Holder: NN Inc. on track even as net earnings slide


By Jeff Keeling

As the two-year anniversary of its Johnson City headquarters expansion approached, global manufacturer NN Inc. reported a loss of $27 million in the fourth quarter of 2015 Thursday. Full-year net income  was negative $9.6 million in a year that saw the company complete another large acquisition and take a hit from foreign currency exchange rates.

Rich Holder

Rich Holder

NN’s quarterly revenue of $183.9 million was about $2 million below analysts’ estimates. The company had revenue of $667.3 million for the year, compared to $488.6 million in 2014.

Adjusting for costs related to acquisition, financing and restructuring, NN posted what it called “adjusted net income” of $6.8 million in the fourth quarter, up from $6.7 million in the same quarter of 2014. For the year, adjusted net income of $32.4 million was higher than 2014’s total by $7.4 million, or 30 percent.

CEO Rich Holder pointed to increased operating margins, in part due to the major acquisitions of AutoCam in 2014 and Precision Engineered Products (PEP) in 2015, as cause for optimism. Those acquisitions have helped drive revenues up by around 70 percent since 2013, and are part of the strategy that helped prompt the purchase of the former SunTrust building on North Roan Street in anticipation of corporate employment growth of more than 150 jobs.

In particular, Holder mentioned a positive environment for the Autocam Precision Components market, where CAFE fuel efficiency standards are continuing to create demand.

“Certainly within the Autocam group, the CAFE adoption is one of the, if not the shining star,” Holder said. “We continue to be tapped fairly regularly on new or extended programs.”

Holder said NN had a growth rate in Autocam sales of around 4 percent built into its strategic plan. “I think we’re going to do a little bit better than that based on what we’re seeing now.

“It appears that a few of the automotives are looking at even doing a mid-cycle upgrade, or pulling the platform upgrade forward to take advantage of the market … we’ve seen at least one of our customers increase their demand because of the ability to provide into that platform.”

Combined with PEP, which takes NN into entirely different, non-metal markets, Holder said he expects NN’s adjusted gross margin, “to climb a little more this year.” With regards to PEP, he said, “the plan and execution performed as expected.”

The quarterly “adjusted income from operations” for PEP was $10.1 million, compared to $8.7 million for the Autocam segment and $3.3 million for NN’s legacy business – the Precision Bearing Components Group. The latter includes NN’s Erwin and Mountain City plants, and did experience “some issues” in the fourth quarter, Holder said.

“We thought we understood our demand pattern going into Q4, as we normally do,” Holder said. But when that demand pattern shifted greater than a certain percentage, the “script” wasn’t followed.

“The reason for the script is so we don’t sit there and wait to believe the market,” he said. “And in fact, what we did was we sat and we waited to believe the market. Consequently we carried a substantive amount of labor and inventory that we should not have deep into the quarter before we reacted.”

The fix, he said, is “driving a little bit more awareness around the speed of adjusting the enterprise,” calling it the difference between “old school and new school.”

In the near term, Holder said, NN is, “laser focused on free cash flow and debt paydowns,” adding, “everything is going right now as expected.”

The markets so far have failed to react favorably to the latest report. NN’s stock price fell more than 10 percent in the day following the announcement and has since stayed in the $11-$12 per share range. It has been below $14 since early this year after trading above $20 for much of 2015.



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