Acorn International, Inc. :ATV-US: Earnings Analysis: 2016 By the Numbers : June 5, 2017

Acorn International, Inc. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Acorn International, Inc. – Liberty Interactive Corporation QVC Group Class A, Overstock.com, Inc. and EVINE Live Inc. Class A (QVCA-US, OSTK-US and EVLV-US) that have also reported for this period.

Highlights

  • Gross margins widened from 18.32% to 44.02% compared to the same period last year, operating (EBITDA) margins now -61.64% from -81.23%.
  • Year-on-year change in operating cash flow of 36.09% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from -83.79% to 36.16%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 24.46 47.52 94.38 184.92 242.55
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 3.43 -40.13 -44.16 -39.94 -17.92
Earnings Growth (YOY) 108.55 9.11 -10.55 -122.83 -449.92
Net Margin 14.02 -84.46 -46.78 -21.6 -7.39
EPS 1 -10.19 -10.76 -9.41 -4
Return on Equity 2.46 -29.77 -38.87 -25.27 -9.51
Return on Assets 1.83 -21.97 -29.43 -20.87 -7.91

Access our Ratings and Scores for Acorn International, Inc.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 18.32% to 44.02% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -81.23% to -61.64% compared to the same period last year. For comparison, gross margins were 18.32% and EBITDA margins were -81.23% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ATV-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 231.42, compared to last year’s level of 230.39 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

ATV-US‘s change in operating cash flow of 36.09% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from -89.54% to -68.80% and pretax margins widened from -83.79% to 36.16%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Acorn International, Inc.

Company Profile

Acorn International, Inc. operates as a marketing and branding company. It engages in developing, promoting and selling a diverse portfolio of proprietary-branded products, as well as well-established and promising new products from established third parties. The company operates through the following divisions: Direct Sales Platforms and Nationwide Distribution Network. The Direct-Sales Platform segment involves marketing and selling products directly to consumers in China through outbound marketing platform and Internet sales platform. The Nationwide Distribution Network segment covers all provinces in China through distributors and allows reaching retail outlets across China. Acorn International was founded by Robert Walter Roche and Dong Jie Yang in 1998 and is headquartered in Shanghai, China.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of ATV-US.