Chicago Rivet & Machine Co. — Q1 2023 Form 10-Q Summary
Business Context and Reporting Period
Chicago Rivet & Machine Co. manufactures and sells rivets, cold-formed fasteners, screw-machine products, automatic rivet-setting machines, and related parts and tools. It operates in two segments: Fasteners and Assembly Equipment. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022.
Financial Performance and Liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $8.730 million | $9.198 million | Down 5.1% |
| Gross profit | $0.478 million | $1.856 million | Down 74.3% |
| Gross margin | 5.5% | 20.2% | Down 14.7 percentage points |
| Operating profit (loss) | $(0.780) million | $0.561 million | Declined $1.341 million |
| Operating margin | (8.9)% | 6.1% | Down 15.0 percentage points |
| Net income (loss) | $(0.583) million | $0.447 million | Declined $1.030 million |
| Diluted EPS | $(0.60) | $0.46 | Declined $1.06 |
| Net cash used in operating activities | $(1.651) million | $(0.388) million | Use increased $1.263 million |
Cost of goods sold increased to $8.252 million from $7.341 million despite lower sales. Selling and administrative expenses decreased 2.9% to $1.258 million, but increased modestly as a percentage of sales to 14.4% from 14.1%. Other income increased to $43,000, primarily due to higher interest income.
At March 31, 2023, cash and cash equivalents were $2.266 million and certificates of deposit were $2.193 million, for total cash and short-term deposits of $4.459 million, compared with $6.736 million at December 31, 2022. Working capital was $19.127 million, down from $20.073 million at year-end. The company had no reported debt; total liabilities were $3.501 million and shareholders’ equity was $30.191 million.
Accounts receivable increased to $6.173 million and inventories increased to $9.999 million, while accounts payable increased to $1.621 million. Capital expenditures were $413,000, primarily for fastener-production equipment. The company paid a regular quarterly dividend of $0.22 per share, totaling $213,000.
Material Changes Versus the Prior Comparable Period
- Fastener revenue declined 3.6% to $7.857 million. Automotive fastener sales increased 2.1%, but non-automotive fastener sales declined 12.3%.
- Assembly Equipment revenue declined 16.4% to $873,000, as higher machine sales were more than offset by lower replacement-parts and tooling sales.
- Fastener gross margin declined to $252,000 from $1.559 million. Management cited production inefficiencies, higher labor costs, expediting expenses, staffing challenges, inflation, and higher operating costs.
- Assembly Equipment gross margin declined to $226,000 from $297,000.
- Inventory growth reflected higher costs and production bottlenecks that delayed shipments. Accounts receivable growth reflected greater sales activity compared with the fourth quarter of 2022.
- Retained earnings declined to $32.528 million from $33.324 million, reflecting the quarterly net loss and dividend declaration.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide quantitative financial guidance. It expects tight labor-market conditions, historically high inflation, and soft non-automotive demand to persist in the near term. The company is reviewing pricing, investing in equipment to improve efficiency, adjusting activities to market conditions, and pursuing new and expanded customer relationships.
Management believes current cash, cash equivalents, and operating cash flow will provide adequate working capital for the next twelve months. However, first-quarter operating cash flow was negative and liquidity declined materially during the quarter.
Key risks include dependence on the domestic automotive industry and major customers, uncertain economic conditions, raw-material price and availability, supply-chain disruptions, labor shortages and relations issues, competition, export risks, product liability and warranty or recall claims, environmental costs, information-system disruptions, loss of key employees, and difficulty achieving cost savings. The company is subject to ordinary-course litigation, including environmental claims and contract disputes; management does not expect currently unprovided contingencies to have a material adverse effect. Federal tax returns for 2019 through 2022 and state tax returns for 2019 through 2022 remain subject to examination.
The company adopted the current expected credit-loss standard on January 1, 2023, with no material impact and no cumulative retained-earnings adjustment. Management reported that disclosure controls were effective and that no material changes affected internal control over financial reporting.
Important Facts for Investors to Verify
- Whether production inefficiencies, staffing constraints, and expediting costs continue to pressure fastener-segment margins.
- Whether non-automotive demand and Assembly Equipment replacement-parts and tooling sales recover.
- Whether elevated receivables and inventories convert to cash and whether production bottlenecks are resolved.
- The sustainability of the $0.22-per-share quarterly dividend given the first-quarter net loss and negative operating cash flow.
- Customer concentration, automotive exposure, raw-material costs, and the status of supply-chain and labor risks described in the annual filing.
- Any developments in ordinary-course litigation, tax examinations, environmental matters, or contingent liabilities.