Analysis:
Part One: Performance analysis
National Presto Industries Inc. reported a decrease in net earnings by $4,955,000 (19%) for the year ended December 31, 2022, compared to the previous year. This is attributed to the decrease in sales by $34,154,000 (10%), gross profit by $9,271,000 (14%), and an increase in intangibles amortization by $368,000 (172%). The decrease in sales and gross profit was driven primarily by a decrease in unit sales and delays in securing materials due to supply chain congestion. Notably, Defense net sales decreased by $37,031,000 (15%) because of a decrease in unit shipments. However, Housewares/Small Appliance net sales increased by $2,424,000 (2%), primarily due to an increase in pricing and changes in mix. Gross profit for the same segment also increased by $7,039,000 (70 to 74 of sales) due to pricing changes and decreased ocean cargo and inland freight costs, thereby offsetting the decrease in unit shipments.
Further, the startup nature of the businesses in the Safety segments led to negative gross margins in both years. Although selling and general expenses for the Housewares/Small Appliance segments decreased $446,000, the Defense segment's selling and general expenses increased by $680,000 due to increased legal and professional expenses, compensation/payroll costs, and marketing costs. However, the Safety segment's selling and general expenses decreased $7,267,000, primarily reflecting the absence of prior year impairment of $7,615,000 in the notes receivable and related interest held by Rusoh, Inc. and augmented by the bargain purchase gain of $492,000 upon acquiring Knox Safety, Inc.
Part Two: Forward-looking analysis
In light of the current trends in the industry, National Presto Industries Inc. may be impacted by supply chain congestion, material, transportation, and labor cost increases due to government COVID-19 policies. However, due to the historical conservative practices, the company has no debt and adequate balances to fund its operations, further reducing risks.
Additionally, the company experienced delays in securing materials due to supply chain congestion, leading to a decrease in unit shipments in the previous year. Overcoming such challenges and continuing to satisfy the demand for the company's products will be essential to maintain market share and growth in the industry.
Meanwhile, it is noteworthy that startup businesses in the Safety segment have driven both years' negative gross margins. These conditions call for the company to focus on improving the efficiency of capital and equipment investments, as mentioned in their risk factors.
CEO of National Presto Industries, David J. Mahoney, said in a recent press release, "Though we continue to face supply chain challenges and rising raw material, transportation and labor costs, we remain excited about our future prospects. Our experienced and skilled management team is working diligently to effectively manage the challenges we face and leverage the opportunities before us."
Taken together, despite the challenges mentioned, National Presto Industries Inc. remains optimistic while working to identify ways to drive future growth, providing encouraging signs to investors.