Chase Corporation reports financial results for the quarter ended November 29, 2017.
- Summary numbers: Revenues of USD 61.92 million, Net Earnings of USD 8.32 million.
- Gross margins narrowed from 42.53% to 40.46% compared to the same period last year, operating (EBITDA) margins now 26.70% from 28.06%.
- Change in operating cash flow of -21.39% 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:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||0.91||12.27||1.04||4.34||6.75|
|Earnings Growth (%YOY)||-19.76||5.14||57.42||20.24||39.12|
|Net Margin (%)||13.43||16.54||18.27||14.63||16.89|
|Return on Equity (%)||3.91||5.58||6.2||4.65||5.93|
|Return on Assets (%)||12.94||17.61||18.39||12.96||15.69|
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Market Share Versus Profits
Compared to the same period last year, CCF-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 CCF-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 -10.26% and earnings by -27.14% compared to the previous period.
Earnings Growth Analysis
The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 42.53% to 40.46%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 28.06% to 26.70% in this time frame. For comparison, gross margins were 41.48% and EBITDA margins were 29.00% in the previous 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.
CCF-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 131.85 days, compared to last year’s level of 118.88 days.
Cash Versus Earnings – Sustainable Performance?
It is important to examine a companyï¿½s cash versus earnings numbers to gauge whether its performance is sustainable.
CCF-US’s year-on-year change in operating cash flow of -21.39% 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 22.34% to 20.94% and (2) one-time items that contributed to a decrease in pretax margins from 23.88% to 20.35%
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Chase Corporation is engaged in manufacturing of protective materials for reliability applications. The Company’s operating segments include industrial materials segment and construction materials segment. 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 industrial material includes insulating and conducting materials for the manufacture of electrical and telephone wire and cable, electrical splicing, and terminating and repair tapes, which are marketed to wire and cable manufacturers. The Construction Materials segment consists of project-oriented product offerings that are sold and used as Chase branded products. The Company’s principal products are specialty tapes, laminates, sealants, coatings and chemical intermediates. Its manufacturing facilities are located at O’Hara Township, Pennsylvania and Blawnox, Pennsylvania facilities.
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