Art''S-Way Manufacturing Co., In (NASDAQ:ARTW)

Third Quarter 2012 Results

• Our consolidated corporate net sales for the three- and nine-month periods ended August 31, 2012 were $11,534,000 and $29,531,000, respectively, compared to $9,252,000 and $21,762,000 during the same respective periods in 2011, a $2,282,000, or 24.7%, increase for the quarter and a $7,769,000, or 35.7% increase year-to-date.
• Earnings per basic share during the third fiscal quarter ended August 31, 2012 were $0.24 compared to $0.25 for the same period during 2011. Earnings per basic share during the nine months ended August 31, 2012 were $0.52 compared to $0.21 for the same period during 2011.

ARTW Research Update:

They just announced some 2012 backlog figures (about $22 million). Their backlog to sales ratio has been pretty steady at 2 to 1. This implies that the company will report revenues of at least $40 million and EPS somewhere between $0.65 and $1.00 (vs. our 2011 year end EPS estimate of around $0.40), depending on margin assumptions. 
See previous premium research note.

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ARMSTRONG, Iowa, Jan. 6, 2012 /PRNewswire/ -- Art's Way Manufacturing Co., Inc. (NASDAQ: ARTW), a leading manufacturer and distributor of agricultural machinery, equipment and services today announces it is ramping up production to fill order backlog of $21.8 million for fiscal year 2012, a 47% increase in backlog over the previous years backlog of $14.8 million.

The growth in backlog is primarily due to the increase orders at Art's Way Scientific, Inc. www.buildingsforscience.com. The recently announced $7 million order will significantly improve the backlog deep into 2012 along with the increased activity in ag buildings.

J. Ward McConnell, Jr., Executive Chairman of the Board, said, "We are very excited and bullish about our current backlog and growth prospects in 2012. Art's Way continues to drive on a fundamental strategy to serve our growing customer base with market leading products and service while delivering solid financial performance.  Additionally, Art's Way Scientific is going to have a record year, the North American agricultural sector is robust, farmers have money and are spending it, our business fundamentals remain exceptionally strong and we believe the Company is well positioned to aggressively move into 2012 and beyond. With little or no operating debt, this will allow the Company to improve cash flow, continue organic growth and pursue select opportunities in the marketplace."

Previously published on our Premium US Stock Talk Board. 

We will start tracking the ARTW story again, due to recent news of increased customer order flow. 

• 1/4/2012 - Announces $7 million contract for a modular building complex.
• 1/3/2012- Announces increased sales orders for Art's Way Scientific for Fourth Quarter 2011

Using the Third Quarter 2011 net profit margins, the $7 million contract announced 1/4/2012 could add $0.20 to $0.24 to EPS.  Using current P/E, this would translate to a $5 increase from current stock price. Overall, the tone of the recent news flow has been very bullish. Stock currently trading in low $6 range.

We are coding ARTW a GeoBargin on the radar.

ARMSTRONG, Iowa, Jan. 3, 2012 /PRNewswire/ -- Art's Way Manufacturing Co., Inc. (NASDAQ: ARTW), announces its wholly owned subsidiary; Art's Way Scientific, Inc. www.buildingsforscience.com has experienced an increase in sales orders in the fourth quarter 2011. In addition, Art's Way Scientific has also seen a meaningful spike in inquiries of modular Ag buildings as a result of Congressional enacted tax incentives on agricultural buildings. Recently the Company received orders for several Ag related buildings, totaling approximately $400,000.

Dan Palmer, General Manager of Art's Way Scientific said, "Many of these new orders have come from existing customers, and repeat business is always gratifying. The tax incentives will last through 2012 and make it attractive for farmers and ranchers to expand their operations…. so we anticipate the demand to continue through 2012."

Initiated a short-term trade position on December 29, 2010

Catalyst: . 2010 third quarter may have signified a break-out quarter bringing sales to levels not even seen pre-recessions (highest revenue quarter in the past four years was $8.19 million in November 2007 quarter).

On February 22, 2011 we unwound this trade @ $13.10

Peak performance: Reached a high of  $15.95 on February 18, 2011 .
Current road block: The company has had a history of lumpy quarters and will not give specific guidance, as evidenced by the  financial results of the last two quarters. 

We are contemplating reestablishing a short-term trade in this name if the conference call, to be held later this week, indicates that ARTW's recent misfortunes are temporary.

Scientific has been experiencing longer than expected approval processes as a result of the economic downturn and the lack of government stimulus funding.  Many of Scientific's customers are government entities and universities. These organizations are struggling not only with funding, but many are facing budget cuts.  

"The biggest setback this quarter was our gross margins at Art's Way Manufacturing, but this was expected and hopefully is a temporary occurrence. The decrease in gross margin for the quarter is primarily due to increased start up costs in West Union.  In 2010, we purchased 29 acres, 190,000 square foot manufacturing/office facility in West Union, Iowa.  We have moved a significant amount of inventory to this location and are in the process of preparing the building for additional production.  Many of our costs have gone up for this new facility while we have not yet realized the increase in production for the facility.  We currently have two production lines set up and are working to increase the efficiency of those lines and train new employees. This is an outstanding facility.  We expect to realize its benefits in the future and long term, as we believe it will allow us to gain valuable production space, increase production and will allow us to accommodate future acquisitions.

"We believe the long-term market opportunity is exceptional for our Company and we are optimistic about the remainder of the year."

The stock is currently being crushed, down $2.52 to $8.03. Still, given the company's financial performance inconsistency, we will not establish a long position in ARTW's shares at this time.

We have been tracking ARTW for some time. This was a name we actually owned pre-2008 crash and we are contemplating reestablishing a position. the stock does have a high trailing P/E of 31 , but we feel their may be reasons to believe that EPS growth could be on the verge of a short-term up cycle:

1. 2010 third quarter may have signified a break-out quarter bringing sales to levels not even seen pre-recessions (highest revenue quarter in the past four years was $8.19 million in November 2007 quarter).

Financial Highlights For the Three and Nine Months Ended August 31, 2010:

.

2. Agricultural business cycle appears stronger than ever:  

• LSGI Fund Manager comments

The commodity super-cycle continues to march onward with higher prices seen in the energy, metals, and agricultural sector with no let-up in sight," according to Joseph R. Dancy, Adjunct Professor of Law at Southern Methodist University and manager of the LSGI Venture Fund L.P. Dancy noted in an interview with James Puplava of the Financial Sense Newshour that global economic growth is fueling demand for commodities, especially from fast-growing Asian countries. Food inflation is already a problem in China, and supply issues due to weather issues are resulting in significantly higher prices for grains. "We could see major increases in grain prices next year as global inventories to use ratios are falling to levels not seen in decades," according to Dancy.

• Company Comments:

J. Ward McConnell Jr., Executive Chairman of the Board of Directors said, "Factors including stronger demand from customers, the expansion of our customer base, the introduction of new products, improved operational efficiency and reduced costs from increased productivity, and continued overall economic recovery have propelled our third quarter and nine months performance. Agricultural product prices continued to improve last quarter giving a large boost to U.S. farm income. With the higher incomes and robust prices we saw significantly more interest in new and replacement equipment than we have in some time, all of which creates sales opportunities for our expanding agricultural equipment line. We are seeing a longer-term trend as farmland and product prices improve, and we think more capital will be spent in the agricultural sector over the next few years. So while we are pleased with short-term results at Art's Way we think the trends will be positive for ARTW's operations longer term.

• Deere

With Deere's strong 2010 performance, the company remains well-positioned to capitalize on powerful global economic trends, Allen noted. "Thanks in large part to the dedication and hard work of our employees, dealers and suppliers worldwide, our plans for helping meet the world's growing need for food and infrastructure are well on track and moving ahead at an accelerated rate," he said. "We remain highly confident about the company's future prospects and our ability to deliver significant value to customers and investors."

3. 2010 third quarter Conference call comments inferred that 2010 fourth quarter and full year 2011 will experience strong results. Management thinks there could be a surge in demand for some of its products before 2010 year end.

Caveat: The company has had a history of lumpy quarters and will not give specific guidance.

Initiated a short-term trading position @ $11.27

J. Ward McConnell Jr., Executive Chairman of the Board of Directors said, "We are very pleased with our strong start to the fiscal year, particularly with our net income and gross margins. Despite coming out of an extremely challenging year following one of the industry's worst economic downturns, our operating results are improving based on our ability to deliver quality products with a customer service focus. We continue to focus on growing sales and improving our execution, discipline and profitability by tightly managing our variable costs. As noted in recent news releases, we also continue to fund our investments in capital expenditures and acquisitions that are designed to fuel future growth for years to come.

"The environment for agricultural machinery and modular science laboratories spending is accelerating and I am excited about the short and long term future of Art's Way."

Source: PR Newswire (April 12, 2010)

Mr. McConnell concluded by saying "I want to assure our shareholders, we have taken aggressive measures to align our business with current market conditions. We are monitoring these initiatives closely to ensure we achieve our future expected financial results. Our strong financial position including our lack of short term debt and our growing backlog of over $17 million will allow us to continue making calculated improvements to our product line and grow our market share for years to come. 2010 is going to be a better year."

Source: PRNewswire. February 22, 2010