Chicago Rivet & Machine Co. — 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. The company operates through Fastener and Assembly Equipment segments, serving primarily automotive and other industrial markets. This unaudited report covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Key Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Net sales | $9.02 million | $8.36 million | $18.22 million | $17.67 million |
| Gross profit | $1.45 million | $1.68 million | $3.30 million | $3.71 million |
| Gross margin | 16.0% | 20.0% | 18.1% | 21.0% |
| Operating profit | $182,456 | $392,329 | $743,014 | $1.06 million |
| Operating margin | 2.0% | 4.7% | 4.1% | 6.0% |
| Net income | $153,904 | $319,507 | $601,217 | $859,635 |
| Net margin | 1.7% | 3.8% | 3.3% | 4.9% |
| Diluted EPS | $0.16 | $0.33 | $0.62 | $0.89 |
- Second-quarter sales increased 7.9%; first-half sales increased 3.1%.
- Fastener revenue increased 12.8% in the quarter and 6.0% year to date. Assembly Equipment revenue decreased 21.2% and 15.6%, respectively.
- Second-quarter and first-half gross profit declined primarily because of higher raw-material, transportation, labor, and other operating costs.
- Selling and administrative expense decreased 1.6% in the quarter and 3.3% year to date. First-half selling and administrative expense was 14.0% of sales versus 15.0% in 2021.
- Effective tax rates were approximately 21.0% for the quarter and 21.4% for the first half.
Cash Flow, Liquidity, Debt, and Balance Sheet
- Cash flow from operations was negative $537,421 for the first six months, compared with negative $300,136 in 2021. Working-capital investment included increases of $1.19 million in accounts receivable and $1.10 million in inventory.
- Capital expenditures were $211,703, primarily for fastener-production equipment. Dividends paid were $425,098, or $0.44 per share for the first half.
- Cash and cash equivalents were $862,732 at June 30, 2022, versus $2.04 million at December 31, 2021. Including certificates of deposit, liquidity totaled $3.60 million versus $4.78 million at year-end.
- Total current assets were $20.49 million and current liabilities were $2.51 million, producing working capital of $17.98 million.
- Total assets were $32.53 million and shareholders’ equity was $29.15 million at June 30, 2022.
- The filing does not report outstanding borrowings or debt; total liabilities were $3.39 million, including deferred income taxes.
- Management believes cash, cash equivalents, and operating cash flow will provide adequate working capital for the next twelve months.
Material Changes, Outlook, Risks, and Unusual Items
- Automotive demand remained constrained by critical-component shortages; management reported North American light-vehicle sales down 18.3% from the prior-year comparable period.
- Inflation, supply-chain disruption, and a tight labor market increased raw-material, transportation, labor, and other operating costs. Management stated that cost increases may be difficult to recover and could persist while supply constraints remain.
- Assembly Equipment revenue and gross profit declined because the prior-year period included several high-value specialty machines and the current-year average selling price was lower.
- Management cited continuing risks from COVID-19, automotive-industry conditions, customer concentration, competition, export sales, raw-material availability, labor issues, product liability and warranty claims, environmental requirements, information-system disruptions, and loss of key employees.
- The company has concentration of credit risk among customers primarily in the automotive industry and the Midwestern United States.
- The company is periodically involved in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not materially adversely affect financial position, although the ultimate amounts cannot currently be determined.
- Federal tax returns for 2018–2021 and state returns for 2018–2021 remain subject to examination. Management does not anticipate a material effect from examinations.
- No revenue from certain assembly-equipment contracts was recognized in the second quarter, and no such contracts were outstanding at June 30, 2022.
- The filing provides no quantified full-year revenue or earnings guidance. Management expects near-term challenges from inflation, supply constraints, labor conditions, automotive demand, and lingering COVID-19 uncertainty.
Investor Verification Items
- Verify whether automotive production and component availability improve sufficiently to sustain Fastener segment growth.
- Monitor whether inflationary costs can be passed through to customers and whether gross margins recover from the 2022 decline.
- Review inventory and receivables growth, valuation reserves, and operating cash flow conversion.
- Confirm the company’s liquidity outlook given the decline in cash and certificates of deposit and the absence of positive operating cash flow in the first half.
- Assess the timing and mix of Assembly Equipment orders, including the effect of high-value specialty machines on comparable results.
- Review major-customer concentration, litigation and environmental contingencies, tax examinations, and the risks disclosed in the company’s Form 10-K.