TAT Technologies Ltd. :TATT-US: Earnings Analysis: 2016 By the Numbers : April 28, 2017

TAT Technologies Ltd. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of TAT Technologies Ltd. – United Technologies Corporation, Honeywell International Inc. and HEICO Corporation (UTX-US, HON-US and HEI-US) that have also reported for this period.

Highlights

  • Gross margins widened from 15.93% to 19.73% compared to the same period last year, operating (EBITDA) margins now 7.97% from 4.89%.
  • Year-on-year change in operating cash flow of 653.21% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 1.64% to 4.17%.

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

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 95.79 85.61 80.73 79.55 87.92
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 0.06 5.85 1.43 5.25 -1.71
Earnings Growth (YOY) -98.94 308.45 -72.73 406.36 -66.41
Net Margin 0.06 6.83 1.77 6.6 -1.95
EPS 0.01 0.66 0.16 0.32 -0.19
Return on Equity 0.07 6.61 1.66 6.09 -1.97
Return on Assets 0.06 5.54 1.36 4.85 -1.54

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Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 15.93% to 19.73%, while operating margins improved from 4.89% to 7.97% over this period. For comparison, gross margins were 15.93% and EBITDA margins 4.89% 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

TATT-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 261.95 days from 304.04 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

Cash Versus Earnings – Sustainable Performance?

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

TATT-US‘s change in operating cash flow of 653.21% 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 an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 1.64% to 4.17%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 6.14% to 4.16%.

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

TAT Technologies Ltd. provides a variety of services and products to the commercial and military aerospace and ground defense industries. It operates through the following segments: Original Equipment Manufacturing (OEM) of Heat Management Solutions, Heat Transfer Services & Products; and Maintenance, Repair & Overhaul Services (MRO) for Aviations Components. The OEM of Heat Management Solutions segment include the design, development, manufacture and sale of a broad range of heat transfer products. The Heat Transfer Services & Products segment include the maintenance, repair and overhaul of heat transfer equipment. The MRO Services for Aviation Components segment focuses in the maintenance, repair and overhaul of APUs, landing gear and other aircraft components. TAT Technologies was founded in April 1985 and is headquartered in Gedera, Israel.

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