Business Context and Reporting Period
Chicago Rivet & Machine Co. filed this unaudited Form 10-Q for the three months ended March 31, 2022. The company manufactures and sells rivets, cold-formed fasteners, screw-machine products, automatic rivet-setting machines, and related parts and tools. Operations are reported in two segments: Fastener and Assembly Equipment.
Financial Performance and Liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $9.198 million | $9.305 million | Down 1.2% |
| Gross profit | $1.856 million | $2.034 million | Down 8.8% |
| Gross margin | 20.2% | 21.9% | Down 1.7 percentage points |
| Operating profit | $0.561 million | $0.672 million | Down 16.6% |
| Operating margin | 6.1% | 7.2% | Down 1.1 percentage points |
| Net income | $0.447 million | $0.540 million | Down 17.2% |
| Basic and diluted EPS | $0.46 | $0.56 | Down $0.10 |
| Operating cash flow | $(0.388) million | $(0.906) million | Improved by $0.518 million |
| Capital expenditures | $0.121 million | $0.116 million | Up $0.004 million |
Fastener revenue was $8.154 million, essentially unchanged from $8.149 million. Automotive fastener sales declined 3.1% to $4.904 million, while non-automotive fastener sales increased 5.2% to $3.250 million. Assembly Equipment revenue declined 9.7% to $1.044 million, primarily because of lower average selling prices on machines.
Cost of goods sold increased to $7.341 million from $7.271 million despite lower sales. Management reported that steel, the primary raw material, cost approximately 37% more than in the prior-year quarter. Selling and administrative expense decreased 4.9% to $1.296 million, primarily due to lower payroll expense, and represented 14.1% of sales versus 14.6% previously.
Cash and cash equivalents totaled $1.315 million at March 31, 2022, compared with $2.037 million at December 31, 2021. Certificates of deposit totaled $2.741 million, resulting in cash, cash equivalents, and certificates of deposit of $4.056 million. Working capital increased to $17.832 million from $17.422 million. The filing reports no borrowings or other debt balances.
Total assets were $32.966 million and shareholders’ equity was $29.204 million at March 31, 2022. Accounts receivable increased to $6.638 million and net inventories increased to $9.613 million, including higher raw-material quantities and prices. The company paid $0.213 million in dividends during the quarter and declared a quarterly dividend of $0.22 per share.
Material Changes Versus the Prior Comparable Period
- Sales decreased modestly, but profitability declined more sharply because of higher manufacturing costs and lower machine selling prices.
- Gross profit decreased $0.178 million, with fastener segment gross margin down $0.098 million and Assembly Equipment segment gross margin down $0.080 million.
- Net income declined $0.093 million, or 17.2%, and EPS declined from $0.56 to $0.46.
- Operating cash outflow improved from $0.906 million to $0.388 million, but working-capital investment remained significant: accounts receivable increased $0.990 million and inventories increased $1.093 million.
- Cash and cash equivalents decreased $0.722 million, partly reflecting capital expenditures and dividend payments. In the prior-year quarter, the company received $1.743 million from certificates of deposit; no comparable proceeds were received in 2022.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide specific numerical revenue or earnings guidance. Management expects near-term challenges from pandemic-related semiconductor and parts shortages affecting automotive customers, accelerating inflation, higher raw-material costs, a tight labor market, supply-chain disruptions, and continuing COVID-19 uncertainty. Management expects further cost increases, which may be difficult to recover through pricing.
Management believes current cash, cash equivalents, and operating cash flow will provide adequate working capital for the next twelve months. The company has concentrated credit exposure 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 unreserved contingent liabilities will not materially adversely affect financial position, although the ultimate liability cannot currently be determined. Federal tax returns for 2018 through 2021 and state tax returns for 2018 through 2021 remain subject to examination; management does not expect a material adjustment.
Disclosure controls and procedures were deemed effective, and the filing reports no material changes to internal control over financial reporting. Interim results are not necessarily indicative of full-year results.
Investor Verification Items
- Verify whether automotive production and semiconductor availability improve, and assess the effect on Fastener segment demand.
- Monitor steel and other input costs, pricing actions, labor costs, and whether the company can recover inflationary increases.
- Assess inventory growth, valuation reserves, accounts receivable collections, and the impact of working-capital requirements on cash flow.
- Confirm the sustainability of the $0.22-per-share quarterly dividend relative to earnings and cash generation.
- Review customer concentration, export exposure, supply-chain risks, environmental and contract litigation, and product liability or warranty risks.
- Reconcile the reported cash, certificates of deposit, and any future capital needs, noting that the filing text does not report outstanding debt.