Supreme Industries, Inc. (NYSE MKT: STS) reported that gross profit in the second quarter improved 68% to $13.5 million from last year's $8.1 million.
Gross profit, as a percentage of sales, increased to 16%, compared with 8.5% in the second quarter of 2011, and 15% in the first quarter of 2012. The year-over-year gross margin improvement is primarily due to product price increases, stabilizing materials pricing, favorable product mix and improved labor efficiencies.
Consolidated net sales decreased 10.7% to $84.6 million for the second quarter, down from $94.7 million in last year's comparable period.
The company reported net income from continuing operations of $5.4 million, or $0.35 per diluted share, for the quarter, compared with a loss from continuing operations of $0.8 million, or $0.05 per share, in the second quarter of last year. Net income improved to $0.35 per diluted share, reversing the year-ago net loss of $0.07 per share, which included the impact from discontinued operations. Last year's second-quarter results were negatively impacted by a $1.9 million legal settlement.
The current year's $0.3 million tax benefit, recorded in the second quarter, resulted primarily from the release of a tax valuation allowance due to the company's profitability. The company expects that the balance of the valuation allowance will be utilized during the second half of 2012 consistent with the company's expected tax position, resulting in an effective tax rate of 1.5% for the full year 2012. The tax rate for 2013 and beyond is anticipated to be significantly higher than that of 2012. The 2011 net loss does not reflect any income tax benefit due to the continuing losses of the company.
"We have a year of consistent, improving profitability confirming we have turned the corner,” said Chief Financial Officer and Interim Chief Executive Officer Matthew Long. “The operational improvements that began to be realized during the third quarter of 2011 have continued through the first half of 2012. In each of the past four quarters, we have generated sequentially higher gross margins and net income. This positive trend reinforces our ongoing strategy to focus on profitable revenues."
For the first six months, consolidated net sales decreased 3.3% to $156.7 million, down from $162.1 million in last year's comparable period. Gross profit improved more than 68% to $24.3 million from last year's $14.5 million. Gross profit, as a percentage of sales, increased to 15.5%, compared with 8.9% in the first six months of 2011.
The company reported net income from continuing operations of $7.9 million, or $0.51 per diluted share, for the first six months of 2012, compared with a loss from continuing operations of $1.9 million, or $0.13 per share, in the prior-year first half. Net income improved to $0.51 per diluted share, reversing the year-ago net loss of $0.18 per share, which included the impact from discontinued operations.
Working capital was $47.6 million at June 30, 2012, compared with $35.4 million at Dec. 31, 2011. In addition, the company made strategic investments totaling $4 million in facilities and equipment during the first six months of 2012.
Total debt was $21.2 million at June 30, 2012, compared with $15.9 million at Dec. 31, 2011, and $28.8 million at July 2, 2011. Stockholders' equity increased 15% to $63.0 million, or $4.14 per share, at June 30, 2012, compared with $54.9 million, or $3.71 per share, at Dec. 31, 2011. Net cash used in operating activities during the first half of 2012 totaled $2.2 million, compared with net cash used in operating activities of $2.1 million in 2011.
During the second quarter, the Company self-identified errors related to revenue recognition while implementing a standard cost/perpetual inventory system. The errors began in the third quarter of 2009 and continued through the first quarter of 2012 where revenue was inappropriately recognized prior to the product being delivered to a customer due to an irregularity.
The company concluded that the errors were isolated to one location. The company considered Staff Accounting Bulletin (SAB) 99, Materiality and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined that the impact of the errors on prior-period consolidated financial statements was immaterial.
Accordingly, the company's consolidated balance sheet as of Dec. 31, 2011, and the consolidated statements of operations and cash flows for the three months ended March 31, 2012, and three and six months ended July 2, 2011, were revised and reflect the correction.