Cleantech Solutions International, Inc. :CLNT-US: Earnings Analysis: Q3, 2016 By the Numbers : November 17, 2016

Cleantech Solutions International, Inc. reports financial results for the quarter ended September 30, 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 3.98 million, Net Earnings of USD -0.36 million.
  • Gross margins narrowed from 15.31% to 5.92% compared to the same period last year, operating (EBITDA) margins now 21.69% from 27.66%.
  • Year-on-year change in operating cash flow of -309.34% 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 3.98 4.06 4.92 6.7 12.03
Revenue Growth (%YOY) -66.92 -73.26 -68.56 -67.38 -40.61
Earnings (mil) -0.36 -0.68 -0.84 -16.14 0.9
Earnings Growth (%YOY) -139.77 -155.45 -167.94 -429.71 -66.51
Net Margin (%) -9.04 -16.75 -17.16 -240.83 7.52
EPS -0.07 -0.15 -0.21 -4.1 0.23
Return on Equity (%) -1.85 -3.44 -4.21 -72.71 3.65
Return on Assets (%) -1.64 -2.95 -3.58 -64.1 3.32

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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 -66.92% 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 -2.06% and earnings by 47.14% 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 year-on-year decline in earnings was influenced by a weakening in gross margins from 15.31% to 5.92%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 27.66% to 21.69% in this time frame. For comparison, gross margins were -4.14% and EBITDA margins were 27.36% in the previous 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

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 608.42 days, compared to last year’s level of 238.83 days.

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?

CLNT-US‘s change in operating cash flow of -309.34% 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 decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 10.64% to -7.72% and (2) one-time items that contributed to a decrease in pretax margins from 10.23% to -8.86%

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

Access our Ratings and Scores for Cleantech Solutions International, Inc.

Company Profile

Cleantech Solutions International, Inc. engages in manufacturing of metal components and assemblies used in clean technology, manufacturing industries, textile dyeing, and finishing machines. It operates through the following segments: Dyeing and Finishing Equipment; Forged Rolled Rings and Related Components, and Petroleum and Chemical Equipment. The Dyeing and Finishing Equipment segment involves in the manufacture and sell of textile dyeing and finishing machines. The Forged Rolled Rings and Related Components segment includes manufacture and sell of precision forged rolled rings, shafts, flanges, and forged components for the energy industry including wind power industries. The Petroleum and Chemical Equipment segment offers producing and selling of coal chemical equipment, formaldehyde plant, and downstream products. The company was founded by Jian Hua Wu in 1995 and is headquartered in Wuxi, China.

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