Gibraltar Industries booked a $95 million loss during the fourth quarter after taking a big write-down in the value of the infrastructure and industrial products business it acquired four years ago.
The write-down, which totaled $96.4 million, came as Gibraltar’s earnings from its operations tumbled by 71 percent, partly because of weaker sales at its infrastructure and industrial products business, which has been hurt by tight government budgets that have held down the level of work on improvement projects for bridges and highways.
The write-down essentially is an admission by Gibraltar that the infrastructure business it added in March 2011 when it paid $96 million to buy D.S. Brown Co., an Ohio company that targets the bridge and highway repair and construction markets, hasn’t worked out as company executives had hoped.
“While this impairment is a non-cash charge, it does provide an indicator of the near-term financial outlook” for the industrial and infrastructure products business, said Kenneth Smith, Gibraltar’s chief financial officer, during a conference call Friday.
“The segment’s revenues and profit margins have decreased, and future cash flows are expected to be modest in the near term,” Smith said. “This reflects, in part, slower economic conditions, excess capacity and increased competition, plus greater ongoing uncertainty regarding government funding for future transportation projects.”
But Frank Heard, Gibraltar’s CEO, said the company isn’t giving up on the infrastructure business, calling it a key part of the company’s long-term business and singling it out as a potential beneficiary of what he described as a more proactive approach to acquisitions.
“Despite the short-term effects of current funding environment, we believe the long-term prospects in this space remain attractive and see this as a key part of our financial future,” Heard said.
“With activity in the infrastructure markets remaining depressed, some of the key players are considering divesting part of their business,” he said. “We continue to target and entertain opportunities as become available.”
Excluding the write-down, Gibraltar earned $700,000, or 2 cents per share, during the fourth quarter, down from $2.4 million, or 8 cents per share, a year ago.
Sales grew by 7 percent to $202 million from $188.8 million, fueled by a 23 percent increase in revenues from its residential building products business, which rose to $105 million from $86 million a year ago as demand for its postal storage products increased as more sites were converted to centralized delivery locations.
But profit margins in the residential products business shrunk as price cuts in some products and the costs of building out manufacturing capacity offset the benefits of rising sales volumes.
Sales in the industrial and infrastructure business fell by 6 percent to $96.6 million from $103.3 million a year ago. The business’ operating profit margin was cut by more than half to 2.5 percent as sales fell, raw material costs increased and the mix of products sold also was less profitable.
Gibraltar said it expects its sales this year to range between $870 million and $880 million, up about 2 percent from $862.1 million in 2014, with all of the growth coming from its residential building products, while infrastructure revenues remain flat. The company said it expects its earnings, excluding one-time items, to range between 55 cents and 65 cents per share, up about 28 percent from 47 cents per share last year.