Supreme Industries, Inc. (NYSE MKT: STS) announced that second-quarter gross margin as a percentage of sales improved to 17.8%, or $13.6 million, compared with 16.0%, or $13.5 million in the second quarter of 2012, due to improved product mix and manufacturing efficiencies.
Consolidated net sales of $76.5 million for the second quarter declined 9.5% compared with $84.6 million last year. The revenue decrease was attributable to lower sales volume with bus and fleet truck customers versus the prior year, partially offset by higher sales of retail trucks.
During the quarter, Supreme settled its King County, Washington, lawsuit, which resulted in a $3.4 million pre-tax charge. The legal settlement and related costs totaled $4.5 million, partially offset by $1.1 million of estimated value assigned to the returned product. Due to the inherent risk of litigation and the uncertainty of the outcome, the company determined that it was in its best interest to bring this matter to resolution and therefore agreed to a settlement.
Income tax expense of $0.4 million was recorded in the quarter due to the company's return to normalized statutory rates. In 2012's comparable period, the Company recorded an income tax benefit of $0.3 million resulting from the reversal of a deferred tax valuation allowance due to the improved profitability.
Net income for the second quarter was $0.9 million, or $0.06 per diluted share, compared with net income of $5.4 million, or $0.33 per diluted share, last year. On a proforma basis, diluted earnings per share, adjusting for the legal settlement costs and normalizing of the 2012 income tax expense, resulted in $0.20 per diluted share for the second quarter of 2013 compared with $0.21 per diluted share a year ago.
Supreme's President and Chief Executive Officer Mark Weber stated, "We are continuing to drive margin growth through process improvement, enhanced manufacturing efficiencies and strategic purchasing. Our strategy is to complement these successes with a customer-centric marketing strategy designed to grow sales volume and further lever the improvements we've made on the cost side of the business."
In the first half of 2013, consolidated net sales decreased 9.1%, to $142.4 million, from $156.7 million last year. Gross profit, as a percentage of sales, increased more than 200 basis points to 17.6%, compared with 15.5% in 2012. Gross profit improved to $25.0 million, from $24.3 million in last year's comparable period. The company reported pre-tax income, excluding the impact of the legal settlement, for the first six months of 2013 of $8.4 million compared with $7.7 million a year ago.
Income tax expense increased by $1.9 million versus the first half of 2012 resulting from the normalized tax rates and last year's reversal of the valuation allowance in 2012.
Net income for the first six months was $3.2 million, or $0.20 per diluted share, compared with $7.9 million, or $0.49 per diluted share, last year. On a proforma basis, diluted earnings per share, adjusting for the legal settlement costs and normalizing of the 2012 income tax expense, resulted in $0.35 per diluted share for the first half of this year compared with $0.32 per diluted share last year.
"We experienced increased sales of retail trucks in the first half of the year," Weber said, "which helped to offset the lower fleet truck sales. Subsequent to the end of the quarter, key fleet operators have placed orders, which bodes well for 2013's second half."
Working capital was $37.8 million at June 29, 2013, compared with $38.6 million at Dec. 29, 2012. Total debt declined to $12.2 million at quarter end versus $14.1 million at Dec. 29, 2012, and $21.2 million a year ago. Stockholders' equity increased to $70.7 million at June 29, 2013, compared with $67.2 million at Dec. 29, 2012. Book value on a per-share basis was $4.38 at quarter end versus $4.20 at the end of last year. Net cash provided by operating activities during the first half of 2013 was $4.5 million, reversing the $2.2 million of net cash used in operations in 2012.