Escalade, Inc. :ESCA-US: Earnings Analysis: Q3, 2016 By the Numbers : October 31, 2016

Escalade, Inc. reports financial results for the quarter ended September 30, 2016.

Highlights

  • Summary numbers: Revenues of USD 38.79 million, Net Earnings of USD 4.24 million.
  • Gross margins widened from 25.38% to 25.55% compared to the same period last year, operating (EBITDA) margins now 11.38% from 8.91%.
  • Change in operating cash flow of 54.25% 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:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 34.58 43.74 34.57 48.46 38.79
Revenue Growth (%YOY) 9.45 7.63 3.44 10.66 12.17
Earnings (mil) 2.03 2.86 1.7 2.09 4.24
Earnings Growth (%YOY) -47.15 -36.14 -51.47 -35.13 109.22
Net Margin (%) 5.86 6.54 4.91 4.31 10.94
EPS 0.14 0.2 0.12 0.15 0.3
Return on Equity (%) 8.68 12.01 6.99 8.55 17.1
Return on Assets (%) 5.91 7.8 4.54 5.39 10.59

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ESCA-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 ESCA-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 -19.95% and earnings by 103.01% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 25.38% to 25.55% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 8.91% to 11.38% compared to the same period last year. For comparison, gross margins were 24.59% and EBITDA margins were 10.10% in the last reporting 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

ESCA-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 84.61 days from 93.85 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

ESCA-US‘s year-on-year change in operating cash flow of 54.25% 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 5.42% to 8.84% and (2) one-time items. The company’s pretax margins are now 14.76% compared to 8.31% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Escalade, Inc. engages in the provision of manufacturing and distribution of sporting goods. It offers a range of sports products in the field of archery, table tennis, basketball, fitness, game tables, billiard, dart and other outdoor sports. It distributes its products through retailers, specialty dealers, key on-line retailers, traditional department stores and mass merchants. The company was founded in 1922 and is headquartered in Evansville, IN.

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