Diversified manufacturing and supply chain services provider Park-Ohio (NASDAQ:PKOH) fell short of the market’s revenue expectations in Q3 CY2024, with sales flat year on year at $417.6 million. Its GAAP profit of $13.40 per share was 1,357% above analysts’ consensus estimates.

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“We are pleased with the performance of our Company during the third quarter. While demand was stable overall, we continue to see challenges in some of our varied end markets. Regardless, we delivered improved profitability and additional progress towards our margin and debt reduction goals. We anticipate modest growth to return in the fourth quarter and into 2025, as well as continued progress on our debt reduction initiatives," said Matthew V. Crawford, Chairman and Chief Executive Officer.

Company Overview

Based in Cleveland, Park-Ohio (NASDAQ:PKOH) provides supply chain management services, capital equipment, and manufactured components.

Engineered Components and Systems

Engineered 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 Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Park-Ohio’s sales were flat. This shows demand was soft and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Park-Ohio’s annualized revenue growth of 6.8% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Park-Ohio missed Wall Street’s estimates and reported a rather uninspiring 0.3% year-on-year revenue decline, generating $417.6 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, similar to its two-year rate. This projection is underwhelming and shows the market thinks its newer products and services will not catalyze better top-line performance yet.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Park-Ohio was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.1% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Park-Ohio’s annual operating margin rose by 3.3 percentage points over the last five years.

This quarter, Park-Ohio generated an operating profit margin of 5.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Key Takeaways from Park-Ohio’s Q3 Results

We liked that Park-Ohio beat EBITDA estimates. On the other hand, its revenue missed. Overall, this quarter was mixed. The market seemed to focus on the negatives, and the stock traded down 1.1% to $32.96 immediately after reporting.

So do we think Park-Ohio is an attractive buy at the current price? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.