Supreme Industries, Inc. (NYSE MKT: STS) announced that third-quarter gross margin declined to 15.9%, or $10.7 million, compared with 16.1%, or $11.6 million, in the third quarter of 2012, primarily due to lower sales during the quarter on fixed overhead expenses incremental training costs experienced by the truck division in association with the startup of the fleet business.

Supreme reported strong order intake in the third quarter led by significant fleet business and improved retail demand for the company's truck bodies. Backlog at the end of the quarter increased 36% to $85.6 million, compared with $63 million at the end of last year's third quarter.

Consolidated net sales for the third quarter declined 6.1%, to $67.3 million, compared with $71.7 million last year. The revenue decrease was attributable to lower sales volume in the bus and specialty vehicle divisions along with OEM chassis delays in the truck division.

Income tax expense of $600,000 was recorded in the quarter due to the company's return to normalized tax rates. In last year's comparable period, the company recorded income tax expense of $100,000, which included the reversal of a deferred tax valuation allowance due to improved profitability.

Net income for the third quarter was $1.5 million, or $0.09 per diluted share, compared with net income of $3.6 million, or $0.22 per diluted share, last year. On a proforma basis, adjusting for the 2012 legal costs associated with the King County lawsuit and normalizing the 2012 income tax expense, last year's earnings per share would have been $0.17 per diluted share. A supplemental reconciliation of net income and net income per share is included with this press release.

"While we are certainly not satisfied with our overall sales decline in the third quarter, we are very encouraged with strong orders in our truck division during the period. Based on our backlog, we anticipate the fourth quarter will reflect substantially improved shipments over the prior year's comparable quarter barring any unforeseen supply chain chassis issues. We have made good progress on improving on-time deliveries and there are additional opportunities remaining to compress the order-to-cash conversion cycle," said President and Chief Executive Officer Mark Weber.

Consolidated net sales for the nine-month period decreased 8.2%, to $209.7 million, from $228.4 million last year, due to lower fleet and bus sales. For the nine months, gross margin, as a percentage of sales, increased to 17.0%, compared with 15.7% in 2012. This improvement reflects margin-expansion initiatives including process improvements, enhanced manufacturing efficiencies and strategic purchasing that commenced in 2012. Gross profit declined to $35.7 million, from last year's $35.9 million.

Income tax expense increased by $2.3 million versus last year resulting from the normalized tax rates in 2013 and last year's reversal of the valuation allowance.

Net income for the first nine months was $4.8 million, or $0.29 per diluted share, compared with $11.4 million, or $0.71 per diluted share, last year. On a proforma basis, adjusting for the King County legal settlement and related costs and normalizing the 2012 income tax expense, the earnings for the first nine months of this year would have been $0.44 per diluted share compared with $0.50 per diluted share last year.

Working capital increased to $42.9 million at Sept. 28, 2013, compared with $38.6 million at Dec. 29, 2012. Working capital requirements to support the higher backlog, combined with the payment of the legal settlement, resulted in total debt increasing $1.7 million to $15.8 million at quarter end, versus $14.1 million at Dec. 29, 2012, and $12.3 million one year ago. Stockholders' equity increased to $72.3 million at Sept. 28, 2013, compared with $67.2 million at Dec. 29, 2012. Book value, on a per-share basis, was $4.48 at quarter end versus $4.20 at the end of 2012. Net cash provided by operating activities during the first nine months of 2013 was $2.3 million compared with $7.9 million in 2012.

Weber added, "We are very encouraged by our backlog and recent demand trends in the truck division. We are implementing initiatives targeted to improve the contributions of those divisions that are performing below expectations, which we expect will have a positive impact on future consolidated results."