National Presto Industries, Inc. — 2013 Q1 Form 10-Q
Business Context and Reporting Period
Unaudited results for the three months ended March 31, 2013, compared with the three months ended April 1, 2012. The company operates through Housewares/Small Appliances, Defense Products, and Absorbent Products segments.
Financial Performance and Position
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $83.2 million | $96.8 million | Down 14% |
| Gross profit | $16.2 million | $20.4 million | Down 20% |
| Gross margin | 19.5% | 21.0% | Down 1.5 percentage points |
| Operating profit | $10.4 million | $14.5 million | Down 29% |
| Operating margin | 12.4% | 15.0% | Down 2.5 percentage points |
| Net earnings | $6.9 million | $9.3 million | Down 27% |
| Diluted EPS | $0.99 | $1.36 | Down $0.37 |
| Operating cash flow | $10.8 million | $11.7 million | Down $0.8 million |
- Segment sales were $24.9 million for Housewares/Small Appliances, $39.0 million for Defense Products, and $19.4 million for Absorbent Products.
- Cash and cash equivalents were $43.0 million at March 31, 2013, and marketable securities were $55.0 million, for total cash and marketable securities of approximately $98.1 million.
- Working capital was $218.3 million and the current ratio was 5.2 to 1.0. The filing reports no debt balance.
- Total assets were $356.9 million and stockholders’ equity was $297.7 million at March 31, 2013.
- Capital expenditures were $5.8 million, compared with $4.5 million in the prior-year quarter.
- No dividend was paid during the quarter; the 2013 annual dividend was accelerated and paid in December 2012 because of uncertainty regarding federal tax rates.
Material Changes Versus the Prior Comparable Period
- Defense Products sales fell 22%, primarily because of lower unit shipments. Segment gross profit declined 27% because of lower sales and a less favorable product mix.
- Absorbent Products sales declined 14%, principally because a major customer produced more product internally and prior-year raw-material shipments did not recur. Gross profit included a $553,000 insurance settlement.
- Housewares/Small Appliances sales increased 1%, but gross profit declined 5% because of higher product and logistics costs.
- Consolidated selling and general expenses were essentially flat. Defense expenses increased partly because of $167,000 of amortization related to acquired intangible assets.
- Accounts receivable declined $25.9 million from year-end, while inventories increased $13.5 million and other current assets increased $6.8 million, including deposits with raw-material suppliers.
- Net cash increased $5.6 million during the quarter, compared with a $29.0 million decrease in the prior-year quarter, when the company paid its annual dividend.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The filing provides no specific earnings or revenue guidance. Management expects to continue evaluating acquisitions and making capital investments when appropriate returns are projected.
- Management states that liquidity is substantial and sufficient for anticipated capital requirements, dividend payments, and acquisitions.
- Key risks include consumer spending, major-customer relationships, defense spending and government contract changes, competitive pricing, material and freight costs, production or shipping interruptions, product liability or recalls, labor disruptions, subcontractor performance, and capital-equipment utilization.
- The company is exposed to interest-rate changes through cash and marketable securities and to U.S. dollar/Renminbi fluctuations through Housewares/Small Appliances suppliers in China.
- Marketable securities totaled $55.0 million and primarily comprised municipal bonds and variable-rate demand notes. Management reports no known material issues with the demand notes and does not expect interest-rate exposure to be material.
- Routine litigation is pending, but management believes it will not materially affect financial position, liquidity, or results of operations.
- Management reported effective disclosure controls as of March 31, 2013, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the Defense Products shipment decline is temporary or reflects sustained changes in government demand, contract funding, or customer requirements.
- The sustainability of Absorbent Products revenue given the major customer’s increased internal production.
- Whether inventory growth and supplier deposits convert into sales and cash without obsolescence or margin pressure.
- The nature and recurrence potential of the $553,000 insurance settlement.
- The amount, timing, and tax treatment of future dividends following the accelerated 2013 payment.
- Acquisition and capital-investment plans, including expected returns and integration risks.
- The filing’s caution that interim results are not necessarily indicative of full-year results.