Last Week:

The twin headwinds of rising interest rates and tumbling oil prices abated, as crude stabilized and the yield on the Ten-Tear Treasury declined. As expected the Fed raised the target fed funds target rate by 25 basis points to 0.75%, and traders interpreted the language around future hikes as being dovish. The equity markets remained firm with the S&P 500 gaining 0.24% and the Russell 2000 1.92%. It has now been 110 trading sessions since the market suffered a 1% or greater daily decline, the longest such stretch in 22 years. Barron’s points out that rally has been uneven, with “quality” stocks (largest market caps, least-shorted, highest rated) dramatically outperforming the rest of the field since Inauguration Day.

Peter Gottlieb and I attended the Roth Securities Growth Stock Conference, and the tone from the presenting companies was very upbeat. Even the risks of trade barriers or tariffs seemed mitigated by the expectation of a stronger economy. Most companies that would be disadvantaged by those policies suggested that it would be the end consumer who would likely suffer from higher prices, as all manufacturers would be faced with the higher costs. Moreover, there was a great deal of uncertainty over the size, scope, and likelihood of any such legislation.

Speaking of Peter Gottlieb, the Michigan Wolverines continue to win in the NCAA tournament, advancing to the sweet sixteen along with Director of Trading Melissa Diamond’s Wisconsin Badgers.

This Week:

The political could be back in focus, as the House is scheduled for a floor vote on Ryan’s Health Care bill. It feels like 2009 again, with a great deal of political capital being spent on addressing Health Care. If this bill doesn’t pass it might call into question the likelihood of a compromise being reached on the much anticipated and investor-friendly tax reform initiative. There could also be some focus on the bevy of Fed speakers during the week, most notably Chair Yellen Thursday morning.

Stocks in the News:

1-800-Flowers.Com, Inc. (FLWS) announced that it sold all the equity of Fannie May Confections Brands, Inc. to Ferro International for $115 million. Sounds like a sweet deal to me.

Barnes & Noble Inc. (BKS) announced that its board authorized a new stock repurchase program of up to $50 million.

Ecology and Environment, Inc. (EEI) reported that quarterly earnings improved to a loss of $0.07 per share for the current quarter from a loss of $0.11 per share for the second quarter of the prior year. Net income before taxes improved to income of $0.2 million for the current quarter from a loss of $0.5 million for the same quarter last year. The current quarter loss was mainly due to a tax charge related to repatriation of dividends from the Company’s South American operations. Revenues increased 1% to $24.8 million. Mill Road Capital II, L.P., which owns 15.4 % of the outstanding shares of EEI has indicated that it will be sending shareholders a proxy card for the April 20th annual meeting, nominating two directors to the board.

RF Industries, Ltd. (RFIL) reported that sales for the first quarter of fiscal 2017 were $6.6 million compared to sales of $6.8 million for the same quarter last year.  The net loss for the first quarter was $194,000, or $0.02 per share, compared to a net loss of $353,000, or $0.04 per share, in the same quarter last year. Howard Hill, Interim President and CEO said, “The first quarter is typically our weakest quarter, so we are pleased with the 36% increase in net sales from the RF Connector division.  Higher sales of DAS products and a modest firming in demand for RF Connector products is encouraging for the remainder of fiscal 2017. I had the opportunity to meet with Mr. Hill last month, and was encouraged by his commitment to getting the Company back on track, as evidenced by his foregoing a salary after coming out of retirement.

Hawaiian Telcom Holdco, Inc. (HCOM) reported that fourth quarter revenue was $96.8 million, compared to $99.2 million in the fourth quarter of 2015.  Adjusted EBITDA was $28.5 million, a decrease of $0.8 million year-over-year. “2016 was a year of significant milestones and growth for Hawaiian Telcom,” said Scott K. Barber, Hawaiian Telcom’s president and CEO.  “Over the past six years, we have invested aggressively in fiber and systems, which has transformed our network, our products and services, and our growth profile.  Compared to just three years ago, our combined consumer and business strategic revenue has grown 66 percent, while revenue from Hawaiian Telcom TV, our five-year-old IPTV product, more than tripled.  We have made tremendous strides toward our vision of becoming the number one service provider of innovative fiber-based communication, information and entertainment solutions to the people and businesses of Hawaii.” Perhaps a field visit to Hawaii to see their offerings firsthand is in order?

AstroNova, Inc. (ALOT) announced that fourth quarter fiscal 2017 revenue increased 8 percent to $25.7 million from $23.8 million for the same period in 2016. Operating income in the quarter was $1.2 million, a 45 percent increase over the operating income of $0.8 million reported in the prior year’s fourth quarter. “We concluded a year of growth in fiscal 2017 with a fourth quarter highlighted by increased revenue, improved operating margin and a stronger cash position,” said AstroNova President and Chief Executive Officer Greg Woods. “Revenue growth in our International markets was especially strong, up 27 percent over the prior year, reflecting our strategic focus on broadening AstroNova’s global reach through expansion in regions including Asia and Latin America.”

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The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.

Last Week:

Slumping energy prices and rising interest rates provided a stiff enough headwind for equities to break the S&P 500’s longest winning streak in a year. The Index declined 0.4%, marking its first loss since the week ending January 20th. Small-cap stocks declined for the third straight week, as the Russell 2000 Index lost 2.1%. Strong economic data, most notably a better than expected employment report, led to higher interest rates. The yield on the Ten-Year Treasury increased 9 basis points to 2.58%, matching its highest yield in three years. High dividend paying stocks underperformed the general market. Oil posted its worst weekly decline since November, and shares in energy companies slid 2.6%.

The Fighting Illini once again failed to make the NCAA tournament after losing their final game of the season to Rutgers, and then losing by 20 points to Peter Gottlieb’s Michigan Wolverines in the first round of the Big 10 tournament.

This Week:

The Fed is back in focus, as a rate hike is almost certain after Wednesday’s meeting. Traders will be focusing on any hints about the path for future increases in the statement from Chair Janet Yellen. If long-term interest rates continue their recent ascent, then bond-substitute stocks like Utilities and REITS will likely suffer. Monetary decisions are also due from the Bank of Japan, Bank of England, and the Swiss National Bank. Additionally, if there is any further weakness in crude oil prices, then the Energy sector will probably remain under pressure. March Madness and a big snowfall will probably prove to be major distractions as the week progresses. Hopefully my bracket won’t already be busted by next weekend.

Stocks in the News:

Pioneer Power Solutions, Inc. (PPSI) posted a 40% increase in non-GAAP EPS on an 8.5% increase in fourth quarter revenues. The Company took $3.3 million in non-recurring restructuring expense charges to streamline operations and move manufacturing to Mexico from Canada. Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, said, “This was a highly successful year for Pioneer, benefitting from our continued penetration of fast-growing market segments and our ongoing initiatives to consolidate operations and enhance margins. We delivered a $7.4 million improvement in operating income, and annual adjusted EBITDA was well within our guidance range. In total, we grew our adjusted EBITDA by approximately $5 million for the year, a stable baseline from which we plan to deliver continued profitable growth. These improvements exclude any contribution from the oil and gas sector. We increased sales by 7.4% driven by our growing service business, expanded presence in emerging market segments like distributed generation/microgrid and the incremental contribution from data center equipment customers and other new customers. Looking toward 2017, we expect to see the benefit of increased infrastructure spending, such as Keystone and Dakota pipelines, high-speed electric rail projects and other mass transit projects, and seaport expansion, on top of our solid base of business, we anticipate a meaningful increase in profitability in 2017.”

Salem Media Group, Inc. (SALM) announced fourth quarter results. Edward Atsinger, Chief Executive Officer, stated “Let me begin by saying that we had a successful quarter. Revenue exceeded the top end of the guidance we provided. Our revenues increased 2.2% in the quarter compared the 1% increase at the top end of the guidance. At the same time, our expenses declined 0.6% compared to the guidance that we provided, on expenses of up 2% to 5%. We ended the quarter with adjusted EBITDA up 14.1%, and adjusted free cash flow up by 33.8%. We are obviously extremely pleased with the strong free cash flow growth.

Myers Industries, Inc. (MYE) announced that fourth quarter net sales decreased 6.6% and operating income dropped 47.6% from the same period in the previous year. President and Chief Executive Officer Dave Banyard commented, “Fourth-quarter results were in line with our expectations as we faced the continued impact of a reduced capital spending environment that persisted across many industrial markets for most of 2016. Demand in agriculture markets has been notably weak with record sales declines in some channels over the previous two years. Some of our most strategic products sell into these customers. While we are disappointed with our sales performance during the year, we managed costs well and made tangible improvements in the management of working capital and capital spending, both of which will continue to be part of our strengths moving forward.”

Alamo Group Inc. (ALG) reported that net income for the fourth quarter of 2016 was $7.6 million, or $0.65 per diluted share, versus net income of $11.4 million, or $0.99 per diluted share in the previous year.  The results for the quarter include a $1.9 million after tax non-cash charge in connection with the termination of a pension plan. Net sales for the fourth quarter of 2016 were $205.5 million compared to net sales of $224.4 million in 2015, a decrease of 8.4%. Ron Robinson, Alamo Group’s President and CEO commented, “Our fourth quarter was somewhat weaker than our expectations as we continue to be impacted by persistent headwinds that have been constraining our sales throughout the year.  However, there were many positive developments during 2016.  Despite lower sales, we were able to grow gross margins as a result of our ongoing cost control initiatives and manufacturing efficiencies.  And, cash flow for both the quarter and full year remained at a strong level allowing us to reduce total debt during the year by $74 million and by over $120 million in the last two years.

PCTEL, Inc. (PCTI) reported a 2% increase in revenues and a 100% gain in non-GAAP net income for the fourth quarter 2016. “Strong small cell antenna demand coupled with scanning receiver sales contributed to improved revenue and gross profit margin for the quarter,” said David Neumann, PCTEL’s CEO. “The densification of wireless networks and expanding applications across IoT will continue to provide opportunities for PCTEL antennas and test and measurement solutions.”

BG Staffing, Inc. (BGSF) posted a 53% increase in net income on a 3.6 quarter 2016. decline in revenues for the fourth quarter 2016. L. Allen Baker, Jr., President and CEO, stated, “While revenues declined in Q4 ’16 versus Q4 ’15, all other measures for the quarter are up. For the year, all numbers are up nicely in spite of the tight labor market.”

U.S. Auto Parts Network, Inc. (PRTS) announced a 7% increase in gross profit on a 5% increase in revenues for the fourth quarter. “2016 was highlighted by our renewed focus to drive profitability, which led to our first year of GAAP net income since 2010,” said Shane Evangelist, CEO of U.S. Auto Parts. “We also ended the year with no revolver debt for the first time since 2011. These accomplishments were driven by our emphasis on higher-margin private label sales, which continue to grow at a double-digit rate. In fact, the fourth quarter revenue mix of private label sales hit an all-time high at 68%. During the quarter, we also enacted a stock repurchase program, which we believe was a wise utilization of our cash flow.”

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The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.

Last Week:

My prediction that President Trump’s speech to Congress on Tuesday night was unlikely to move the financial markets was proven off base as the S&P 500 surged 1.4% the next day on the heaviest trading volume of the year. The trading the rest of the week cut those gains in half, as that index finished up 0.70% and the Russell 2000 finished unchanged. The economic releases continued to support the case for an interest rate hike next week, and the yield on the Ten-Year Treasury jumped 17 basis points to 2.49%. The St. Louis Federal Reserve Financial Stress Index declined for the fifth straight week. An improving economic outlook has led to improving financial markets and lower volatility, despite significant uncertainties.

This Week:

The key economic release will be Friday’s U.S. Jobs report. The consensus is that nonfarm payrolls rose 190,000 in February while average earnings accelerated. Only a dramatically weaker number would derail the Fed’s plan for a rate rise next week. The global political environment remains rife with risks, which the financial markets might focus on at some point.

Stocks in the News:

A.H.Belo Corp. (AHC) reported operating income excluding certain items for the fourth quarter of 2016 (“adjusted operating income”) of $1.8 million, a decrease of $6.8 million, or 79.3 percent, when compared to the fourth quarter of 2015. Despite the soft results for the quarter, the performance for the year showed significant progress. Jim Moroney, chairman, president and Chief Executive Officer, said, “I am proud of what we accomplished in 2016, especially in how we continued to diversify our sources of revenue to make us less dependent on print related revenues.

Detrex Corporation (DTRX) reported an increase in both sales and gross profit for the fourth quarter 2016. “We are positive about the outlook going forward as US domestic markets appear to be rebounding, and work done at Elco during the past few years is beginning to yield results as is evidenced by improved revenue and profitability in the fourth quarter of 2016 and the first two months of 2017” said President, CEO and Chairman Tom Mark.

Heritage-Crystal Clean, Inc. (HCCI) announced that revenue for the fourth quarter of 2016 was $106.7 million compared to $100.4 million for the same quarter of 2015, an increase of 6.4%.Net income attributable to common shareholders for the fourth quarter was $3.4 million compared to a net loss attributable to common shareholders of $2.5 million in the year earlier quarter. “We are pleased that we were able to achieve record net income during the year.” Mark DeVita, Chief Financial Officer stated, “Along with record profitability we were able to generate improved cash flow during 2016 which will give us the flexibility to take advantage of future opportunities to help grow our revenue.”

Barnes & Noble, Inc. (BKS) reported total sales for the third quarter were $1.3 billion, declining 8.0% as compared to the prior year. Consolidated third quarter EBITDA was $157.8 million, as compared to $169.0 million a year ago. NOOK EBITDA losses of $2.4 million improved $8.8 million over the prior year, as the Company continues to reduce NOOK expenses. Retail EBITDA of $160.2 million declined $19.9 million on the sales decline.

Speedway Motorsports, Inc. (TRK) reported fourth quarter 2016 total revenues of $82.6 million, and net income and adjusted non-GAAP net income of $271,000 or $0.01 per diluted share. The Company also announced that Starting in 2017, Monster Energy replaced Sprint as NASCAR’s premiere racing Cup Series entitlement sponsor under a multi-year agreement. “SMI’s full year 2016 results were within our expectations, notwithstanding an unusually high number of our events contending with poor weather,” stated Marcus G. Smith, Chief Executive Officer and President of Speedway Motorsports. “Eight events during our 13 NASCAR Cup race weekends in 2016 were negatively impacted, including Hurricane Matthew at Charlotte Motor Speedway in October and shortened racing at Texas Motor Speedway in November.

McGrath Rentcorp (MGRC) announced total revenues for the quarter ended December 31, 2016 of $105.3 million, which was unchanged from the fourth quarter of 2015.  The Company reported net income of $9.7 million, or $0.40 per diluted share for the fourth quarter of 2016, compared to net income of $11.5 million, or $0.48 per diluted share, in the fourth quarter of 2015. The Company also increased its quarterly dividend by 2%, marking the 25th consecutive year of dividend increases.

TravelCenters of America LLC (TA) reported that Adjusted EBITDA for the 2016 fourth quarter increased by $2.9 million, or 13.9%, as compared to the 2015 fourth quarter. Adjusted EBITDA increased as a result of the increase in nonfuel gross margin due to both same sites and newly acquired locations, partially offset by increases in site level operating expenses due to newly acquired locations and a decrease in fuel gross margin.

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The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.