CSW Industrials (CSWI), which was spun off from Capital Southwest (CSWC) in October 2015, is trading nicely higher today (+7%) after it reported 4Q17 (Mar) earnings results this morning.
Since you're probably not familiar, CSWI is a diversified industrial company with three areas of focus: Industrial Products; Coatings, Sealants & Adhesives (CS&A); and Specialty Chemicals. The company has a broad portfolio of products, including mechanical products for HVAC and refrigeration applications, coatings and sealants and high performance specialty lubricants. Markets that CSWI serves include: HVAC, industrial, rail, plumbing, architecturally-specified building products, energy, mining and general industrial markets.
Its industrial brands, such as RectorSeal No. 5 and KOPR-KOTE, are well known in the specific industries they serve and have a reputation for high quality and reliability. In fact, its RectorSeal No. 5 product is widely regarded as an industry standard for thread sealants for HVAC, plumbing and electrical configurations. Additionally, its KOPR-KOTE product is recognized as the anti-seize compound of choice for use in oil & gas drilling operations, where it is asked for by name.
The company has been fairly active in terms of M&A. It has completed 13 acquisitions in the past five fiscal years. Most recently, in FY17, CSWI acquired Greco Aluminum Railings, a manufacturer of railing and safety systems for multi-family and commercial structures. In addition, CSWI feels it has a long history of innovation. For example, it was the first to develop a method for removing internal acid from air conditioning and refrigeration systems, pioneering the market for acid neutralizers.
Turning to the MarQ results, non-GAAP EPS rose 23% YoY to $0.43, which was better than market expectations. Revenue rose 14.5% year/year to $87.3 mln, which was a good bit better than market expectations. The increase in MarQ revenue was primarily attributable to increases in architecturally-specified building products and HVAC end markets, partially offset by decreases in the rail end market. The company typically does not provide guidance and that was the case again this quarter. Full Year fiscal 2017 revenue came in at $327.1 mln, up 2.3% from FY16.
CSWI says it achieved several milestones during the fiscal year, including successfully rationalizing the footprint of its Jet-Lube operations and the acquisition of Greco. It finished Q4 (Mar) with a record-breaking performance in several of its construction related end markets, and while the company is still managing macro pressure in rail and the volatility in the energy markets, CSWI is beginning to see some stability and modest recovery in some areas.
Furthermore, FY17 was seen as a year of transition, which included a substantial effort to optimize its management structure and its operations as a new public company against a backdrop of mixed end market conditions. The good news is that CSWI is entering FY18 with the bulk of its most significant reorganization efforts behind the company.
Breaking down the results a bit, Industrial Products segment revenue was $41.6 mln, up 23% YoY, mainly the result of strong sales for its architecturally-specified products, plumbing and HVAC end markets. Coatings, Sealants and Adhesives (CS&A) segment revenue rose 5.5% YoY to $26.7 mln, thanks to new business associated with fire stopping sealants, HVAC and plumbing, partially offset by lower OEM rail volume with existing customers. Specialty Chemicals segment revenue rose 13% YoY to $19.1 mln, driven by drilling compounds plus new industrial lubricant business in cement and power generation end markets.
In sum, investors seem quite pleased with CSWI's Q4 (Mar) results. We caution that the stock is thinly traded and volume is pretty low today, so be careful with it. Thinly-traded stock can make abrupt moves. With that said, while some of its markets remain weak, it was good to hear management be somewhat optimistic heading into FY18. The stock has traded in a narrow range of $35-39 since mid-November, we'll see if this report can help the stock break above this range.