Stock Story -
Industrial components supplier NN (NASDAQGS:NNBR) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 1.8% year on year to $123 million. It made a GAAP loss of $0.12 per share, improving from its loss of $0.38 per share in the same quarter last year.
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NN (NNBR) Q2 CY2024 Highlights:
- Revenue: $123 million vs analyst estimates of $123.4 million (small miss)
- EPS: -$0.12 vs analyst estimates of -$0.21 (41.9% beat)
- The company dropped its revenue guidance for the full year from $495 million to $475 million at the midpoint, a 4% decrease
- EBITDA guidance for the full year is $49 million at the midpoint, above analyst estimates of $48.1 million
- Gross Margin (GAAP): 17.7%, up from 14% in the same quarter last year
- EBITDA Margin: 10.9%, up from 2.9% in the same quarter last year
- Free Cash Flow was -$4.87 million compared to -$4.75 million in the previous quarter
- Market Capitalization: $168 million
Formerly known as Nuturn, NN (NASDAQGS:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Engineered Components and SystemsEngineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, NN's 3.1% annualized revenue growth over the last four years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. NN's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.8% annually.
This quarter, NN reported a rather uninspiring 1.8% year-on-year revenue decline to $123 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 5.9% over the next 12 months, an acceleration from this quarter.
Operating MarginUnprofitable industrials companies require extra attention because they could get caught swimming naked if the tide goes out. It's hard to trust that NN can endure a full cycle as its high expenses have contributed to an average operating margin of negative 3.5% over the last five years. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, NN's annual operating margin rose by 2.4 percentage points over the last five years. Still, it will take much more for the company to reach long-term profitability.
This quarter, NN generated an operating profit margin of negative 1.7%, up 1.7 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Although NN's full-year earnings are still negative, it reduced its losses and improved its EPS by 36.6% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.
In Q2, NN reported EPS at negative $0.12, up from negative $0.38 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects NN to improve its earnings losses. Analysts are projecting its EPS of negative $1.14 in the last year to advance to negative $0.68.
Key Takeaways from NN's Q2 Results We were impressed by how significantly NN blew past analysts' EPS expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street's estimates. On the other hand, its revenue unfortunately missed and it lowered its full-year revenue outlook. Overall, we think this was a mixed quarter. The stock remained flat at $3.32 immediately following the results.
