Avalon Holdings Corp. :AWX-US: Earnings Analysis: Q3, 2017 By the Numbers : January 4, 2018

Avalon Holdings Corp. reports financial results for the quarter ended September 30, 2017.


  • Summary numbers: Revenues of USD 16.36 million, Net Earnings of USD 0.55 million.
  • Gross margins widened from 15.28% to 16.90% compared to the same period last year, operating (EBITDA) margins now 7.77% from 7.99%.
  • Change in operating cash flow of 140.08% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 16.36 14.58 10.7 15.58 19.13
Revenue Growth (%YOY) -14.47 -6.81 -2.7 12.41 31.25
Earnings (mil) 0.55 0.12 -0.93 -0.39 0.81
Earnings Growth (%YOY) -32.13 -71.26 -1.98 -97.96 52.36
Net Margin (%) 3.34 0.83 -8.65 -2.49 4.21
EPS 0.14 0.03 -0.24 -0.1 0.21
Return on Equity (%) 1.35 0.3 -2.27 -0.93 1.94
Return on Assets (%) 3.29 0.74 -5.47 -2.26 4.9

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, AWX-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if AWX-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 12.26% and earnings by 352.07% compared to the previous period.

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 7.99% to 7.77%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 15.28% to 16.90%. For comparison, gross margins were 14.90% and EBITDA margins 5.97% in the immediate last period.

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

AWX-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -2.68, compared to last year’s level of -39.03 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.

Cash Versus Earnings – Sustainable Performance?

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

AWX-US’s year-on-year change in operating cash flow of 140.08% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 4.26% to 3.21% and (2) one-time items that contributed to a decrease in pretax margins from 4.07% to 2.44%

EBIT Margin History
PreTax Margin History

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Company Profile

Avalon Holdings Corp. engages in the provision of waste management services to industrial, commercial, municipal, and governmental customers. It operates through the Waste Management Services and Golf and Related Operations segments. The Waste Management Services segment includes waste disposal brokerage and management services; captive landfill management operations; and salt water injection well operations. The Golf and Related Operations segment focuses on the operation and management of golf courses and related clubhouses, a hotel, fitness centers, tennis courts, spa services, dining, banquet and conference facilities, and a travel agency. The company was founded on April 30, 1998 and is headquartered in Warren, OH.

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