Companies who count on General Motors (NYSE:GM), Ford (NYSE:F), and DaimlerChrysler (NYSE:DCX) for the majority of their business are bracing for a crash. Shiloh Industries (NASDAQ:SHLO), which makes steel blanks, body structures, and other steel body parts for the auto industry is no exception. The Big Three make up almost 60% of its sales, with 38% of all sales coming from GM alone.
Despite this dependence, and the auto industry's overall slowdown, Shiloh's performance is commendable. Management planned ahead and ratcheted down operating, administrative, and (perhaps most importantly) debt financing costs wherever possible. As a result, Shiloh's first-quarter 2005 earnings were a penny higher than last year's, despite a 7% sales decline. The company didn't provide a balance sheet and cash flow statement to back up its income-statement performance; on its conference call, Shiloh stated it will file its 10-Q by the end of the week.
I'm curious about those absent documents; yesterday, when I took a quick look at last quarter's 10-Q, the balance sheet was Shiloh's most revealing financial statement. The company has historically generated a decent amount of free cash flow, but with the Big Three ailing and only $130,000 in cash against $10 million in current debt and another $118 million in long-term debt, Shiloh is in a bit of a cash pinch.
Shiloh used to factor its receivables -- selling other companies the debts owed by its customers in exchange for immediate cash. The company has been phasing out this practice; in the short term, that explains the low cash balance in relation to debt, since Shiloh now needs its cash for the receivables portion of working capital. However, with the receivables now fully on Shiloh's books, the business' positive cash dynamics should begin to reappear.
Right now, Shiloh shares are 4% lower than where they started the day, trading at a P/E just below 8. Given the potential customer risk and balance-sheet health of Shiloh, the discount is fair. But if Shiloh's 10-Q shows balance-sheet and cash-flow improvements, the company may be worth a second look.
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Nathan Parmelee has no financial interest in any of the companies mentioned.
