Mayville Engineering Co Inc (MEC) Q3 2024 Earnings Call Highlights: Navigating Challenges with ...

GuruFocus.com11-07

Total Sales: Decreased 14.4% year-over-year to $135.4 million. Manufacturing Margin: $17.1 million, with a margin rate of 12.6%, up 60 basis points from the prior year. SG&A Expenses: $7.6 million, ...

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Adjusted EBITDA between $63 million and $66 million; CapEx between $13 million and $15 million.GuruFocus has detected 8 Warning Signs with MEC.The company reduced its net leverage to 1.6 times, well within its target range, showcasing strong financial management.MEC received a $25.5 million cash settlement from a legal dispute, which will be used to pay down debt and repurchase share","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"MEC":"Mayville Engineering Company Inc."},"translate_title":"Mayville Engineering Co Inc(MEC)2024年第三季度收益看涨期权亮点：应对挑战……","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MEC":1},"content_text":"Total Sales: Decreased 14.4% year-over-year to $135.4 million.\nManufacturing Margin: $17.1 million, with a margin rate of 12.6%, up 60 basis points from the prior year.\nSG&A Expenses: $7.6 million, down from $8.6 million in the prior year.\nInterest Expense: $2.7 million, down from $3.9 million in the prior year.\nAdjusted EBITDA: $17.1 million, with a margin increase of 50 basis points to 12.6%.\nFree Cash Flow: $15.1 million, compared to $16.1 million in the prior year.\nDebt: $114.2 million, reduced from $171.9 million in the prior year.\nNet Leverage Ratio: 1.6 times, potentially less than 1.25 times with settlement proceeds.\nRevised 2024 Guidance: Net sales between $580 million and $590 million; Adjusted EBITDA between $63 million and $66 million; CapEx between $13 million and $15 million.\n\n\nWarning! GuruFocus has detected 8 Warning Signs with MEC.\n\nRelease Date: November 06, 2024\nFor the complete transcript of the earnings call, please refer to the full earnings call transcript.\n Positive Points \n\nMayville Engineering Co Inc (NYSE:MEC) implemented cost rationalization initiatives, including a 12% reduction in the labor force and the closure of the Wautoma facility, expected to save $1 million to $3 million annually.\nThe company achieved a 50 basis point increase in adjusted EBITDA margins despite a 14% decline in net sales, demonstrating effective cost management.\nMEC secured approximately $80 million in new project wins this year, indicating strong future revenue potential.\nThe company reduced its net leverage to 1.6 times, well within its target range, showcasing strong financial management.\nMEC received a $25.5 million cash settlement from a legal dispute, which will be used to pay down debt and repurchase shares, strengthening its financial position.\n\n Negative Points \n\nMEC experienced a significant 14.4% year-over-year decrease in total sales for the third quarter, reflecting softening customer demand.\nThe company reduced its full-year 2024 net sales, adjusted EBITDA, and CapEx guidance due to lower order activity and inventory destocking.\nDemand in key markets such as powersports, agriculture, and construction was weaker than expected, impacting overall performance.\nThe agricultural market saw a 31.1% year-over-year revenue decrease, with uncertain recovery prospects due to high interest rates and lower crop prices.\nMEC anticipates a challenging fourth quarter with expected sales decreases of 4% to 11% sequentially, leading to extended facility shutdowns to manage costs.\n\n Q & A Highlights \nQ: Can you break down your expectations for manufacturing margin and SG&A in the fourth quarter? A: Todd Butz, CFO: We expect manufacturing margin to be slightly down compared to Q3, with fixed costs representing about 55% of our total cost. SG&A will see a favorable impact due to cost reduction activities. We anticipate EBITDA margins in the 7.5% to 10% range, positioning us well for market rebounds in 2025.\nQ: Is the fourth quarter revenue of $125 million in line with customer orders, and does it reflect a backlog? A: Todd Butz, CFO: The revenue is firm in orders, not backlog. We haven't lost any orders and are well-positioned for 2025. Jagadeesh Reddy, CEO: We have maintained our market share and added $80 million in new business this year.\nQ: How do you view the demand outlook for 2025, given production issues in various sectors? A: Jagadeesh Reddy, CEO: We expect powersports to recover first in early 2025, followed by construction access in Q2. The commercial vehicle market will see a pickup in the second half, while agriculture may not recover in 2025. Agriculture is only 8% of our revenues, so its impact is limited.\nQ: Where will the $600,000 restructuring charge appear, and when will the $1 million to $3 million in savings begin? A: Todd Butz, CFO: The charge will be above the operating income line and called out separately. Savings will begin in Q1 2025, primarily in the cost of sales line, as we close the Wautoma facility.\nQ: How will the Peloton settlement affect cash flow, and how will the funds be used? A: Todd Butz, CFO: The settlement will show up in operating activities. The funds have been used for debt reduction, and we plan to allocate some for stock repurchases in Q4.\nQ: Why did you maintain your organic net sales growth guidance despite revising overall guidance? A: Todd Butz, CFO: We separated organic growth from market destocking impacts. We expect year-over-year growth to be flat or slightly up, excluding destocking effects.\nQ: How are you gaining market share in the powersports sector? A: Jagadeesh Reddy, CEO: We gained market share by bringing on a new customer and securing new programs with existing customers, particularly in side-by-sides and similar vehicles.\nQ: What initiatives are driving strong free cash flow generation? A: Jagadeesh Reddy, CEO: Our MBX program focuses on reducing working capital, improving inventory turns, and optimizing receivables and payables, leading to strong free cash flow.\nFor the complete transcript of the earnings call, please refer to the full earnings call transcript.This article first appeared on \nGuruFocus.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481923939"}