Chicago Rivet & Machine Co. — 2015 First-Quarter Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2015, compared with the three months ended March 31, 2014. The company operates in two segments: fasteners and assembly equipment, serving primarily automotive-related markets.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $9.284 million | $9.950 million | Down 6.7% |
| Gross profit | $2.094 million | $2.262 million | Down 7.4% |
| Gross margin | 22.6% | 22.7% | Slightly lower |
| Operating profit | $0.668 million | $0.848 million | Down 21.2% |
| Operating margin | 7.2% | 8.5% | Down 1.3 percentage points |
| Net income | $0.462 million | $0.568 million | Down 18.6% |
| Diluted EPS | $0.48 | $0.59 | Down $0.11 |
| Operating cash flow | $0.764 million | $0.627 million | Up $0.137 million |
- Fastener revenue was $8.400 million, down 7.6%, primarily from weaker automotive demand and lower export sales.
- Assembly equipment revenue was $0.883 million, up 2.4%, driven by higher parts and tool sales despite fewer machine shipments.
- Selling and administrative expenses increased less than 1% to $1.426 million and rose to 15.4% of sales from 14.2%.
- Cash, cash equivalents and certificates of deposit totaled approximately $6.3 million at March 31, 2015, broadly unchanged from year-end. Working capital was approximately $15.9 million.
- Total assets were $29.420 million and total liabilities were $3.632 million. No debt balance is reported on the condensed balance sheet.
- Capital expenditures were $0.371 million on the consolidated cash flow statement; the segment note reports $0.414 million, including capital expenditures recorded in accounts payable.
- The company declared dividends of $0.43 per share, consisting of a regular $0.18 quarterly dividend and an additional $0.25 dividend related to 2014 results.
Material changes versus the prior comparable period
- Sales declined $0.667 million, primarily because of weaker demand from certain automotive customers, a $0.269 million decline in shipments to a customer with a China production facility, lower North American vehicle production early in the quarter, and weakness in certain foreign markets.
- Fastener segment gross margin decreased by approximately $0.178 million, although lower tooling, natural gas, supplies and maintenance costs partially offset the volume decline.
- Assembly equipment segment margins improved by approximately $0.010 million as parts and tool sales increased while manufacturing costs remained comparable.
- Net income and EPS declined despite a largely stable gross margin because of lower sales and higher selling and administrative expenses relative to revenue.
- Operating cash flow improved, helped by inventory reductions and increases in accounts payable and accrued wages, partly offset by higher accounts receivable.
Outlook, risks and unusual items
- Management expects automotive-market growth to be slower than in recent years but views overall conditions as favorable. It expects the late-2014 and early-2015 economic slowdown to improve in coming quarters.
- Management reported firmer fastener demand early in the second quarter, while equipment demand remained mixed; machine orders trailed the prior-year level.
- The company adjusted work schedules for lower demand and intends to continue emphasizing cost controls. No formal quantitative earnings or revenue guidance was provided.
- The company entered into a $1.503 million contract to expand its Madison Heights, Michigan fastener facility, with completion expected before year-end 2015.
- Key risks include dependence on the domestic automotive industry and two major customers, competition, export-market weakness, raw-material availability and pricing, labor issues, product liability and warranty or recall claims, environmental costs, key-employee retention and execution of cost savings.
- The company is involved from time to time in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not materially affect financial position, but the ultimate amounts are not determinable from the filing.
- Federal tax returns for 2011 through 2014 and state returns for 2011 through 2014 remain subject to examination. Management does not expect a material adjustment.
Facts investors should verify
- Whether the reported early-second-quarter firming in fastener demand persists and offsets weaker automotive and export markets.
- The status, cost progression and expected benefits of the Madison Heights facility expansion.
- Machine order trends in the assembly equipment segment and the effect on future revenue mix and margins.
- Customer concentration, particularly exposure to the two major customers and the customer with China production operations.
- Whether selling and administrative expenses can be controlled as a percentage of revenue.
- Potential outcomes of litigation, environmental matters and tax examinations, for which the filing provides no specific exposure amount.