Press release·03/13/2025 21:33:13

Overview of Preformed Line Products Company

Preformed Line Products Company (PLPC) is an international designer and manufacturer of products and systems used in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable, and other similar industries. The company’s primary products support, protect, connect, terminate, and secure cables and wires. PLPC also provides aerial drone inspection services for utility assets.

PLPC operates in 20 different countries and reports its business in four geographic segments: PLP-USA, The Americas, EMEA (Europe, Middle East & Africa), and Asia-Pacific. Each segment distributes the company’s full range of products. The PLP-USA segment comprises the U.S. operations manufacturing traditional products, while the other three segments support the company’s products in their respective regions.

Market Overview

PLPC’s business is concentrated in the energy and communications markets. The company has faced challenges in recent years, including industry consolidation, lack of infrastructure investment in developed countries, and macroeconomic headwinds such as rising commodity prices, inflation, and foreign currency fluctuations. However, the increasing need to upgrade electrical grids and communication networks has highlighted the demand for PLPC’s products and services.

The company believes its leadership position in the domestic energy and communications markets, as well as its strategic international footprint, position it well to capitalize on the growing need to enhance and expand transmission grids and communication networks.

2024 Financial Performance

In 2024, PLPC’s net sales were $593.7 million, a decrease of $76.0 million or 11% compared to 2023. This decline was primarily due to lower volumes in the company’s PLP-USA segment, where customers were destocking inventory. The international segments, however, had sales comparable to the prior year, demonstrating the benefits of PLPC’s global diversification.

Gross profit for 2024 was $189.8 million, a decrease of $45.0 million or 19% compared to 2023. The decrease was mainly driven by the lower sales volumes and unfavorable product mix in the PLP-USA segment, partially offset by improved performance in the international segments.

Costs and expenses decreased by $11.6 million or 8% in 2024, primarily due to lower selling costs and personnel expenses in the PLP-USA segment as a result of cost containment efforts.

Other income, net, was favorable by $1.8 million in 2024 compared to 2023, due to higher interest income and lower interest expense.

Income taxes for 2024 were $13.7 million, with an effective tax rate of 26.9%, compared to $19.0 million and an effective rate of 23.1% in 2023. The increase in the effective tax rate was primarily due to limitations on the deductibility of compensation and the unfavorable impact from the mix of income earned in higher-tax jurisdictions.

As a result of these factors, net income for 2024 was $37.1 million, a decrease of $26.2 million or 40% compared to 2023.

Segment Performance

PLP-USA Segment:

• Net sales decreased 23% to $266.7 million, primarily due to lower volumes in communications and energy product sales.
• Gross profit decreased 33% to $93.0 million, mainly due to the lower sales volumes and unfavorable product mix.
• Costs and expenses decreased 8% to $72.6 million, primarily due to lower selling costs and personnel expenses.
• Net income decreased 69% to $13.9 million.

The Americas Segment:

• Net sales increased 11% to $90.3 million, driven by higher volumes in energy product sales, partially offset by lower communications sales.
• Gross profit increased 1% to $28.6 million, as the higher sales volumes were offset by increased depreciation and freight costs.
• Costs and expenses decreased 14% to $18.7 million, primarily due to a legal settlement in 2023 and the impact of foreign currency remeasurement.
• Net income increased 69% to $9.0 million.

EMEA Segment:

• Net sales decreased 6% to $128.2 million, primarily due to lower volumes in communications sales, partially offset by increased energy product sales.
• Gross profit remained relatively flat at $36.8 million, as the decreased sales volumes were offset by favorable product mix and the resolution of a warranty claim.
• Costs and expenses decreased 8% to $26.1 million, mainly due to lower personnel costs and bad debt expenses.
• Net income increased 32% to $7.8 million.

Asia-Pacific Segment:

• Net sales increased 6% to $108.5 million, driven by higher volumes in energy product sales.
• Gross profit increased 7% to $31.4 million, primarily due to favorable product mix.
• Costs and expenses increased 7% to $21.7 million, mainly due to the net impact of the sale of capital assets and foreign currency remeasurement.
• Net income increased 2% to $6.4 million.

Working Capital, Liquidity, and Capital Resources

PLPC’s primary sources of liquidity are its operating cash flows, existing cash and cash equivalents, and its credit facility. As of December 31, 2024, the company had $57.2 million in cash, cash equivalents, and restricted cash, and $82.8 million in unused availability under its credit facility.

Net cash provided by operating activities in 2024 was $67.5 million, a decrease of $40.1 million compared to 2023, primarily due to the decrease in net income and lower cash from working capital. Net cash used in investing activities decreased by $32.4 million, mainly due to lower acquisition activity and capital expenditures. Net cash used in financing activities was $47.8 million, a slight decrease from 2023.

The company’s total debt, including notes payable, was $28.6 million at the end of 2024, and its bank debt to equity percentage was 6.8%. PLPC expects its future operating cash flows, existing cash, and credit facility to be sufficient to cover debt repayments, capital expenditures, and dividends for the next 12 months and the foreseeable future.

Critical Accounting Policies and Estimates

PLPC’s critical accounting policies and estimates include:

1. Revenue Recognition: The company recognizes revenue when control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges is recognized at the time the products are shipped, delivered, or picked up by the customer.

2. Allowance for Credit Losses: PLPC maintains an allowance for estimated losses resulting from the inability of customers to make required payments. The allowance is based on the number of days the accounts are past due, the current business environment, and specific customer information.

3. Excess and Obsolescence Reserves: The company provides reserves to state inventories at the lower of cost or estimated net realizable value. The reserves are based on the review of inventory items with no usage or in excess of historical usage.

4. Impairment of Long-Lived Assets: PLPC records impairment losses on long-lived assets used in operations when the undiscounted cash flows estimated to be generated by those assets are less than their carrying value.

5. Goodwill: Goodwill is reviewed for impairment annually or more frequently if changes in circumstances indicate the carrying amount may be impaired. The company uses a combination of the income approach (discounted cash flow) and the market approach (comparable market multiples) to estimate the fair value of reporting units and assess for potential impairment.

6. Deferred Tax Assets: PLPC establishes a valuation allowance to record its deferred tax assets at an amount that is more-likely-than-not to be realized.

7. Pension Obligations: The company records obligations and expenses related to its pension benefit plan based on actuarial valuations, which include key assumptions on discount rates, expected returns on plan assets, and compensation increases.

Market Risks

PLPC is exposed to various market risks, including:

• Foreign Currency Risk: The company’s international operations expose it to foreign currency exchange rate fluctuations. A hypothetical 10% change in currency rates could have a $6.9 million impact on the fair value of the company’s foreign-denominated instruments and a $3.0 million impact on its income before tax.

• Interest Rate Risk: PLPC has variable-rate debt, which exposes it to interest rate risk. A 100 basis point increase in interest rates would increase the company’s interest expense by approximately $0.1 million.

• Pension Plan Risks: Changes in discount rates and expected returns on plan assets could significantly impact the company’s pension obligations and net periodic pension cost. A 50 basis point change in the discount rate would have a $1.7 million effect on the plan’s projected benefit obligation, and a 50 basis point change in the expected rate of return would have a $0.1 million effect on the plan’s subsequent year’s net periodic pension cost.

Conclusion

While PLPC faced challenges in 2024, including customer destocking in its PLP-USA segment, the company’s international diversification and focus on cost containment helped mitigate the impact. The company’s strong liquidity position and access to capital provide flexibility to navigate the current operating environment and invest in future growth opportunities. PLPC remains well-positioned to capitalize on the increasing need to upgrade and expand electrical grids and communication networks globally.