Results of Operations
Net sales for the first quarter of 2023 were $8,729,725 compared to $9,197,696
in the first quarter of 2022, a decline of $467,971, or 5.1%. Both the fastener
segment and the assembly equipment segment incurred lower sales in the current
year quarter. The lower sales combined with higher operating costs in the
current year resulted in a net loss of $(583,137), or $(0.60) per share,
compared to $447,313, or $0.46 per share, in the first quarter of 2022. During
the quarter, a regular quarterly dividend of $0.22 per share was paid.
Fastener segment revenues were $7,856,813 in the first quarter of 2023 compared
to $8,153,833 in the first quarter of 2022, a decline of $297,020, or 3.6%. The
automotive sector is the primary market for our fastener segment products and
sales to automotive customers were $5,006,190 in the first quarter this year
compared to $4,904,183 in the first quarter of 2022, an increase of $102,007, or
2.1%. However, fastener segment sales to non-automotive customers, including
those in the construction and electronics industries, were $2,850,623 in the
first quarter of this year compared to $3,249,650 in the first quarter of 2022,
a decline of $399,027 or 12.3%. Fastener segment gross margins were $251,624 in
the first quarter of 2023 compared to $1,558,909 in the first quarter of 2022, a
decline of $1,307,285. In addition to higher costs, we incurred production
inefficiencies that resulted in higher labor costs and expediting expenses
related to persistent staffing challenges.
Assembly equipment segment revenues were $872,912 in the first quarter of 2023
compared to $1,043,863 in the first quarter of 2022, a decline of $170,951, or
16.4%. Machine sales increased during the quarter but were offset by lower
replacement parts and tooling sales compared to the prior year quarter. The
decline in sales contributed to a $71,434 decline in segment gross margin, from
$297,313 in 2022 to $225,879 in 2023.
Selling and administrative expenses during the first quarter of 2023 were
$1,257,695 compared to $1,295,664 recorded in the first quarter of 2022, a
decrease of $37,969, or 2.9%. While we had reduced profit sharing, commissions
and director fees in the current year, these reductions were partially offset by
higher outside consulting and rental expenses. Selling and administrative
expenses were 14.4% of net sales in the first quarter of 2023 compared to 14.1%
in the first quarter of 2022.
Other Income
Other income in the first quarter of 2023 was $43,055 compared to $9,755 in the
first quarter of 2022. Other income is primarily comprised of interest income
which increased during the current year due to higher interest rates and greater
invested balances.
Income Tax Expense
The Company's effective tax rates were approximately (20.9)% and 21.6% for the
first quarter of 2023 and 2022, respectively.
Liquidity and Capital Resources
Working capital was $19,127,016 as of March 31, 2023 compared to $20,073,089 at
the beginning of the year, a decline of $946,073. During the quarter, accounts
receivable increased by $1,197,937, due to the greater sales activity during the
quarter compared to the fourth quarter of 2022, and inventory increased by
$877,722, primarily due to higher costs and some production bottlenecks that
resulted in delayed shipments. Partially offsetting these changes was an
increase in accounts payable of $924,168 related to the greater level of
operating activity during the first quarter. Other items reducing working
capital in the first quarter were capital expenditures of $413,419, which
consisted primarily of equipment used in fastener production activities, and
dividends paid of $212,549. The net result of these changes and other cash flow
activity was to leave cash, cash equivalents and certificates of deposit at
$4,458,723 as of March 31, 2023 compared to $6,736,101 as of the beginning of
the year. Management believes that current cash, cash equivalents and operating
cash flow will provide adequate working capital for the next twelve months.
Results of Operations Summary
Results in the first quarter were negatively impacted by numerous factors.
Demand from our automotive customers was relatively steady, as that sector
continues to recover from the pandemic, but we experienced continued softening
in demand from non-automotive customers amid an uncertain economic future. The
tight labor market has made maintaining an optimal workforce difficult and
inflation remains historically high. These conditions are expected to persist
in the near-term. We are reviewing and seeking to adjust our pricing in light
of higher operating costs related to the current economic and labor market
environment and have made investments in equipment to improve operating
efficiency. We will also continue to adjust our activities based on changing
market conditions, while pursuing opportunities to develop new customer
relationships and build on existing ones in all the markets we serve.
Forward-Looking Statements
This discussion contains certain "forward-looking statements" which are
inherently subject to risks and uncertainties that may cause actual events to
differ materially from those discussed herein. Factors which may cause such
differences in events include, those disclosed under "Risk Factors" in our
Annual Report on Form 10-K and in the other filings we make with the United
States Securities and Exchange Commission. These factors, include among other
things: risk related to the COVID-19 pandemic and its related adverse effects,
conditions in the domestic automotive industry, upon which we rely for sales
revenue, the intense competition in our markets, the concentration of our sales
with major customers, risks related to export sales, the price and availability
of raw materials, supply chain disruptions, labor relations issues, losses
related to product liability, warranty and recall claims, costs relating to
environmental laws and regulations, information systems disruptions, the loss of
the services of our key employees and difficulties in achieving cost savings.
Many of these factors are beyond our ability to control or predict. Readers
are cautioned not to place undue reliance on these forward-looking statements.
We undertake no obligation to publish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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CHICAGO RIVET & MACHINE CO.
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