CompX International Inc. (NYSE: CIX) is a leading manufacturer of engineered components utilized in a variety of applications and industries. The company operates through two segments: Security Products and Marine Components.
Financials
In the fiscal year 2023, CompX reported annual net income of $22,593,000 and annual revenue of $161,287,000. The company's annual operating cash flow was $25,811,000, and its annual free cash flow was $24,681,000.
For the first quarter of 2024, CompX reported net sales of $37,971,000, a decrease from $41,151,000 in the same period of 2023. Net income for the quarter was $3,754,000, down from $6,068,000 in the first quarter of 2023. Operating income decreased to $3,715,000 in the first quarter of 2024, compared to $7,040,000 in the same period of the prior year.
Business Overview
The decrease in operating income in the first quarter of 2024 was primarily due to lower sales and gross margin in the Marine Components segment, which offset higher sales in the Security Products segment. Marine Components net sales decreased 41% in the first quarter of 2024 compared to the same period in 2023, primarily due to a decline in sales to the towboat market. Gross margin as a percentage of net sales also decreased in the Marine Components segment, primarily due to higher cost inventory produced during the fourth quarter of 2023 and sold in the first quarter of 2024.
In contrast, Security Products net sales increased 9% in the first quarter of 2024 compared to the same period in 2023, driven by higher sales to the government security market. However, gross margin as a percentage of net sales decreased for the Security Products segment due to a less favorable customer and product mix, as well as increased operating costs and expenses, including higher employee salaries and benefits.
Outlook
Looking ahead, CompX expects Security Products sales in 2024 to be lower than 2023 as the sluggishness experienced across a variety of the markets the segment serves has continued through the first quarter of 2024. The company does not expect 2024 sales to benefit from the pilot project to a government security customer that was largely completed in the fourth quarter of 2023.
For the Marine Components segment, CompX expects net sales for the full year of 2024 to be lower compared to 2023 as the company believes demand in the towboat market will further decline. The recreational marine industry is facing strong headwinds due to higher interest rates and broader market weakness, with several original equipment boat manufacturers, including certain of CompX's customers, announcing reduced production schedules for 2024.
Overall, CompX's gross margin as a percentage of net sales for 2024 is expected to be lower than 2023 due to the factors impacting both the Security Products and Marine Components segments. Operating income as a percentage of net sales is also expected to decline, primarily due to the reduced coverage of selling, general, and administrative expenses resulting from lower expected sales.
The company ended 2023 with elevated inventory balances in the Marine Components segment, but made significant progress in aligning these inventory levels with current demand in the first quarter of 2024. CompX expects this inventory alignment to be complete by mid-year 2024.
Liquidity
Financially, CompX remains in a strong position, with $75.6 million in aggregate cash, cash equivalents, and marketable securities as of March 31, 2024. The company's primary source of liquidity is its cash flow from operating activities, which is generally used to fund capital expenditures, pay dividends, and provide for other corporate needs. CompX believes that its cash generated from operations, along with its ability to obtain external financing, will be sufficient to meet its liquidity needs for the foreseeable future.
In terms of capital allocation, CompX's board of directors recently increased the company's regular quarterly dividend from $0.25 per share to $0.30 per share, beginning in the first quarter of 2024. The declaration and payment of future dividends, however, remain discretionary and dependent on the company's results of operations, financial condition, and other factors.
Conclusion
Overall, CompX faces challenges in both its Security Products and Marine Components segments, with the Marine Components segment experiencing a more significant decline in sales and profitability. The company is focused on aligning its resources with current demand levels and preserving its ability to respond quickly when market conditions improve. While the near-term outlook is cautious, CompX's strong financial position and diversified business model provide a solid foundation for navigating the current environment.