Chase Corp. :CCF-US: Earnings Analysis: Q1, 2017 By the Numbers : January 10, 2017

Chase Corp. reports financial results for the quarter ended November 30, 2016.

We analyze the earnings along side the following peers of Chase Corp. – RPM International Inc., Valspar Corporation and AZZ Inc. (RPM-US, VAL-US and AZZ-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 61.36 million, Net Earnings of USD 10.25 million.
  • Gross margins widened from 36.27% to 42.49% compared to the same period last year, operating (EBITDA) margins now 29.06% from 25.47%.
  • Year-on-year change in operating cash flow of -8.19% 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:

2016-11-30 2016-08-31 2016-05-31 2016-02-29 2015-11-30
Relevant Numbers (Quarterly)
Revenues (mil) 61.36 61.46 64.24 54.92 57.48
Revenue Growth (%YOY) 6.75 -5.32 -1.02 5.01 2.76
Earnings (mil) 10.25 10.79 7.46 6.91 7.38
Earnings Growth (%YOY) 38.85 38.41 5.01 71.13 7.72
Net Margin (%) 16.71 17.55 11.62 12.58 12.84
EPS 1.1 1.16 0.8 0.74 0.8
Return on Equity (%) 23.45 25.13 18.16 17.55 19.07
Return on Assets (%) 15.52 16.4 11.64 10.92 11.49

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Market Share Versus Profits

Revenues History
Earnings History

CCF-US‘s change in revenue this period compared to the same period last year of 6.75% 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 CCF-US is holding onto its market share. Also, for comparison purposes, revenues changed by -0.16% and earnings by -4.97% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 36.27% to 42.49% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 25.47% to 29.06% compared to the same period last year. For comparison, gross margins were 40.96% and EBITDA margins were 28.46% 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 118.88 days from 129.82 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 -8.19% 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 19.57% to 23.34% and (2) one-time items. The company’s pretax margins are now 23.88% compared to 20.24% 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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