Industrial Services of America, Inc. :IDSA-US: Earnings Analysis: Q2, 2017 By the Numbers : October 10, 2017

Industrial Services of America, Inc. reports financial results for the quarter ended June 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 13.56 million, Net Earnings of USD -0.38 million.
  • Gross margins narrowed from 7.06% to 5.01% compared to the same period last year, operating (EBITDA) margins now 2.83% from 0.92%.
  • Change in operating cash flow of 27.12% 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:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 13.56 13.01 10.49 9.9 10.12
Revenue Growth (%YOY) 33.98 116.92 1690.1 -14.32 -36.13
Earnings (mil) -0.38 -0.27 -0.24 -0.94 -0.63
Earnings Growth (%YOY) 39.87 80.98 93.33 20.98 47.75
Net Margin (%) -2.78 -2.08 -2.29 -9.48 -6.2
EPS -0.05 -0.03 -0.03 -0.12 -0.08
Return on Equity (%) -3.18 -2.23 -1.94 -7.24 -4.6
Return on Assets (%) -6.8 -4.99 -4.53 -17.66 -12.09

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, IDSA-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 IDSA-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 4.22% and earnings by -39.11% 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 0.92% to 2.83%. For comparison, gross margins were 7.16% and EBITDA margins were 3.57% 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

IDSA-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 are now 11.86 days from 33.92 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.

IDSA-US’s year-on-year change in operating cash flow of 27.12% 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 -4.70% to -1.30% and (2) one-time items. The company’s pretax margins are now -2.78% compared to -5.81% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Industrial Services of America, Inc. engages in the provision of waste management services and trade of steel products. It purchases ferrous and non-ferrous scrap materials and stainless steel from industrial and commercial steel generators, scrap dealers, and peddlers; processes it through sorting, cutting, baling, and shredding; then sells it to steel mini-mills, steel makers, and foundries. The company was founded by Harry Kletter in October 1953 and is headquartered in Louisville, KY.

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