CTI Industries Corp. :CTIB-US: Earnings Analysis: Q4, 2016 By the Numbers : April 4, 2017

CTI Industries Corp. reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 21.44 million, Net Earnings of USD 0.91 million.
  • Gross margins narrowed from 29.82% to 27.75% compared to the same period last year, operating (EBITDA) margins now 10.15% from 8.40%.
  • Change in operating cash flow of 75.55% compared to same period last year is about the same as 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 21.44 13.48 14.15 15.2 15.89
Revenue Growth (%YOY) 34.93 -9.44 3.89 1.53 4.66
Earnings (mil) 0.91 -0.18 -0.08 0.01 0.5
Earnings Growth (%YOY) 81.19 -186.25 -260.48 -97.62 31.4
Net Margin (%) 4.24 -1.34 -0.59 0.04 3.16
EPS 0.24 -0.05 -0.02 0 0.14
Return on Equity (%) 30.59 -6.27 -2.83 0.22 16.12
Return on Assets (%) 8.18 -1.65 -0.79 0.06 4.87

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, CTIB-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 CTIB-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 59.07% and earnings by 603.77% compared to the previous period.

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 8.40% to 10.15%. For comparison, gross margins were 25.32% and EBITDA margins were 3.07% in the last 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.

Gross Margin History
Working Capital Days History

CTIB-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 49.21 days from 67.93 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

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

CTIB-US‘s year-on-year change in operating cash flow of 75.55% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 5.88% to 8.90% and (2) one-time items. The company’s pretax margins are now 7.37% compared to 2.61% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

CTI Industries Corp. engages in the provision of design and development of flexible film products. Its activities include development, production and distribution of innovative flexible film products for commercial and for consumer markets. Its products include balloon, vacuum sealing and commercial film. The company was founded on October 14, 1983 and is headquartered in Lake Barrington, IL.

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