Black Box Corp. :BBOX-US: Earnings Analysis: Q1, 2017 By the Numbers : August 5, 2016

Black Box Corp. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Black Box Corp. – Datalink Corporation, Polycom, Inc., CommScope Holding Co., Inc., F5 Networks, Inc., Digi International Inc., Orange SA Sponsored ADR and General Electric Company (DTLK-US, PLCM-US, COMM-US, FFIV-US, DGII-US, ORAN-US and GE-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 218.50 million, Net Earnings of USD -0.50 million.
  • Gross margins widened from 29.25% to 29.84% compared to the same period last year, operating (EBITDA) margins now 3.39% from 3.73%.
  • Year-on-year change in operating cash flow of 247.88% is about the same as the 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:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 229.21 236.84 222.48 224.1 218.5
Revenue Growth (%YOY) -6.53 -4.84 -12.16 -8.57 -4.67
Earnings (mil) 0.75 -129.85 5.74 -47.7 -0.5
Earnings Growth (%YOY) -80.88 -4153.86 8.78 -1744.83 -166.31
Net Margin (%) 0.33 -54.82 2.58 -21.29 -0.23
EPS 0.05 -8.45 0.37 -3.14 -0.03
Return on Equity (%) 0.89 -190.43 11.05 -104.48 -1.29
Return on Assets (%) 0.44 -85.09 4.28 -38 -0.43

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Market Share Versus Profits

Revenues History
Earnings History

BBOX-US‘s change in revenue this period compared to the same period last year of -4.67% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that BBOX-US is holding onto its market share. Also, for comparison purposes, revenues changed by -2.50% and earnings by 98.95% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

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 3.73% to 3.39%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 29.25% to 29.84%. For comparison, gross margins were 25.48% and EBITDA margins -4.24% in the immediate last period.

Gross Margin Versus EBITDA Margin

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

BBOX-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 53.21 days from 64.48 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

BBOX-US‘s change in operating cash flow of 247.88% 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

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 1.72% to 1.24% and (2) one-time items that contributed to a decrease in pretax margins from 1.23% to 0.87%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Black Box Corp. engages in the provision of technology solutions. It supports its customers to design, build, manage, and secure their information technology (IT)infrastructure. The firm offers its products under Products and Services Platforms. The Products platform includes IT infrastructure, specialty networking, multimedia and keyboard/video/mouse switching. The Services platform includes unified communications, data infrastructure and managed services. It operates its business through the following segments: North America Products, North America Services, International Products, and International Services. The company was founded in 1976 and is headquartered in Lawrence, PA.

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