fourth quarter and 8.3% for the full year, compared with 4.5% in the fourth quarter and 7.3% in the full year 2009. The full-year gross margin increase was primarily the result of higher unit volumes and the benefits from implemented cost reductions and better efficiencies at most of Supreme's plants.
Korth concluded: "Coming into 2011, we are focused on improved operational excellence throughout Supreme including cash management, cost reduction, and effective new business launch at the plants. We plan to continue to leverage the advancement we made in the second half of 2010 and believe we will improve our liquidity and drive those improvements to the bottom line. We are encouraged by the strengthening of our markets, and we believe we are well positioned to translate these conditions into improved operating results."