Cleantech Solutions International, Inc. :CLNT-US: Earnings Analysis: Q1, 2016 By the Numbers

Cleantech Solutions International, Inc. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of Cleantech Solutions International, Inc. – ARC Group Worldwide, Inc. (ARCW-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 4.92 million, Net Earnings of USD -0.84 million.
  • Gross margins narrowed from 17.43% to 1.06% compared to the same period last year, operating (EBITDA) margins now 20.73% from 25.07%.
  • Year-on-year change in operating cash flow of -97.43% 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:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 15.65 15.19 12.03 6.7 4.92
Revenue Growth (%YOY) -11.28 -13.34 -40.61 -67.38 -68.56
Earnings (mil) 1.24 1.23 0.9 -16.14 -0.84
Earnings Growth (%YOY) -48.15 -44.7 -66.51 -429.71 -167.94
Net Margin (%) 7.94 8.07 7.52 -240.83 -17.16
EPS 0.32 0.31 0.23 -4.1 -0.21
Return on Equity (%) 5.05 4.9 3.65 -72.71 -4.21
Return on Assets (%) 4.57 4.44 3.32 -64.1 -3.58

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Market Share Versus Profits

Revenues History
Earnings History

CLNT-US‘s change in revenue this period compared to the same period last year of -68.56% 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 CLNT-US is holding onto its market share. Also, for comparison purposes, revenues changed by -26.61% and earnings by 94.77% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 17.43% to 1.06%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 25.07% to 20.73% in this time frame. For comparison, gross margins were -8.57% and EBITDA margins were -18.57% in the previous 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

CLNT-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 476.25 days, compared to last year’s level of 148.11 days.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

CLNT-US‘s change in operating cash flow of -97.43% 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 11.66% to -13.77% and (2) one-time items that contributed to a decrease in pretax margins from 11.33% to -14.66%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Cleantech Solutions International, Inc. engages in manufacturing of metal components and assemblies used in various clean technology and manufacturing industries and textile dyeing and finishing machines. It supplies fabricated products and machining services to a range of clean technology customers globally. It operates through Forged Rolled Ring and Related Components Segment and Dyeing and Finishing Equipment Segment. The Forged Rolled Ring and Related Components Segment manufactures and sells high precision forged rolled rings, shafts, flanges, and other forged components for the wind power and other industries. The Dyeing and Finishing Equipment Segment involves design, manufacture and distribution of high and low temperature dyeing and finishing machinery. Its products are used in dyeing yarns such as cotton, wool, and nylon. The company was founded by Jian Hua Wu in 1995 and is headquartered in Wuxi, China.

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