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To Our Smith-Midland Shareholders, Customers, Associates, and Business Partners:

Rodney I. Smith, Chairman of Smith-Midland (DE) Board
Rodney I. Smith
Chairman of the Board

Results of operations for 2016

The Company had one of its best years in 2016, reporting strong sales and net income. The following shows the key statistics for the years ended December 31, 2016 and 2015: (in thousands except for EPS and return on equity)

Total Revenues: 2016 $40,050, 2015 $29,204
Operating Income: 2016 $4,336, 2015 $1,669
Net Income: 2016 $2,835, 2015 $1,044
Earnings per Share: 2016 $0.56, 2015 $0.21
Return on Equity: 2016 20%, 2015 9%

Manufacturing Operations:

The Company currently operates three precast concrete production facilities located in Midland, Virginia, Reidsville, North Carolina and Columbia, South Carolina. The Columbia, South Carolina facility began operations in February 2016. Since its beginning, the facility has operated at almost full capacity and has a backlog that will maintain production well into 2018. As with our South Carolina facility, our North Carolina facility is operating near full capacity and has a backlog that will also maintain production well into 2018. The Midland, Virginia facility has been operating below full capacity due to delays by two general contractors in starting two new large Slenderwall projects. These two projects are now on schedule for production and will begin shortly. At that time, the Midland facility will be at, or near, full production including weekend production. With all three of the production facilities operating at or near full capacity, the Company anticipates a profitable 2017 and 2018. The Company is projecting the recent increase in construction spending to stay above normal levels for several years to come, and with the operating capacity near full production, expansion is at the forefront of our future plans.

Easi-Set Worldwide Precast Concrete Licensing - Royalty Revenues:

Revenues from royalties were relatively flat between 2016 and 2015; however, margins were up for 2016. With the end of the Great Recession, the economy and the construction industry, in particular, have made significant turnarounds that have allowed the Smith-Midland Companies the opportunity to make great strides in its sales and margins during 2016 and 2015. This turnaround is true regarding most communities across the United States and we believe that this will continue to help Easi-Set Industries increase its royalty revenues and margins in 2017 and 2018.

Manufacturing Operations:

The Company currently operates three precast concrete production facilities located in Midland, Virginia, Reidsville, North Carolina and Columbia, South Carolina. The Columbia, South Carolina facility began operations in February 2016. Since its beginning, the facility has operated at almost full capacity and has a backlog that will maintain production well into 2018. As with our South Carolina facility, our North Carolina facility is operating near full capacity and has a backlog that will also maintain production well into 2018. The Midland, Virginia facility has been operating below full capacity due to delays by two general contractors in starting two new large Slenderwall projects. These two projects are now on schedule for production and will begin shortly. At that time, the Midland facility will be at, or near, full production including weekend production. With all three of the production facilities operating at or near full capacity, the Company anticipates a profitable 2017 and 2018. The Company is projecting the recent increase in construction spending to stay above normal levels for several years to come, and with the operating capacity near full production, expansion is at the forefront of our future plans.

Concrete Safety Systems Highway Barrier Rental Revenues:

2016 was a very good year for highway barrier rentals, which included two short-term rental projects. While these short-term rental projects have slightly higher gross margins, they are extremely difficult to prepare for and perform as the work tends to revolve around the clock, sometimes for days on end. In addition, there is a much higher risk factor associated with this type of project. Our normal long-term barrier rentals were up over 40% from 2015 to 2016. In order to meet the current market for rental barrier, we are producing more barrier in our Virginia facility to add to our rental Company’s fleet.

Future Outlook:

The Company’s financial future is brighter now than it has ever been, and accordingly I believe that the next few years will possibly be the best financial years for the Company and its subsidiaries. With federal and state governments moving forward with their highway and infrastructure plans at a fast pace, the Company is poised to accept project bids and perform at maximum output to meet the needs of our customers. Our North Carolina facility is moving ahead with its expansion plans and should be able to significantly increase production output.

Sincerely,
rodney-smith-signature

Rodney I. Smith
Chairman of the Board