Flexsteel Industries, Inc. :FLXS-US: Earnings Analysis: Q1, 2017 By the Numbers : October 26, 2016

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

We analyze the earnings along side the following peers of Flexsteel Industries, Inc. – Bassett Furniture Industries, Inc., Hooker Furniture Corporation and Select Comfort Corporation (BSET-US, HOFT-US and SCSS-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 112.05 million, Net Earnings of USD 4.75 million.
  • Gross margins widened from 22.03% to 23.77% compared to the same period last year, operating (EBITDA) margins now 8.69% from 8.87%.
  • Year-on-year change in operating cash flow of 32.04% 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:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 126.53 125.41 125.4 122.76 112.05
Revenue Growth (%YOY) 16.44 9.64 2.34 1.19 -11.44
Earnings (mil) 5.76 5.37 6.94 6.16 4.75
Earnings Growth (%YOY) 18.12 14.56 -0.17 6.64 -17.53
Net Margin (%) 4.55 4.28 5.54 5.02 4.24
EPS 0.74 0.69 0.89 0.78 0.61
Return on Equity (%) 12.17 11.02 13.82 11.91 8.97
Return on Assets (%) 9.5 8.78 11.3 10.05 7.62

Access our Ratings and Scores for Flexsteel Industries, Inc.

Market Share Versus Profits

Revenues History
Earnings History

FLXS-US‘s change in revenue this period compared to the same period last year of -11.44% 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 FLXS-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.73% and earnings by -22.91% 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 earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 8.87% to 8.69%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 22.03% to 23.77%. For comparison, gross margins were 23.97% and EBITDA margins 8.94% in the immediate last 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

FLXS-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 117.25, compared to last year’s level of 88.28 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

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?

FLXS-US‘s change in operating cash flow of 32.04% 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 7.49% to 6.88% and (2) one-time items that contributed to a decrease in pretax margins from 7.34% to 6.92%

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 Flexsteel Industries, Inc.

Company Profile

Flexsteel Industries, Inc. manufactures, imports, and markets residential and commercial upholstered and wooden furniture products. It offers sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, and bedroom furniture. Its products are used in home, office, hospitality, health care, and other commercial applications. The company was founded in 1893 and is headquartered in Dubuque, IA.

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