Chase Corp. :CCF-US: Earnings Analysis: 2016 By the Numbers : November 28, 2016

Chase Corp. reports financial results for the year ended August 31, 2016.

We analyze the earnings along side the following peers of Chase Corp. – Quaker Chemical Corporation, RPM International Inc., Sherwin-Williams Company, PPG Industries, Inc., Bemis Company, Inc., 3M Company and AZZ Inc. (KWR-US, RPM-US, SHW-US, PPG-US, BMS-US, MMM-US and AZZ-US) that have also reported for this period.

Highlights

  • Gross margins widened from 37.32% to 39.34% compared to the same period last year, operating (EBITDA) margins now 26.29% from 23.26%.
  • Year-on-year change in operating cash flow of 19.22% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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 238.09 238.05 224.01 216.06 148.92
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 32.54 26.1 26.18 16.82 9.04
Earnings Growth (YOY) 24.66 -0.3 55.68 85.98 -15.11
Net Margin 13.67 10.97 11.69 7.78 6.07
EPS 3.5 2.82 2.86 1.87 1.03
Return on Equity 19.82 17.89 20.83 15.75 9.44
Return on Assets 12.5 10.37 10.9 7.45 5.1

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 37.32% to 39.34% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 23.26% to 26.29% compared to the same period last year. For comparison, gross margins were 37.32% and EBITDA margins were 23.26% 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

CCF-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 115.83 days from 130.75 days for the same period last year.

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?

CCF-US‘s change in operating cash flow of 19.22% 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 growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 17.98% to 20.64% and (2) one-time items. The company’s pretax margins are now 21.05% compared to 17.32% for the same period last year.

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

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Company Profile

Chase Corp. is a global manufacturer of protective materials for high reliability applications. It operates its business through two segments: Industrial Materials and Construction Materials. The Industrial Materials segment reflects specified products that are used in or integrated into another company’s product with demand dependent upon general economic conditions. Industrial Materials products include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics and printing services, laminated durable papers, and flexible composites and laminates for the aerospace, packaging and industrial laminate markets. The Construction Materials segment reflects its construction project oriented product offerings, which are primarily sold and used as ‘Chase’ branded products in final form. Its products include protective coatings for pipeline applications, coating and lining systems for use in liquid storage and containment applications, high performance polymeric asphalt additives and expansion and control joint systems for use in the transportation and architectural markets. The company was founded by Francis G. Chase, Francis M. Chase and Edward L. Chase in 1946 and is headquartered in Bridgewater, MA.

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