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Douglas Dynamics Gets Balance From Business Diversity

By Dan Caplinger – Aug 8, 2017 at 1:30AM

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The addition of the work truck solutions segment helped offset unfavorable seasonality in its snowplow business.

Seasonal businesses have to endure down periods, and for Douglas Dynamics (PLOW -0.10%), specializing in snowplows and other ice removal equipment used to mean that summers were tough periods for the company. In response, Douglas Dynamics made a strategic move to add a less winter-driven business to its overall operations in the hopes that it would bring valuable revenue even during a typical downtime for its legacy snow removal business.

Coming into Monday's second-quarter financial report, Douglas Dynamics investors were prepared for declines in earnings, but they still wanted to see sales improve from the new work truck solutions segment. Douglas Dynamics largely delivered on that promise, with better sales growth and less extreme bottom-line declines than investors had expected. Let's look more closely at Douglas Dynamics and what its latest results say about the progress it has made.

Pick-up truck with a snow plow attachment on it.

Image source: Douglas Dynamics.

Douglas Dynamics enjoys the summer

Douglas Dynamics' second-quarter results showed just how much difference having a less seasonally concentrated business can have. Revenue was up 22% to $139.4 million, which was stronger than the 16% rise that most investors had expected to see. The company also posted net income of $14.8 million, and although that was down 9% from the year-earlier quarter, the resulting earnings of $0.64 per share were a lot better than the consensus forecast among those following the stock for $0.53 per share.

Taking a closer look at the results, you can still see the negative impact of the company's seasonal winter business. The work truck attachments division, which includes snow plows and ice removal equipment, took a 7% hit to its top line. Overhead expenses climbed slightly for the division, and that sent operating income for the segment down a steeper 17% from year-ago levels. However, the work truck solutions units contributed another $34.9 million in sales, and its operating income of $2.54 million, was helpful in keeping the damage to Douglas Dynamics' earnings as small as possible.

Margin figures continued to be a challenge for Douglas Dynamics. Gross margin fell by more than 4 percentage points to 32.3%. Some of that is due to the lower-margin work truck solutions business, but the company also said that commodity pricing was less favorable than it was in the previous period, which led to higher costs and lower margin.

CEO James Janik was generally upbeat about the company's performance. "We are pleased with the overall direction of our business," Janik said, "and we are seeing a more balanced performance across our more diverse business offering." The CEO also pointed to the integration of the work truck solutions business in helping to boost overall growth going forward.

What's next for Douglas Dynamics?

Douglas Dynamics thinks that some favorable signs have appeared. As Janik explained, the company has seen "slightly better than expected preseason performance for our commercial snow and ice products, which is pleasing given the below average snowfall over the last two years." Weaker performance from its Henderson unit was expected given delays in getting chassis for its trucks, and Douglas Dynamics sees demand picking up for the work truck solutions market going forward.

Revisions to Douglas Dynamics' outlook were somewhat mixed, however. The company narrowed its previous guidance for full-year sales to the lower end of its earlier range, cutting the upper bound by $10 million and setting a new target for between $470 million and $520 million in revenue. Earnings were narrowed with a slight bias toward the upper portion of the range, and Douglas Dynamics now expected earnings of between $1.30 and $1.75 per share.

Douglas Dynamics investors didn't respond dramatically to the news, and the stock remained unchanged in after-hours trading following the announcement. Even though the company doesn't solely rely on winter-related activity for its sales and profits, Douglas Dynamics shareholders nevertheless will be looking forward to seeing whether a return to more typical winter weather will finally bring back strength from that portion of the company's overall business.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Douglas Dynamics. The Motley Fool has a disclosure policy.

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