Chicago Rivet & Machine Co. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results for the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The company manufactures and sells rivets, cold-formed fasteners, screw-machine products, automatic rivet-setting machines, and related parts and tools. Operations are divided between the Fastener and Assembly Equipment segments, with significant exposure to automotive customers.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Net sales | $8.05 million | $9.02 million | $16.78 million | $18.22 million |
| Gross profit (loss) | $(0.33) million | $1.45 million | $0.15 million | $3.30 million |
| Gross margin | (4.1)% | 16.0% | 0.9% | 18.1% |
| Operating profit (loss) | $(1.69) million | $0.18 million | $(2.47) million | $0.74 million |
| Net income (loss) | $(1.31) million | $0.15 million | $(1.89) million | $0.60 million |
| Basic and diluted EPS | $(1.36) | $0.16 | $(1.96) | $0.62 |
Q2 net margin was approximately (16.3)%, compared with 1.7% in the prior-year quarter. Six-month net margin was approximately (11.3)%, compared with 3.3% in the prior-year period.
- Fastener revenue declined 8.7% in Q2 and 6.1% year to date. Automotive fastener sales increased 9.0% in Q2 and 5.4% year to date, but non-automotive sales declined 31.6% in Q2 and 22.3% year to date.
- Assembly Equipment revenue declined 28.4% in Q2 and 22.2% year to date, primarily due to fewer machines sold and lower machine-tool sales.
- Q2 selling and administrative expenses increased 7.6% to $1.36 million; six-month expenses increased 2.2% to $2.62 million. Six-month selling and administrative expenses rose to 15.6% of sales from 14.0%.
- Other income increased to $23,000 in Q2 and $66,000 year to date, primarily because of higher interest rates on invested balances.
- Net cash used in operating activities was $2.36 million in the first six months, compared with $0.54 million used in the prior-year period. Capital expenditures were $0.76 million, and dividends paid were $0.43 million.
- Cash and cash equivalents were $1.52 million at June 30, 2023, compared with $4.05 million at December 31, 2022. Including certificates of deposit, cash and short-term investments totaled $3.22 million, versus $6.74 million at year-end.
- Working capital was $17.52 million at June 30, 2023, down from $20.07 million at the beginning of the year. Management stated that current cash, cash equivalents, and operating cash flow should provide adequate working capital for the next twelve months.
- Total liabilities were $3.30 million at June 30, 2023. No borrowings or interest-bearing debt are separately reported in the provided balance sheet; the filing text does not provide a clear debt-facility or unused-credit-line amount.
Material Changes Versus the Prior Comparable Period
- Sales declined 10.8% in Q2 and 7.9% for the first half, with weakness concentrated in non-automotive markets and assembly equipment.
- Gross profit deteriorated by $1.78 million in Q2 and $3.15 million year to date, producing negative Q2 gross margin and sharply lower year-to-date gross margin.
- Management attributed the deterioration to higher material and outside-processing costs, inflation, labor shortages, production inefficiencies, quality expenses, and expediting costs. These costs have been difficult to recover from customers, particularly under restrictive automotive contracts.
- Fastener segment Q2 gross profit changed from $1.19 million to a $0.44 million loss; year-to-date segment gross profit changed from $2.75 million to a $0.19 million loss.
- Shareholders’ equity declined from $30.99 million at December 31, 2022, to $28.67 million at June 30, 2023, reflecting net losses and $0.43 million of declared dividends.
- The company adopted the expected-credit-loss standard on January 1, 2023. Management reported no material impact and no cumulative adjustment to beginning retained earnings.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- No quantitative earnings or revenue guidance was provided.
- Management expects elevated production-related expenses, labor-market challenges, and soft non-automotive demand to persist in the near term. The company is pursuing price adjustments, efficiency investments, new customer relationships, and changes in operating activities.
- The company reported $379,000 of remaining performance obligations under certain assembly-equipment contracts; no revenue from those contracts was recognized in Q2 2023.
- Management identified risks relating to automotive-industry conditions, customer concentration, competition, raw-material pricing and availability, supply-chain disruptions, labor issues, export sales, product liability, warranty and recall claims, environmental requirements, information-system disruptions, key personnel, and achieving cost savings.
- The company is involved from time to time in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not have a material adverse effect, although the ultimate amounts cannot currently be established.
- Federal tax returns for 2019 through 2022 and state tax returns for 2019 through 2022 remain subject to examination. Management does not expect a material adjustment.
- Disclosure controls and procedures were assessed as effective, and no material change to internal control over financial reporting was reported.
Most Important Facts for Investors to Verify
- Whether pricing actions and efficiency investments can restore positive gross margins after the significant 2023 cost inflation and labor-related disruption.
- The sustainability of improved automotive demand and the extent to which non-automotive weakness, including dependence on a single industrial-products customer, continues.
- Cash burn, working-capital requirements, capital expenditures, and dividend policy given the $2.36 million first-half operating cash outflow.
- Customer concentration, long-term automotive contract terms, and the company’s ability to recover higher material, labor, quality, and expediting costs.
- Progress on the $379,000 of remaining assembly-equipment performance obligations and the timing of related revenue recognition.
- Whether any litigation, tax examinations, environmental matters, or contingencies could exceed management’s current assessment.