Tantech Holdings Ltd. :TANH-US: Earnings Analysis: For the six months ended December 31, 2016 : June 1, 2017

Tantech Holdings Ltd. reports financial results for the half-year ended December 31, 2016.

We analyze the earnings along side the following peers of Tantech Holdings Ltd. – NL Industries Inc, FMC Corporation, PolyOne Corporation and Air Products and Chemicals, Inc. (NL-US, FMC-US, POL-US and APD-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 24.88 million, Net Earnings of USD 2.77 million.
  • Gross margins widened from 25.02% to 30.33% compared to the same period last year, operating (EBITDA) margins now 18.28% from 18.64%.
  • Year-on-year change in operating cash flow of 32.02% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-06-30 2015-12-31 2015-06-30 2014-12-31
Relevant Numbers (Semi-Annual)
Revenues 24.88 22.79 28.44 30.39 38.26
Revenue Growth (YOY) -12.51 -25.02 -25.68 11.6 N/A
Earnings 2.77 1.53 3.56 4.88 8.6
Earnings Growth (YOY) -22.27 -68.58 -58.63 -9.28 N/A
Net Margin 11.12 6.73 12.52 16.06 22.48
EPS 0.11 0.07 0.16 0.23 0.22
Return on Equity 6.87 3.98 9.7 14.33 29.72
Return on Assets 5.81 3.35 8.22 11.84 23.18

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Market Share Versus Profits

Revenues History
Earnings History

TANH-US‘s change in revenue this period compared to the same period last year of -12.51% 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 TANH-US is holding onto its market share. Also, for comparison purposes, revenues changed by 9.17% and earnings by 80.42% 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 18.64% to 18.28%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 25.02% to 30.33%. For comparison, gross margins were 26.33% and EBITDA margins 13.66% 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

TANH-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 715.40, compared to last year’s level of 679.80 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?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

TANH-US‘s change in operating cash flow of 32.02% 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

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

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

Tantech Holdings Ltd. engages in the development, manufacture, and trade of bamboo-based charcoal products. It operates through the following segments: Consumer Product, Trading, and Biofuel Energy. The Consumer Product segment markets and sells barbecue charcoals as well as purification, deodorization, and cleaning materials under the Charcoal Doctor brand. The Trading segment distributes charcoal products. The Biofuel Energy segment produces and sells bamboo-based fuel for electric double layer capacitor. The company was founded by Zheng Yu Wang on November 19, 2010 and is headquartered in Lishui, China.

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