P&F Industries, Inc. :PFIN-US: Earnings Analysis: Q1, 2016 By the Numbers : June 1, 2016

P&F Industries, Inc. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of P&F Industries, Inc. – Briggs & Stratton Corporation, Stanley Black & Decker, Inc., Eastern Company and Snap-on Incorporated (BGG-US, SWK-US, EML-US and SNA-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 14.50 million, Net Earnings of USD 0.07 million.
  • Gross margins narrowed from 37.92% to 35.97% compared to the same period last year, operating (EBITDA) margins now 6.05% from 10.91%.
  • Year-on-year change in operating cash flow of -23.25% 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:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 19.83 22.56 21.68 17.64 14.5
Revenue Growth (%YOY) 24.44 23.49 -5.47 -1.48 -26.87
Earnings (mil) 0.78 1.31 1.05 0.4 0.07
Earnings Growth (%YOY) 69.05 129.37 28.68 74.35 -91.55
Net Margin (%) 3.94 5.82 4.84 2.27 0.46
EPS 0.21 0.35 0.28 0.1 0.04
Return on Equity (%) 7.74 12.65 9.82 3.69 0.54
Return on Assets (%) 4.17 6.88 5.62 2.21 0.39

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Market Share Versus Profits

Revenues History
Earnings History

PFIN-US‘s change in revenue this period compared to the same period last year of -26.87% 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 PFIN-US is holding onto its market share. Also, for comparison purposes, revenues changed by -17.80% and earnings by -83.54% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 37.92% to 35.97%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.91% to 6.05% in this time frame. For comparison, gross margins were 34.73% and EBITDA margins were 8.11% in the previous period.

Gross Margin Versus EBITDA Margin

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

PFIN-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 135.70 days, compared to last year’s level of 66.62 days.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

PFIN-US‘s change in operating cash flow of -23.25% 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

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 7.18% to 1.10% and (2) one-time items that contributed to a decrease in pretax margins from 6.21% to 0.75%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

P&F Industries, Inc. manufactures and imports air-powered tools and residential hardware. It operates through the Tools and Hardware segments. The Tools and Other Products segment engages in the importation and sale of pneumatic hand tools and compressor air filters. The Hardware segment imports and manufactures door, window and fencing hardware, and accessories including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. The company was founded on April 19, 1963 and is headquartered in Melville, NY.

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