Universal Power Reports Second Quarter 2012 Results

Published on 10 Aug 2012
UPG 

Universal Power Group, Inc. today announced financial results for the second quarter and six months ended June 30, 2012.

For the second quarter, UPG reported income from continuing operations of $406,000, or $0.08 per diluted share, on net sales of $23.6 million, compared with income from continuing operations of $189,000, or $0.04 per diluted share, on net sales of $21.6 million for the second quarter of 2011. UPG's Monarch Outdoor Adventures, LLC (Monarch) subsidiary was sold on May 4, 2012, and results from Monarch have been reported as discontinued operations. Including the results from Monarch, UPG reported a net loss of $97,000, or ($0.02) per diluted share compared with net income of $125,000, or $0.03 per diluted share, in the second quarter of 2011.

"Our results for the second quarter were affected by the loss incurred on the sale of our Monarch subsidiary, but we generated solid operating improvement in our results from continuing operations when compared to the prior year," stated Ian Edmonds, UPG's President and Chief Executive Officer. "Our results were also enhanced by improved performance of our supply chain, as increased deliveries from our Chinese suppliers enabled us to satisfy customer demand and rebuild inventories that had been depleted since the second quarter of 2011."

Second Quarter and Six Month Results

Net sales for the second quarter increased 9.3%, to $23.6 million from $21.6 million in the second quarter of 2011. The increase in net sales in the 2012 second quarter was primarily driven by an increase in sales of batteries and related power accessories, as well as growth from ProTechnologies, Inc. (PTI), which UPG acquired on April 20, 2011.

Gross profit decreased to $4.2 million in the quarter, compared with $4.4 million in the second quarter of 2011, due mainly to supply chain disruptions in China over the past year. As a percent of sales, gross margin decreased to 17.8% in the second quarter of 2012, from 20.2% in the prior year. Operating expenses decreased 10.1% to $3.5 million in the second quarter of 2012, from $3.9 million in the second quarter of 2011. The decrease in operating expenses included lower personnel costs, reduced professional fees, and decreased marketing, travel and facility expenses.

Primarily as a result of the lower operating expenses, operating income increased to $704,000 for the current quarter, compared with operating income of $485,000 in the second quarter of 2011. Interest expense was $153,000 in the second quarter, or flat when compared with the prior year. UPG generated pre-tax income from continuing operations of $551,000 compared to a pre-tax income from continuing operations of $335,000 in the prior year. UPG reported income from continuing operations of $406,000, or $0.08 per diluted share in the second quarter of 2012, compared to income from continuing operations of $189,000, or $0.04 per diluted share in the second quarter of 2011. Including discontinued operations, the Company reported a net loss of $97,000, or ($0.02) per diluted share, compared to net income of $125,000, or $0.03 per diluted share in the second quarter of 2011.

For the first six months of 2012, net sales grew 15.8%, to $49.9 million, from $43.1 million in the comparable period of 2011. The increase in net sales contributed to higher gross profit of $8.8 million compared to $8.7 million for the first six months of 2011. As a percent of sales, gross margin for the first six months of 2012 decreased to 17.7% of sales from 20.1% of sales for the comparable period of 2011. The increased cost of sales was the result of a number of factors, including the supply chain disruptions coming from China as well as higher material and labor costs from manufacturers. Total operating expenses increased $289,000, or 4.0%, to $7.6 million from $7.3 million in the prior year. Operating expenses for the first six months of 2012 included the expenses of PTI, which were not present for the entire period in 2011.

For the first six months of 2012, operating income decreased slightly to approximately $1.3 million compared to $1.4 million for the same period in 2011. Pre-tax income from continuing operations remained consistent at approximately $1.1 million compared to the same period in 2011. Interest expense for the first six months of 2012 was flat at approximately $300,000 compared to the same period in 2011. Income from continuing operations was $742,000, or $0.14 per diluted share, compared to income from continuing operations of $682,000, or $0.14 per diluted share, for the comparable period in 2011. Including discontinued operations, net income was $195,000, or $0.04 per diluted share, compared to net income of $528,000, or $0.11 per diluted share, for the comparable period in 2011.

Balance Sheet and Financial Position

At June 30, 2012, inventory was $38.8 million, up $14.6 million from $24.2 million at Dec. 31, 2011. The inventory balance at the end of 2011 was much lower than historical levels as a result of the supply chain issues in China. Compared to a year ago, inventory levels are up $9.4 million from $29.4 million at June 30, 2011. As manufacturing delays and delivery lead times associated with the Chinese supply chain issues improved during the second quarter, UPG was able to rebuild inventories to meet current business demand, including adequate safety stock.

Accounts receivable increased to $13.1 million, from $13.0 million at the end of 2011. Accounts payable increased by $6.3 million, to $13.2 million during the period. Total working capital increased to $20.4 million, from $19.9 million at the end of 2011. For the first six months of 2012, net cash used in operations was $7.8 million compared to $2.8 million provided by operating activities in the first six months of 2011. Operating cash flow for the first six months of 2012 reflects the increase in inventory, which was partially offset by a $6.3 million increase in accounts payable.

Edmonds concluded: "We endured some short-term pain with the sale of Monarch in the second quarter, but it is important to note that over the long term, the loss will be offset by improved results as we focus the resources formerly devoted to that subsidiary to our core businesses of batteries, related power accessories and third-party logistics. We also made considerable progress in rebuilding our inventories and meeting the demands of our customers as we worked to recover from the supply chain issues in China by utilizing our diversified supply base in Asia. However, the closure of so many factories in China continued to adversely affect our margins in the quarter as we saw higher product costs combined with the need to honor our pricing commitments to our customers. As we work through these issues, we expect to see improving trends in revenues and margins, as well as more historical levels of inventory and receivables in the future." 

 

ENF Profiles For Companies Mentioned in This Article

UPG (Solar Panels): http://www.enfsolar.com/directory/panel/6977
UPG (Solar Applications): http://www.enfsolar.com/directory/application/6977
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