Conrad Industries 2019 Results and Enterprise Valuation

At $8 per share, the market capitalization of Conrad Industries (see) is now only $40 million. They have $96 million of current assets and $41 million in total liabilities, for net current assets of $55 million. Shares are now at three-quarters of net current asset value. Book value of the shipyards is a further $57 million, so the shares are trading at 35% of book.

When we first wrote about Conrad in 2011, it was trading at $10 with net current assets per share of $7; not an NCAV discount. It was trading at 80% of book value then.

The big difference between 2011 and now is that it has almost $10 million of net income then. Now, Conrad's business is experiencing a bust. They had basically breakeven net income in 2018 and 2019.

Conrad's spending on capex has been much smaller than depreciation the past few years. Their EBITDA was $8 million each of the past two years and their EBITDA minus capex ("free cash flow") was around $6 million.

When a company is trading below net current assets, its enterprise valuation is arguably zero or negative.

However, if you assume that they need to maintain a current ratio of 2.0 (that is, you couldn't just dividend out all the cash because it is needed as working capital), that would make the enterprise value $15 million.

That would mean that the EV/EBITDA is about 2x. I'm not forecasting that Conrad's business is going to turn around soon, but we have a company at a NCAV discount and a very low EV/EBITDA multiple.

Big Loss on Conrad Industries' LNG Barge Project

The LNG barge which we've mentioned previously. The first time doing it, and it has not gone well so far.

Gross profit for the third quarter of 2016 decreased $6.9 million, or 213.2%, and decreased $9.5 million, or 73.6%, for the first nine months of 2016 compared to the same periods of the prior year. Vessel construction gross profit decreased $7.7 million or 227.9%, to $-4.3 million for the third quarter of 2016 compared to $3.4 million for the third quarter of 2015, while vessel construction gross profit decreased $12.4 million or 95.2%, to $633,000 for the first nine months of 2016 compared to $13.1 million for the same period in 2015. Vessel construction gross profit for nine months ended September 30, 2016 reflects a $12.5 million loss on the LNG barge of which we recognized an $8.0 million loss in the third quarter and a $4.5 million loss in the second quarter. We recognized a $4.0 million loss on the LNG barge for the year ended December 31, 2015. The total LNG barge job-to-date loss is $16.5 million. The losses on the LNG barge primarily relate to vessel changes required by regulatory authorities, which increased costs and caused delays, and higher than expected equipment costs, resulting from the vessel being the first of its kind produced in North America. After discussions with our customer, we have adjusted our anticipated delivery date to the second quarter of 2017, and our revised contract terms are reflected in our projected loss on the project. While most of the regulatory review process has been completed, we continue to have regulatory and execution risk associated with completing the vessel.

There are 5.1 million shares outstanding, so the LNG barge has cost them $3 per share - ouch. Another way to look at it - they could've spent that money buying back ~15% of the outstanding stock.

Remains to be seen whether they've just paid tuition for something that could be profitable in the future. However, I would not have suspected that the potential downside on the project would be 15% of market cap.

Also, there were significant capital expenditures ($27 million in 2015) to pave the way for projects like the LNG barge.

Trinity Industries Reported Much Lower Tank Barge Construction

In its Q2 results:

Revenues decreased for the three and six months ended June 30, 2016 by 37.0% and 32.8%, respectively, compared to the same periods in 2015 primarily from lower volumes of tank barge shipments. Cost of revenues decreased by 29.6% and 26.3% for the three and six months ended June 30, 2016, respectively, when compared to the same periods in 2015 due to lower volumes and product mix changes. Selling, engineering, and administrative costs decreased for the three and six months ended June 30, 2016 compared to the same periods in 2015, primarily due to lower compensation costs.

As of June 30, 2016, the backlog for the Inland Barge Group was $251.0 million compared to $454.0 million as of June 30, 2015.

Conrad Industries Q2 Results

Summary:

For the quarter ended June 30, 2016, Conrad had net income of $1.3 million and earnings per diluted share of $0.25 compared to net income of $1.2 million and earnings per diluted share of $.21 during the second quarter of 2015. The Company had net income of $3.9 million and earnings per diluted share of $0.74 for the six months ended June 30, 2016 compared to net income of $5.2 million and earnings per diluted share of $.89 for the six months ended June 30, 2015. Results for the three and six months ended June 30, 2016 included research and development tax credits of $0.6 million and $1.2 million, respectively. Conrad's backlog was $248.7 million at June 30, 2016, $211.8 million at December 31, 2015 and $131.7 million at June 30, 2015.

The market capitalization is currently $125 million, which is about exactly 1x book value. The enterprise value is $95 million.

The current backlog is a record high! It includes "an ocean going tank barge, four twin screw tugs, two ATB tugs, four spud barges and a LPG barge".

Regarding the LNG barge, which is a new type of project for them:

Vessel construction gross profit in the 2016 periods reflects a $4.5 million loss recorded in the second quarter on the LNG barge. The losses on the LNG barge primarily relate to vessel changes required by regulatory authorities, which increased costs and caused delays, and higher than expected equipment costs, resulting from the vessel being the first of its kind produced in North America. While most of the regulatory review process has been completed, we continue to have regulatory and execution risk associated with completing the vessel and are in discussions regarding potential late delivery charges. The barge is scheduled for delivery during the first half of 2017.

Results are stronger than I would've thought. Nice to see a company that has no interest expense and no long term debt.

Share repurchases YTD:

During the first quarter of 2016, we purchased 181,075 shares at an average price of $19 per share. During the second quarter of 2016, we purchased 12,955 shares at an average price of $21 per share.

Conrad Q1 2016 Results $CNRD

Book value is $123mm. Market cap is down to $111mm (0.90x).

They're still profitable - quarterly EBITDA was $5mm so $20mm annualized.

Enterprise value is $100mm or so - 5x current annualized EBITDA. (Remember in 2013, EBITDA was $49mm!)

They bought back $3.4mm of stock in Q1 at an average price of $19.

Highlights from management:

*During the first three months of 2016, we added $11.9 million of backlog, as compared to $52.5 million added in the first three months of 2015, which includes a 30,000 BBL tank barge and a LPG barge. Our backlog was $189.9 million at March 31, 2016, $211.8 million at December 31, 2015 and $171.9 million at March 31, 2015.

*In response to market conditions, we have been providing more favorable payment terms to certain new construction customers, which decreases our cash balances and increases our costs and estimated earnings in excess of billings on uncompleted contracts, and this trend may continue during 2016

Conrad Industries Falls 19% On Bad Earnings

The market capitalization is down to $134 million. Book value at the end of Q2 was $130 million.

Net net current assets are $64 million. That would be $11 per share.

Big Drop in Conrad Industries Income $CNRD

For the quarter ended June 30, 2015, Conrad had net income of $1.2 million and earnings per diluted share of $0.21 compared to net income of $6.8 million and earnings per diluted share of $1.14 during the second quarter of 2014. The Company had net income of $5.2 million and earnings per diluted share of $0.89 for the six months ended June 30, 2015 compared to net income of $13.2 million and earnings per diluted share of $2.21 for the six months ended June 30, 2014. Results for the three and six months ended June 30, 2015 included research and development tax credits of $0.8 million and $1.7 million, respectively.

Conrad’s backlog was $131.7 million at June 30, 2015, $180.2 million at December 31, 2014 and $173.0 million at June 30, 2014.

Johnny Conrad, President and CEO, stated, “While we remain optimistic about the long-term prospects for our business, we continue to experience near term challenges. We have experienced a decline in demand for inland tank barges primarily used to transport petroleum products produced from shale plays, and also a delay by our customers in placing orders for the larger projects that we expected to convert to backlog. Although bid activity has been good and we are pursuing various opportunities, we have not signed contracts as anticipated which is leading to gaps in our production schedules. The decline in demand and underperformance on some of our newer jobs have resulted in a decline in revenue, margins and profits.”

Conrad continued, “Additionally, we have experienced a softer repair market, which we believe is due primarily to the decline in crude oil prices. These factors negatively impacted our results for the first six months of 2015, and we currently expect these factors to negatively impact our financial performance during 2015, compared to 2014, and possibly through the first six months of 2016. We plan to continue to be responsive to changing market conditions and look for ways to continue to enhance shareholder value.”

Conrad Industries, Inc. announced today that its Board of Directors has declared a quarterly dividend of $0.25 per share of common stock. The dividend is payable on September 17, 2015 to shareholders of record on August 27, 2015.

First half net income was down 61% versus 2014, but quarterly income was down 82% over the previous year's quarter, so the deterioration got worse. Also, backlog is down 24% year over year.

Our previous Conrad posts. I have to say I called this. Last October, the price was $36 and I pointed out the offshore drilling crash would hit Conrad's repair business. And in March 2014, I said, "always remembering that in general you want to sell cyclical stocks at cyclical peaks when P/Es will be low."

They did do the first big share repurchase in a long time: "during the second quarter of 2015, we purchased 121,155 shares at an average price of $31 per share." Pretty funny; you couldn't get them to buy back shares when they were half this level.

Conrad Industries, And a Shipyard As a "Toll Booth"

I wrote a post on Conrad Industries almost three years ago called Decomposing Conrad's Return on Equity. The share price was about $12 (!) when I wrote the post, so I think both the pick and the analysis in the post were solid.

Looking back on it, I have some further thoughts on the Conrad business model and how they are able to earn money. One thing I wanted to add regarding the Conrad repair business, which has been very cyclical; not only revenue cycles but cyclicality of profit margin as well.

Any marine vessel needs constant repair over its lifetime. Saltwater and steel have a very uneasy peace. Actually, saltwater inevitably wins given enough time.

That means boats need regular maintenance. A key concept is the "survey" - ships are periodically examined, problems and corrosion are found, repairs are needed.

A shipyard is a "toll booth" on marine activity. Every second in saltwater and every turn of the screws accumulates damage to the vessel that the shipyard industry will need to fix if the beneficial uses of vessels are to continue.

There will be revenue, but will there be profit? And how much, and by whom will it be earned?

Now imagine you own a working vessel in the Gulf of Mexico. Maybe an offshore supply vessel. When you need repair, you look at the list of Gulf coast shipyards, of which there are a finite number. Only some of them will specialize in your type of vessel and work, only some of them will be available at the time you need service, etc.

The shipyards are also spread across the Gulf coast, some closer to where your vessel is (and will need to be) than others. You will also undoubtedly perceive a quality tradeoff: how long will it take a given yard to complete the work, and with what likelihood that it will fail or need to be repeated?

Thus, shipyard repair work is not a commodity like bushels of corn. There are tradeoffs between distance (which means time, which means money) and cost of work, and quality (which means time, which means money) and cost of work.

When the vessel market is tight and your ship rents for $50,000 per day, you're going to be less price sensitive regarding repair work. That's good for Conrad margins. Lots of work and lots of price-insensitive customers. No wonder that when their repair segment is good, it's really good.

We also know that when repair work is weak, Conrad's repair segment is really weak. Think of a soft vessel market. (Like right now in 2015, unfortunately, because of oil prices.) You forgo less revenue by moving your ship around for cheaper repairs. Also, with ships sitting idle you have some options to postpone maintenance. You have alternatives (which help your repair negotiating position), and you need to tighten your belt because of the soft market.

Think of all the whipsaws in the energy business since 2007. There have been three busts actually! In 2009, in 2010 (post-spill) and now! It actually speaks highly of them that they have been continuously profitable and have continuously built shareholder value over that time period.

However, it is hard to get a clear picture of Conrad's sustainable earning power. What if the tank barges never come back and GoM oil exploration is underwhelming since it's higher cost than the onshore shale basins? Seems like revenue and profit could fall quite a bit.

If you recall, the board was planning to spend a hefty $27 million on capital expenditure in 2015, and also to build larger ships like an LNG bunker barge. Rising capex and more difficulty getting business would explain why the all time high for the stock was more than a year ago.

Conrad Repurchased 100,000 Shares in 2014

"During the first quarter of 2012, we purchased 59,881 shares at an average price of $15 per share. During the third quarter of 2012, we purchased 150,000 shares at an average price of $15 per share. During February 2013, the board approved an increase in the stock repurchase program of $10 million. No shares were purchased under the program in 2013. In November 2014, we purchased 100,000 shares at an average price of $32 per share. On December 11, 2014, the board approved an increase in the stock repurchase program of $20 million."

Conrad Industries Announces 2014 Results and Backlog $CNRD

The 2014 results and backlog:

For the quarter ended December 31, 2014, Conrad had net income of $5.2 million and earnings per diluted share of $0.88 compared to net income of $10.1 million and earnings per diluted share of $1.70 during the fourth quarter of 2013. The Company had net income of $22.8 million and earnings per diluted share of $3.84 for the twelve months ended December 31, 2014 compared to net income of $28.6 million and earnings per diluted share of $4.80 for the twelve months ended December 31, 2013. [earnings down 20% from 2013 to 2014!]

Conrad’s backlog was $180.2 million at December 31, 2014, compared to $152.9 million at December 31, 2013.

Johnny Conrad, President and CEO stated, “While our net income was lower in 2014 compared 2013, we achieved the highest gross profit in our Company’s history in the vessel construction segment. The decline in earnings was attributable to our repair and conversion segment, in which gross profit decreased $11.8 million or 65.6%, compared to 2013. This decrease was primarily due to a significant loss on a large conversion job, and a decrease in demand and customer activity, which we believe is due to the decline in crude oil prices; additionally in the second half 2013, we had a large job which added significantly to repair and conversion gross profit.

As of December 31, 2014, we had cash of $68.6 million and no long-term debt. [The market cap is $182 million, enterprise value is now about $110 million.] During the past five years, we have made approximately $44.8 million of capital expenditures to add capacity and improve the efficiency of our shipyards. Our Board has approved a $27.3 million capital expenditure program for 2015, which includes $16.7 million for the continued development of the Conrad Deepwater South yard. The additional improvements at Deepwater South will continue to enhance our ability to build larger vessels, and we believe these investments in our business will improve our efficiencies and competitiveness.”

Mr. Conrad continued, “Throughout the years, we have used our cash generated from operations to make investments in our business to continue to diversify our product mix, take advantage of business opportunities and improve efficiencies. We believe these investments have allowed us to remain competitive, meet changing customer needs and navigate effectively through business cycles. Additionally, we have returned cash to our shareholders through our stock repurchase program and special dividends in each of the past three years, and in 2015, we initiated a quarterly dividend.”

Mr. Conrad also stated, “We have been actively pursuing increased opportunities to produce different types of vessels for new markets, and are encouraged by our recent success in obtaining the contract to construct the LNG bunker barge. Some of these vessels, including the LNG bunker barge, are larger, take longer to start production, and take longer to complete than vessels we have constructed in the past. While we remain optimistic about the long-term prospects for our business, we must also take note of near-term risks. We have experienced a decline in demand for inland tank barges primarily used to transport petroleum products produced from shale plays, delays on orders for larger projects, and a soft repair market, which we believe is due primarily to the decline in crude oil prices. We currently expect these factors to negatively impact our financial performance during 2015, compared to 2014.

We have met these types of challenges in the past, and we continue to be confident that because of our record of success, talented and dedicated employees, strong balance sheet, and diversified customer base, we will continue to be responsive to changing market conditions, with our goal remaining to continue to enhance shareholder value.”

They announced the signing of an LNG bunker barge contract:

Conrad Industries, Inc. announced today that its subsidiary Conrad Orange Shipyard, Inc. has entered into a contract to construct the first LNG bunker barge to be built for the marine market in North America. The contract signing was hosted at the residence of the French Consulate General Sujiro Seam in Houston, TX.

Conrad’s customer, WesPac Midstream, and its affiliate Clean Marine Energy, will deploy the barge in Tacoma, WA to service ship owner TOTE and its “Orca Class” vessels, then subsequently relocate the vessel to Jacksonville, FL to service the TOTE new build “Marlin Class” vessels as well as other LNG powered vessels in the Port of Jacksonville.

The vessel will be constructed at Conrad Orange Shipyard in Orange, TX. It will be outfitted with French engineering and technology company Gaztransport & Technigaz (GTT) Mark III Flex cargo containment system, which will also be built by Conrad under a license from GTT. The barge delivery is scheduled for early 2016.

This barge is not exactly what you think. Bunkering is the provision of fuel to a ship.

So, with the enterprise value of ~$110 million, you are paying about 5x last year's earnings. Spending $27 million on capex in 2015 is pretty shocking, though. Sounds like it may be necessary to "pivot" into an entirely new business of much larger, riskier ships.

"Conrad Industries Announces Special Dividend and Institutes Quarterly Dividend, Reports on New Business" $CNRD

Conrad Industries, Inc. (CNRD) announced today that its Board of Directors has declared a special cash dividend of $1.00 per share of common stock. The special cash dividend is payable on January 5, 2015 to shareholders of record on December 23, 2014.

Additionally, the Board plans to initiate a quarterly dividend of $0.25 per share during the first quarter of 2015. Declaration of the dividend is at the discretion of the Board each quarter, and will depend upon the Company's financial performance, cash requirements, outlook and other factors deemed relevant by the Board.

The Company also announced today the signing of contracts and sale of stock barges, bringing current backlog to approximately $170.0 million, compared $135.0 million at September 30, 2014 and $152.9 million at December 31, 2013.

Barges sold and new contracts include four 297'6"x 54'x 12' 30,000 bbl. tank barges, two 361'x 62'x 24' 55,000 bbl tank barges, two 300'x 62'x 18'5" 35,000 bbl. tank barges, and a 235'x 64'x 18'6" ferry.

The Board approved approximately $27.3 million in capital expenditures for 2015, which includes $16.7 million for continued development of the Conrad Deepwater South yard. The additional improvements at Deepwater South will continue to enhance the Company's ability to build larger vessels.

The Company also announced that its Board has increased the Company's stock repurchase program to $20.0 million. The Company plans to use cash on hand or generated from operations to purchase the stock. Acquisitions may be made from time to time in the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. The timing, prices and sizes of purchases will depend upon prevailing stock prices, general economic and market conditions and other factors as management deems appropriate. The program does not obligate the Company to acquire any particular amount of common stock, and may be commenced, suspended or discontinued at any time or from time to time in the Company's discretion without prior notice.

Johnny Conrad, Chairman and CEO commented, "Our announcements today reflect our financial strength and our Board's optimism about the long-term prospects of our business. Our actions also reflect management's ongoing planning process aimed at taking advantage of our recent achievements and accumulated substantial cash balances for the benefit of our shareholders.

Throughout the years, we have used our cash and debt to make investments in our business to continue to diversify our product mix, take advantage of business opportunities and improve efficiencies. We believe these investments have allowed us to remain competitive, meet changing customer needs and navigate effectively through business cycles. Additionally, we have returned cash to our shareholders through our stock repurchase program and special dividends in each of the past two years."

Mr. Conrad continued, "We must also take note of near-term risks to our business. We have experienced a decline in demand for inland tank barges primarily used to transport petroleum products produced from shale plays, and a softer repair market. Current declining oil prices may adversely impact our business, particularly in our repair segment. We have been actively pursuing increased opportunities to produce different types of vessels for new markets. Some of these vessels would be larger, take longer to start production, and take longer to complete than vessels we have constructed in the past, and some may require additional capital expenditures. We currently expect these factors to negatively impact our financial performance for the fourth quarter of 2014 and first two quarters of 2015, compared to prior periods. We have met these types of challenges in the past, and our record of success and talented and dedicated employees give us confidence that our business will continue to grow and prosper."

So, the dividend yield going forward will be around 3 percent, assuming that the only dividends going forward are the quarterly dividends.

More importantly, they are giving "guidance" for weak results related to the oil crash (the key cyclical driver of their profits).

Conrad Announces Third Quarter 2014 Results and Backlog $CNRD

Conrad announced third quarter results:

"For the quarter ended September 30, 2014, Conrad had net income of $4.5 million and earnings per diluted share of $0.74 compared to net income of $6.5 million [down 30%] and earnings per diluted share of $1.09 during the third quarter of 2013. The Company had net income of $17.7 million and earnings per diluted share of $2.96 for the nine months ended September 30, 2014 compared to net income of $18.5 million [down 4.4%] and earnings per diluted share of $3.10 for the nine months ended September 30, 2013.

During the first nine months of 2014, Conrad added $175.5 million of backlog to its new construction segment compared to $185.6 million added to backlog during the first nine months of 2013. Backlog at September 30, 2014 was $135.0 million compared to $152.3 million at September 30, 2013 [down 12%], $152.9 million at December 31, 2013, and $173.0 million at June 30, 2014."

Wow, the third quarter earnings really declined. Glad we sold this. Here's comments on the demand trends that they are seeing:

"Although we are optimistic about the long-term prospects of our business, we also take note of near-term risks. Current declining oil prices and a decrease in demand for tank barges used to transport petroleum products produced from shale plays lead to some uncertainty about our shorter-term demand and margins. Although bid activity has been good and we are pursuing many opportunities, we have not signed contracts as anticipated which is leading to gaps in our production schedules."

And more details on what caused the weakness this recent quarter:

Revenue for the third quarter of 2014 decreased $3.9 million, or -4.7%, to $78.9 million compared to $82.8 million for the third quarter of 2013, while revenue for the first nine months of 2014 reflected an increase of $23.5 million, or 10.9%, compared to the same period in 2013. Vessel construction revenue increased $3.2 million or 5.4% for the third quarter of 2014, and increased by $25.3 million, or 15.5% for first nine months of 2014 compared to the same period in 2013. Repair and conversion revenue decreased $7.1 million for the third quarter of 2014, or -30.0%, compared to the same period in 2013, while repair and conversion revenue decreased $1.8 million, or -3.5%, for the first nine months of 2014 compared to the same period in 2013.

Gross profit for the third quarter of 2014 decreased $2.6 million, or -22.6%, and increased $611,000, or 1.9%, for the first nine months of 2014 compared to the same periods of the prior year. Vessel construction gross profit increased $2.4 million for the third quarter of 2014 compared to the third quarter of 2013, while vessel construction gross profit increased $6.1 million or 27.9%, for the first nine months of 2014 compared to the same period in 2013.

Repair and conversion gross profit decreased $5.0 million or -114.5% for the third quarter of 2014 compared to the third quarter of 2013, while repair and conversion gross profit decreased $5.5 million or -54.7%, for the first nine months of 2014 compared to the same period in 2013.

Vessel construction gross profit margins increased to 15.5% for the quarter, compared to 12.3% for the prior year quarter, primarily due to the mix of jobs. Vessel construction gross profit margins increased to 14.9% for the first nine months of 2014, compared to gross profit margins of 13.4% for the same period in 2013.

Repair and conversion gross profit margins decreased to -3.9% for the quarter, compared to 18.7% for the prior year quarter. Repair and conversion gross profit margins decreased to 9.0% for the first nine months of 2014, compared to gross profit margins of 19.1% the same period in 2013. Repair and conversion gross profit decreased for the three and nine month periods primarily as a result of less volume, a loss job being performed during 2014, and a profitable job in the second half of 2013.

Offshore Drilling Crash?

Check out this chart from StockCharts.com for SDRL

What an ugly chart!

SeaDrill is just an example; an offshore drilling services provider with 15 semi-submersible rigs, 7 drillships, 20 jack-up rigs, 3 tender rigs, and 24 units under construction. Here is one perspective on what's happening in offshore drilling:

"[T]he industry is suffering from falling oil demand and the sudden influx of new vessels is increasing capacity beyond optimal levels, leading to overcapacity. The vessel influx happened because orders for vessels were placed during the industry boom, but are being delivered now.

There are still pending orders for new ultra-deepwater rigs, equal to half of the quantity of the existing fleet. Analysts estimate that a third of these new rigs will be delivered over the next three to four years, and they will not have orders for oil drilling.

In addition to these factors, rig rates have also fallen substantially in the last 18 months, because oil and gas companies are cutting capital expenditures and are increasing cash reserves to pay higher dividends."

One thing noteworthy is that Conrad's prospects are closely tied to offshore oil and gas. So far, there has been no big decline in Conrad, but in May it broke decisively below its longstanding ascending trendline and below its 50-day moving average. In August, it fell below the 200-day moving average and the 50-day crossed below the 200. I've closed out of Conrad - I hope it goes back to the $20s.

Also, these company managements can't seem to stop themselves from being procyclical and making bad bets. Same thing that happened with Walter.

"Conrad Announces Second Quarter 2014 Results and Backlog" $CNRD

Press release:

"For the quarter ended June 30, 2014, Conrad had net income of $6.8 million and earnings per diluted share of $1.14 compared to net income of $6.1 million and earnings per diluted share of $1.02 during the second quarter of 2013. The Company had net income of $13.2 million and earnings per diluted share of $2.21 for the six months ended June 30, 2014 compared to net income of $12.0 million and earnings per diluted share of $2.01 for the six months ended June 30, 2013. Conrad’s backlog was $173.0 million at June 30, 2014, $152.9 million at December 31, 2013 and $181.8 million at June 30, 2013."

Net income up 11% quarter over quarter, 10% 1H over 1H. Backlog is down year-over-year.

The Q2 is out [pdf]. At $40, the market cap is $240 million and the enterprise value is maybe $190 million, assuming $50 million in excess cash.

They are now getting 40% of revenue from offshore oil and gas.

No shares repurchased in 2013 or 2014.

Still a great business, but both management and I seem to think that the stock is about fairly priced now.

Conrad Trendline Break - Reduced Position

Conrad Industries Announces First Quarter 2014 Results $CNRD

Results for first quarter 2014:

• First quarter revenue up 19% year over year. SG&A only up 11%. Net income up 9%.
• Quarterly EPS was $1.08 - company is trading at ~9.5x Q1 annualized earnings.
• Still no share buybacks.
• Ship construction revenue up 20%, repair and conversions up 14%. Vessel gross profit margin was 16% compared to 14%; repair margin fell significantly to 13% from 23%. "The decrease in repair and conversion gross profit and margins was primarily attributable to some low margin jobs performed in the first quarter of 2014."
• Payments of BP claims are still stayed. 
• Board has approved an increase in our capital expenditure budget for 2014 for additional improvements to our Conrad Deepwater South yard, resulting in a total capital expenditure budget for 2014 of approximately $12.8 million.
• During the first three months of 2014, we added $59.3 million of backlog to our new construction segment, as compared to $51.4 million added in the first quarter of 2013
• EBITDA was $11.15 million for the quarter. 
• At $40, market cap is now $238.45 million. Balance sheet seems to have a good $40 million of "excess" cash. [Without it, the current ratio would still be 1.8x.] So, enterprise value is roughly $200 million.
• The 2013 EBITDA was $49 million. The past five years' average EBITDA was $32 million. The past five years' average capex was $7.9 million, so the average (EBITDA-capex) was $24 million.
• That means the EV/EBITDA(ttm) is 4x and the EV/EBITDA(5y) is 6.25x. The "free cash flow" multiple is 8x.

Conrad Industries 2013 Annual Report Highlights $CNRD

• In 2013, we achieved revenues of $303.3 million, net income of $28.6 million, EBITDA of $48.9 million and earnings per diluted share of $4.80. Vessel construction and repair and conversion hours and revenue were the highest in the Company’s history as was vessel construction gross profit. Net income and earnings per diluted share also exceeded all other years. Our new construction segment accounted for 74.1% of our total revenue and our repair and conversion segment accounted for 25.9% of our total revenue.
• For 2013, 35.2% of total revenue was Gulf of Mexico oil and gas industry (“energy”) related, 64.6% was other commercial and .2% was government. This compares to 16.2% energy, 76.1% other commercial and 7.7% government in 2012.
• Our backlog was $152.9 million at December 31, 2013 as compared to $120.7 million at December 31, 2012. At December 31, 2013, 67.0% of our vessel construction backlog was from other commercial contracts and 33.0% was from energy contracts. This compares to backlog at December 31, 2012 of 84.3% other commercial and 15.7% from energy contracts. Subsequent to year end, as of March 28, 2014, we had signed contracts totaling $67.3 million, which includes the sales of two stock barges that were in progress at December 31, 2013.
• During the past five years, we have made, in the aggregate, approximately $39.6 million of capital expenditures to add capacity and improve the efficiency of our shipyards. This includes $12.4 million in 2013, which was primarily capital additions at our five locations to increase capacity and operational efficiencies, and to replace leased equipment with Company owned equipment. The additions for 2013 also include plant improvements and machinery and equipment for our new Conrad Deepwater South facility in the amount of $1.9 million. We acquired our 50-acre Conrad Deepwater South facility in 2012 for $5.6 million, have developed the site for new construction activities and expect to deliver our first vessel in the first quarter of 2014. Our Board of Directors has approved a $9.3 million capital expenditure program for 2014.
• A significant portion of our recent backlog, approximately 34.9% at December 31, 2013 and 68.3% at December 31, 2012, has been related to the construction of tank barges for use by customers transporting petroleum products resulting from the use of horizontal drilling in conjunction with hydraulic fracturing, which has expanded the ability of producers to recover natural gas and oil from low-permeability geologic plays, particularly shale plays.
• During the past five years, we have made, in the aggregate, approximately $39.6 million of capital expenditures to add capacity and improve the efficiency of our shipyards.
• Selling, general and administrative expenses (“SG&A”) increased $694,000, or 10.8%, to $7.1 million (2.3% of revenue) for 2013, as compared to $6.4 million (2.7% of revenue) for 2012.
• Daniel T. Conrad has been a director of Conrad Industries since January 2014. Mr. D. Conrad was appointed to the Board of Directors to fill the vacancy created by the resignation of J. Parker Conrad and to serve as a Class III director with a term expiring at the 2016 annual meeting of stockholders. Mr. Conrad joined the company in 1997 and has held numerous positions including Facility Manager, Sales Manager, Business Relations Manager and currently is Senior Vice President of our Conrad Shipyard, Conrad Aluminum and Conrad Orange subsidiaries. From 1989 to 1996, Mr. Conrad served in various positions with Venture Transport, Inc., a specialized carrier in oilfield and energy equipment. Mr. Conrad is the son of John P. Conrad, Jr.
[3rd generation Conrad moving up in the company.]

At $40, the market capitalization is now $238 million. Let's say that $38 million of the cash on balance sheet is "excess" (which would leave a current ratio of 1.7x). That gives an enterprise value of $200 million.

The 2013 EBITDA was $49 million. The past five years' average EBITDA was $32 million. The past five years' average capex was $7.9 million, so the average (EBITDA-capex) was $24 million.

That means the EV/EBITDA(ttm) is 4x and the EV/EBITDA(5y) is 6.25x. The "free cash flow" multiple is 8x.

The results are fantastic, but priced in to a large degree - the stock is up more than 50% over the past year. It is not crazy cheap the way it used to be.  

Alpha Vulture Post on Conrad Industries $CNRD

Link:

"Conrad Industries reported their 2013 results last month, and business continues to be good. Earnings increased from $20.8 million in 2012 to $28.6 million in 2013 and the backlog is up 27% compared to last year. With the stock now trading at $42/share the company is certainly not as cheap anymore as it once was, but with a capable and shareholder friendly management team at the helm this is a business I don’t mind owning close at fair value (it would probably be more correct to incorporate a premium for management quality in the fair value estimate)."

"Conrad Industries Announces 2013 Results and New Business" $CNRD

Morgan City, Louisiana (March 31, 2014) – Conrad Industries, Inc. (OTC Pink Sheets: CNRD.PK) today announced its fourth quarter and twelve months 2013 results and the addition of new business during the first quarter of 2014 totaling $67.3 million.

For the quarter ended December 31, 2013, Conrad had net income of $10.1 million and earnings per diluted share of $1.70 compared to net income of $8.0 million and earnings per diluted share of $1.33 during the fourth quarter of 2012. The Company had net income of $28.6 million and earnings per diluted share of $4.80 for the twelve months ended December 31, 2013 compared to net income of $20.8 million and earnings per diluted share of $3.46 for the twelve months ended December 31, 2012. The Company’s financial reports are available at www.otcmarkets.com.

New business added during the first quarter of 2014 includes the signing of new contracts and sales of stock barges which brings estimated current backlog to approximately $155.0 million, compared to $152.9 million at December 31, 2013, $125.5 million at March 31, 2013, and $120.7 million at December 31, 2012.

New contracts added during the first quarter of 2014 include five 266’x 54’x 13’LPG tank barges, two 70’x 42’x 7’ anchor barges, a 116’ ATB Tug, four 297’6”x 54’x 12’ 30,000 bbl. tank barges, and a contract for the conversion of a MPSV (Multi-Purpose Supply Vessel.)

A 2013 EPS of $4.80, so the stock is trading at 8.3x earnings. If you assume the company has $40 million in excess cash then it would be 7x earnings.

Cheap - but always remembering that in general you want to sell cyclical stocks at cyclical peaks when P/Es will be low.

Trinity Industries Reports Q3 2013 Earnings

Trinity Industries (a Conrad Industries competitor; previously mentioned) reported its Q3 2013 earnings:

"The Inland Barge Group reported revenues of $136.4 million compared to revenues of $166.5 million in the third quarter of 2012. Operating profit for this Group was $23.8 million in the third quarter of 2013 compared to $26.9 million in the third quarter of 2012. The decrease in revenues and operating profit compared to last year was due to lower delivery volumes of hopper barges partially offset by higher delivery volumes of tank barges delivered during the third quarter of 2013. The Inland Barge Group received orders of $48.8 million during the quarter, and as of September 30, 2013 had a backlog of $476.0 million compared to a backlog of $563.6 million as of June 30, 2013."

Hmm, the inland barge group was less profitable in 2013 than in 2012. Backlog down 15%. From the management comments:

"Our Inland Barge Group experienced a year-over-year decline in both revenue and profit. However, as a result of manufacturing leverage in the production of tank barges, the segment produced a stronger operating margin of 17.4% during the quarter."

Tank barges have had a long run.