Chase Corp. :CCF-US: Earnings Analysis: 2017 By the Numbers : November 14, 2017

Chase Corp. reports financial results for the year ended August 31, 2017.

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

Highlights

  • Gross margins widened from 39.34% to 42.18% compared to the same period last year, operating (EBITDA) margins now 28.97% from 26.29%.
  • Year-on-year change in operating cash flow of 6.35% 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:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 252.56 238.09 238.05 224.01 216.06
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 41.56 32.54 26.1 26.18 16.82
Earnings Growth (YOY) 27.72 24.66 -0.3 55.68 85.98
Net Margin 16.46 13.67 10.97 11.69 7.78
EPS 4.44 3.5 2.82 2.86 1.87
Return on Equity 21.59 19.82 17.89 20.83 15.75
Return on Assets 16.06 12.5 10.37 10.9 7.45

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 39.34% to 42.18% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 26.29% to 28.97% compared to the same period last year. For comparison, gross margins were 39.34% and EBITDA margins were 26.29% 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 are now 113.54 days compared to 115.83 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?

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

CCF-US’s change in operating cash flow of 6.35% 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 20.64% to 23.33% and (2) one-time items. The company’s pretax margins are now 24.11% compared to 21.05% 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. engages in manufacturing of protective materials for high-reliability. It operates through the Industrial Materials and Construction Materials segments. The Industrial Materials segment includes specified products that are used in, or integrated into, another company’s product, with demand typically dependent upon general economic conditions. The Construction Materials segment comprises of project-oriented product offerings that are primarily sold and used as “Chase” branded products. The company was founded by Francis M. Chase and Edward L. Chase in 1946 and is headquartered in Bridgewater, MA.

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