Business Context and Reporting Period
Chicago Rivet & Machine Co. filed its Form 10-K for the fiscal year ended December 31, 2023, including fourth-quarter results. The Company manufactures rivets, cold-formed fasteners, screw-machine products, automatic rivet-setting machines, and related parts and tools. Operations are reported in two segments: fasteners and assembly equipment, with the North American automotive industry as the principal market.
The Company had 207 employees at December 31, 2023. Foreign sales represented approximately 18% of 2023 revenue. Three customers accounted for approximately 41% of consolidated revenue: TI Group Automotive Systems, LLC (16%), Cooper-Standard Holdings Inc. (14%), and Martinrea International Inc. (11%).
Financial Performance and Key Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $31.5 million | $33.6 million | Down 6.4% |
| Gross profit (loss) | $(0.6) million | $3.8 million | Down $4.4 million |
| Gross margin | (1.9%) | 11.3% | Down 13.2 percentage points |
| Operating profit (loss) | $(5.8) million | $3.6 million | Down $9.4 million |
| Net income (loss) | $(4.4) million | $2.9 million | Down $7.3 million |
| Basic and diluted EPS | $(4.56) | $2.97 | Declined $7.53 |
| Cash dividends per share | $0.64 | $0.88 | Down $0.24 |
Fourth-quarter sales were $6.8 million, down 1.1% from $6.9 million in the prior-year quarter. The fourth-quarter net loss was $1.5 million, or $1.60 per share, compared with a $1.3 million loss, or $1.36 per share, in the fourth quarter of 2022.
- Fastener segment: Full-year revenue was $28.2 million, down 7.0%. Automotive revenue increased 4.6% to $19.3 million, but non-automotive revenue fell 25.0% to $8.9 million. Reported segment gross profit (loss) deteriorated to $(1.3) million from $3.2 million.
- Assembly equipment segment: Full-year revenue was $3.3 million, essentially flat with 2022. Reported segment gross profit was $667,902 versus $648,220. The filing text states this represented “3.0%,” but that percentage appears inconsistent with the stated dollar amounts and is not clear.
- Expenses: Selling and administrative expenses increased 4.9% to $5.2 million, or 16.6% of sales, from 14.8% in 2022. Increases included consulting, employee compensation, and rent, partly offset by lower director fees and commissions.
- Unusual comparison item: 2022 results included a $4.7 million pretax gain from the sale of the Naperville, Illinois facility. No comparable gain occurred in 2023.
Cash Flow, Liquidity, Capital Structure, and Balance Sheet
- Net cash used in operating activities was $1.9 million in 2023, compared with $1.3 million used in 2022.
- Capital expenditures were $1.1 million, primarily for fastener manufacturing, secondary-operation, and inspection equipment.
- Net cash used in investing activities was $0.1 million. Investing activity included $0.9 million of net maturities from short-term investments and $50,422 of proceeds from asset sales.
- Cash dividends paid were $618,325.
- Cash and cash equivalents declined to $1.4 million from $4.0 million. Cash, cash equivalents, and certificates of deposit totaled $3.2 million at year-end, compared with $6.7 million at the beginning of the year.
- Working capital was $14.0 million, down $6.1 million, primarily reflecting lower accounts receivable and inventory.
- Total assets were $27.8 million and shareholders’ equity was $26.0 million at December 31, 2023. Total liabilities were $1.9 million, consisting of current liabilities and no reported debt or borrowing facilities. The filing does not identify funded debt.
- Management believes existing cash, cash equivalents, and operating cash flow will provide adequate working capital for the next twelve months.
Material Changes, Outlook, Risks, and Unusual Items
Management attributed the 2023 deterioration primarily to elevated material, labor, shipping, tooling, and outside-processing costs; delays in securing customer price increases under restrictive automotive contracts; and reduced non-automotive volumes. Raw-material prices moderated from historic highs and labor availability improved during the year, but most production costs remained elevated.
For 2024, management is focused on repricing customer contracts, improving operating efficiency, reducing costs and inventory, improving cash flow, expanding customer relationships, and increasing sales to existing and new customers. Management stated that it intends to return the Company to profitability but provided no quantitative revenue, earnings, or margin guidance. Assembly equipment revenue and profitability were identified as a relative strength.
- Customer and industry concentration: Automotive demand is cyclical, and the three largest customers represented approximately 41% of 2023 revenue.
- Input-cost and supply-chain exposure: Steel, labor, energy, freight, and other costs may not be fully recoverable through customer pricing. Labor shortages and supply disruptions could impair production.
- Internal controls: Management concluded that disclosure controls and internal control over financial reporting were not effective at year-end. Material weaknesses remained related to income-tax accounting and inventory valuation. Remediation was underway, including use of external tax advisors and enhanced inventory controls.
- Tax matters: The Company reported a $1.3 million income-tax benefit and had approximately $6.0 million of federal net operating loss carryforwards. Deferred tax assets totaled $324,943 at year-end.
- Legal and environmental contingencies: The Company is involved from time to time in ordinary-course litigation, including environmental claims, but management believes unrecorded liabilities will not materially affect the Company.
- Leases: The Company entered into a one-year Naperville lease beginning January 1, 2024, at $9,400 per month. Future minimum rentals at December 31, 2023 were $112,800.
- Dividend: In February 2024, the Board declared a $0.10 per-share quarterly dividend. The Company has paid consecutive quarterly dividends for more than 90 years.
- Leadership: A new management team was installed during 2023, including CEO Gregory D. Rizzo, CFO Joel M. Brown, and Vice-President of Sales Bill Stlaske. Former President and COO Michael J. Bourg retired in December 2023.
Most Important Facts for Investors to Verify
- Whether pricing actions and contract renegotiations can restore fastener-segment margins despite persistent input-cost inflation.
- The sustainability and timing of a return to profitability, given the 2023 operating loss, negative gross margin, and operating cash outflow.
- Progress in remediating the material weaknesses involving income taxes and inventory valuation.
- Liquidity after the year-end cash decline and continued dividend payments, including whether operating cash flow becomes positive.
- Customer concentration and exposure to cyclical automotive demand, non-automotive volume declines, supply-chain disruptions, and labor costs.
- The consistency and calculation of the assembly equipment segment’s reported gross-margin percentage, which is unclear in the filing text.
- The impact of the 2022 property-sale gain on year-over-year comparisons and the ongoing cost of leasing the Naperville facility.