LGL Group, Inc. :LGL-US: Earnings Analysis: Q3, 2016 By the Numbers : November 14, 2016

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

We analyze the earnings along side the following peers of LGL Group, Inc. – CTS Corporation, Littelfuse, Inc., Skyworks Solutions, Inc., AVX Corporation, Knowles Corp. and Dover Corporation (CTS-US, LFUS-US, SWKS-US, AVX-US, KN-US and DOV-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 5.13 million, Net Earnings of USD 0.03 million.
  • Gross margins widened from 33.09% to 34.61% compared to the same period last year, operating (EBITDA) margins now -0.55% from 1.44%.
  • 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 5.13 5.23 4.76 5.04 4.8
Revenue Growth (%YOY) 6.92 -4.39 -11.99 -7.5 -14.07
Earnings (mil) 0.03 0.02 -0.13 -0.14 -0.2
Earnings Growth (%YOY) 116.41 107.96 29.21 46.27 60.37
Net Margin (%) 0.62 0.31 -2.65 -2.72 -4.07
EPS 0.01 0.01 -0.05 -0.05 -0.07
Return on Equity (%) 0.94 0.47 -3.69 -3.98 -5.61
Return on Assets (%) 0.8 0.4 -3.2 -3.43 -4.78

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Market Share Versus Profits

Revenues History
Earnings History

LGL-US‘s change in revenue this period compared to the same period last year of 6.92% 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 LGL-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.97% and earnings by 100% 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 growth has been influenced by the year-on-year improvement in gross margins from 33.09% to 34.61%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

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

LGL-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 180.41 days from 185.99 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -3.21% to -0.55% and (2) one-time items. The company’s pretax margins are now 0.62% compared to -4.02% for the same period last year.

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

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Company Profile

LGL Group, Inc. operates as a holding company, which engages in designing and manufacturing of electronic components and subsystems. The company operates through its wholly-owned subsidiary MtronPTI, which manufactures and markets engineered electronic components used to control the frequency or timing of signals in electronic circuits. These devices are used extensively in electronic systems for military applications, avionics, earth-orbiting satellites, medical devices, instrumentation, industrial devices and global positioning systems, as well as in infrastructure equipment for the telecommunications and network equipment industries. LGL Group was founded in 1928 and is headquartered in Orlando, FL.

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