Douglas Dynamics (PLOW 0.40%) has done a lot of work to go beyond its historical reliance on equipment that helps its customers fight against winter snow and ice. Yet even with the moves it has made to diversify, Douglas can still benefit when winter weather convinces buyers that they need the work truck attachments it can provide for them.
Coming into Monday's first-quarter financial report, Douglas Dynamics investors wanted to see sales growth along with signs that the company could get a little closer to breaking even during a typically slow season. Douglas' results were better than many had thought likely, and the maker of snow- and ice-fighting equipment has even higher hopes for the future.
Image source: Douglas Dynamics.
How Douglas Dynamics benefited from late spring
Douglas Dynamics' first-quarter results showed the impact of favorable weather conditions on its business. Revenue was higher by 16% to $84 million, tripling the growth rate that most of those following the stock were expecting to see. Douglas lost money, but its adjusted net loss was just $700,000, or $0.03 per share. That's a lot less red ink than the $0.12 per share consensus loss forecast.
Looking at Douglas Dynamics' two segments, the work truck solutions business had far better sales growth, with the segment's top line climbing by more than 30% compared to year-ago levels. Income from operations rose 75% to $1.4 million, as Douglas cited rising demand and the addition of four new facilities to the segment over the past year.
In the work truck attachments business, growth rates on the top line were slower, with segment revenue rising just 9% compared to the first quarter of 2017. But operating income more than doubled, to $4.1 million. The company pointed to increased snowfall across Douglas' core markets, and light pickup truck sales were also persistently strong. Douglas is still battling availability issues for chassis equipment on municipal products, but sales of parts, accessories, and commercial snow and ice control products all picked up the slack and helped keep the division on a solid footing.
CEO James Janik expressed his pleasure about the results. "Our performance this quarter highlights the overall strength and diversity of our business," Janik said. "While snowfall was inconsistent during the first quarter, late season storms meant we matched the 10-year average snowfall totals for the winter as a whole." The CEO also noted that the company is working through its chassis issues reasonably well.
Can Douglas Dynamics keep bouncing back?
Douglas Dynamics thinks it could keep building momentum through the rest of the year. Janik noted that a cold end to winter could bode well for the preseason sales period for next winter's equipment, which begins soon. At the same time, favorable conditions in the solutions segment should continue for the foreseeable future, helping support strong growth on that side of the business.
However, Douglas didn't make any major changes to its guidance for the year. The work truck specialist still believes 2018 sales will come in between $475 million and $535 million. Adjusted earnings for the full year should end up in a range of $1.60 to $2.20 per share. Those figures are solid, but some would have hoped that the company would boost its guidance given the good performance it had to start the year.
Inventory levels at the company will also require diligence to keep under control. On the balance sheet, inventory jumped by more than 30% in the past three months, and that now represents about 60% of Douglas' total assets. That's not uncommon coming out of the winter season, but investors will want to keep their eyes open to ensure the situation doesn't end badly.
Douglas Dynamics investors seemed pleased with the results, and the stock jumped 4% in after-hours trading following the announcement. With a good finish to the winter after disappointments in past years, shareholders hope Douglas will build momentum that will bring even better growth in the remainder of the year.
