CompX International Inc. CIX faced challenges in third-quarter 2024, contending with shifts in demand and rising costs across its primary segments. The company’s results reflected headwinds in the Security Products and Marine Components divisions, led by reduced government orders, a cooling recreational marine market, and escalating material and labor expenses.
Despite these pressures, CompX Internationalhas strengthened its liquidity, demonstrating its commitment to shareholder returns by continuing its stock repurchase program. However, as the company navigates a tough economic landscape, its ability to adapt to market changes and control costs will be the key to sustaining profitability.
Q3 Earnings & Revenue Performances
CompX International posted third-quarter 2024 earnings per share of 28 cents, which declined 39.6% from 47 cents in the year-ago quarter. The decline in earnings was mainly caused by lower sales volume and increased expenses.
Net sales for the quarter were $33.67 million, down 16.6% from $40.36 million in the prior-year quarter.
The quarterly results can be attributed to reduced demand within CompX International’s Security Products and Marine Components segments. Specifically, the Marine Components division experienced a 21% year-over-year drop in sales, whereas Security Products sales fell 15% due to decreased orders from the key government security and transportation sector clients.
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Segment Analysis
Security Products: The segment’s sales were $26.57 million in the third quarter of 2024, down 15% from $31.38 million in the prior-year quarter. Operating income was $4.55 million, representing a 30% year-over-year decrease.
The drop in sales and operating income within Security Products resulted from reduced sales to a government security customer related to a pilot project that drove significant sales in third-quarter 2023 but did not recur in 2024. Sales to the transportation market fell $1.4 million. Higher healthcare market demand partially offset these declines with a $1.2-million increase in sales.
Marine Components: The segment’s sales were $7.10 million, a 21% year-over-year decrease from $8.98 million. Operating income was $0.60 million, down 64% year over year.
The decline in Marine Components sales is attributed to lower demand in the recreational marine and industrial markets, particularly in the towboat segment. The contraction in demand within the towboat market continued from the previous quarters due to industry-wide challenges. Lower employee benefits due to headcount reductions slightly offset these losses, though overall operating income suffered as lower sales volumes were less effective in covering fixed expenses.
Profitability Metrics
The gross margin for the third quarter of 2024 decreased 3.2% to 28.1% from 31.3% in third-quarter 2023. This decline primarily resulted from lower sales volumes and increased material and labor expenses, impacting the cost of sales across the Security Products and Marine Components segments.
For the quarter under review, CompX International reported an operating income of $3.35 million, a 48.8% decrease from $6.55 million in third-quarter 2023. The decline reflects the impacts of lower sales volumes, and increased material and labor costs across the company’s two main segments.
CompX International’s net income for the quarter was $3.48 million, down 39.6% from $5.76 million in third-quarter 2023. The decrease in net income was attributed to the reduction in operating income and the impacts of higher operating costs and expenses as a percentage of sales. While interest income rose slightly due to higher rates and investment balances, it was insufficient to offset the overall decline in profitability.
As of Sept. 30, 2024, CompX International’s ROE declined due to lower net income and a reduced equity base. The company’s retained earnings fell 17.9% from $111.8 million in third-quarter 2023 to $91.8 million in the reported quarter as dividends and lower earnings impacted overall equity.
Cost Analysis
Cost of sales increased as a percentage of revenues, reaching 71.9% in the reported quarter compared with 68.7% in third-quarter 2023. This led the gross margin to fall from 31.3% in the prior-year quarter to 28.1% in the third quarter of 2024.
Operating costs were $6.12 million, up slightly from $6.07 million in the prior-year quarter, driven by increases in employee salaries and benefits.
Cash, Debt & Capital Expenditure
CompX International’s liquidity position improved in the quarter, with cash and cash equivalents rising to $58.79 million as of Sept. 30, 2024, from $41.39 million at the end of 2023.
The company allocated $1.2 million toward capital expenditure in the first nine months of 2024 to meet existing customer demand and maintain facility operations. There is an anticipated full-year capex target of $2.1 million.
Management Guidance
CompX International expects challenging conditions to persist in its key markets, specifically in the government security and recreational marine segments. Management expects the Security Products division to see recurring sales, though at lower levels, for the remainder of 2024. For Marine Components, the demand in the towboat market has been weak due to economic headwinds and higher interest rates affecting consumer spending in the recreational sector. Management continues to align resources and inventory levels to better match the current demand trends.
Other Developments
CompX International declared a special dividend of $2 per share in August 2024, distributing $24.6 million in cash to shareholders. The company continues to evaluate inventory adjustments and cost-saving initiatives, especially within Marine Components, to better align with demand fluctuations. The stock repurchase program has been active, with 523,647 shares available for repurchase as of Sept. 30, 2024.
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