Last Week:

Stock market volatility awoke from its slumber, thanks to the bellicose banter between President Trump and North Korea’s Kim Jong Un. The VIX (CBOE Volatility Index) surged over 50%, while the S&P 500 shed 1.4% and the Russell 2000 lost 2.7%, with the latter index wiping out half its 2017 gains. Treasury prices rallied, as the flight to safety drove the yield on the Ten-Year Treasury down 9 basis points to 2.19%. Meanwhile, corporations continued to report strong second quarter earnings. With over 90% of companies having reported, the blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the second quarter is now 10.2%, which is slightly higher than the earnings growth rate of 10.1% last week. The 12-month CPI measure gained a tenth of a point in July to 1.7 per cent, posting its first rise in five months after steady declines, but still well below the Fed’s two percent target. The absence of inflation creates a serious hurdle for the Fed’s objective of raising interest rates and unwinding its $3.5 trillion balance sheet.

This Week:

North Korean tensions cooled over the weekend, but keep in mind that Tuesday is “Liberation Day” in North Korea, and that the US and South Korea are scheduled to commence military exercises next Monday. It’s a pretty safe bet that the tweets and threatening responses will continue to flow and could rattle the markets, at least for a few minutes or hours. July retail sales and industrial production will be released, along with earnings reports from some technology and retail companies.

Stocks in the News:

National CineMedia, Inc. (NCMI): The operator of the largest in-theater digital media network in North America, announced that total revenue for the second quarter ended June 29, 2017 decreased 15.9% to $97.1 million from $115.4 million for the comparable quarter last year. Adjusted OIBDA decreased 28.8% to $42.3 million for the second quarter of 2017 from $59.4 million for the second quarter of 2016. For the full year 2017, the Company reaffirmed its outlook of total revenue to be down 6% to 1% and Adjusted OIBDA to be down 12% to 6% from the full year 2016. It’s been a tough year for the movie industry, with many of the summer releases falling short of expectations.

Salem Media Group, Inc. (SALM): For the second quarter, total revenue decreased 2.5% to $66.1 million. Operating expenses on a recurring basis decreased 2.1% to $53.8 million and adjusted EBITDA decreased 3.9% to $12.4 million. Net broadcast revenue decreased 1.4% to $49.3 million and broadcast operating expenses remained consistent at $35.9 million, resulting in a 5.5% decline in station operating income for $13.3 million. The Company was refinanced all its debt on favorable terms, and reaffirmed its dividend policy. Salem Media Group Inc is a domestic multimedia company with integrated operations including radio broadcasting, digital media, and publishing, focused on religious content.

InnerWorkings, Inc. (INWK): Adjusted EBITDA was $16.6 million for the second quarter, up 13% from $14.8 million in the same quarter of 2016, on a 4% increase in gross revenues. The Company also updated its guidance for the rest of the year, and expressed optimism about new business prospects. InnerWorkings, Inc is a marketing supply chain company that provides marketing execution solutions including advertising materials, branded merchandise, product packaging, and retail displays.

Landauer, Inc. (LDR): On a GAAP basis, earnings per diluted share were $0.66 for the third quarter of 2017 compared to $0.76 in the prior year period. Earnings per share were higher in the prior year due to the onetime gain from the divested business. Excluding the gain on the divestiture, pro forma EPS increased approximately 14% year-over-year. Landauer Inc provides technical and analytical services to determine occupational and environmental radiation exposure.

U.S. Auto Parts Network, Inc. (PRTS): Net sales in the second quarter were up 3% to $80.2 million compared to $78 million in the year-ago quarter. Income from continuing operations for the quarter was $26.9 million, or $0.67 per diluted share, compared to $1.2 million or $0.03 per diluted share in the year-ago quarter. The large increase in income from continuing operations was driven by the release of a valuation allowance from the Company’s cumulative tax NOLs, as a result of their recent profitability and expectation to continue to generate net income in the future. U.S. Auto Parts Network Inc is an online provider of automotive aftermarket parts and repair information.

Monmouth Real Estate Investment Corporation (MNR): At quarter end, Monmouth’s property portfolio was 100% occupied, representing the highest occupancy rate in the industrial REIT sector. Additionally, their weighted average building age as of the quarter end is 10 years, representing the youngest portfolio in the industrial REIT sector. Adjusted funds from operations or AFFO were $0.18 per diluted share for the recent quarter, as compared to $0.17 per diluted share a year ago, representing a 6% increase from the previous year. Monmouth Real Estate Investment Corporation is engaged in the ownership and management of industrial buildings subject to long-term net-leases, mainly to investment grade tenants.

Crown Crafts, Inc. (CRWS): Net income for the first quarter of fiscal 2018 was $518,000 or $0.05 per diluted share, compared to net income of $1.1 million or $0.11 per diluted share in the first quarter of fiscal 2017, on a 12.5% decline in revenues. The Company remained debt free, even after the acquisition of Carousel Designs, LLC for $8 million plus the assumption of certain liabilities. Additionally, CRWS announced that its Board of Directors declared a quarterly cash dividend of the company’s Series A common stock of $0.08 per share. This will be paid on October 6, 2017 to shareholders of record at the close of business — as of the close of business on September 15, 2017. This represents an annualized yield of 5.8% based on yesterday’s stock closing price. Crown Crafts designs and distributes, infant and toddler bedding and blankets, bibs, disposable products and accessories.

Motorcar Parts of America, Inc. (MPAA): Net income for the first quarter was $7.6 million or $0.39 per diluted share compared with $7.5 million or $0.39 per share a year ago, on a 1.3% increase in adjusted gross sales. The mild winter resulted in weaker demand for replacement auto parts, but as President and CEO Selwyn H. Joffe points out “We subscribe to the theory that it’s not a question of whether there is a repair for a vehicle, it is just a question of when.” As a car owner, I tend to agree.

Douglas Dynamics, Inc. (PLOW): Net income for the quarter was $14.8 million, or $0.64 per diluted share compared to net income of $16.3 million, or $0.71 per diluted share in the second quarter of 2016. The results for the quarter reflect slightly better than expected pre-season performance for their commercial snow and ice products, which is encouraging following two years of below average snowfall. PLOW is a manufacturer and upfitter of commercial vehicle attachments and equipment. Its products include snow plows, sand and salt spreaders, and turf-care equipment sold under the Blizzard, Fisher, Snowex, Western, and Turfex brands. Between PRTS, MPAA, and PLOW, it feels like we should be routing for really miserable winter weather.

Pioneer Power Solutions, Inc. (PPSI): Reported record revenue for both the second quarter and the first 6-month periods and ended the quarter with a near-record backlog. Adjusted EBITDA increased to $2.5 million during the quarter or 8.1% of revenue compared to $2.2 million or 7.2% of revenue in the second quarter of 2016. Non-GAAP diluted EPS increased to $0.21 per share in the second quarter of 2017 compared to $0.18 in the second quarter of 2016. The Company notes that these results do not reflect any meaningful increase in infrastructure spending or any rebound in the oil and gas sector. Any rebound in these sectors would be incremental to their existing demand. PPSI manufactures, sells and services a broad range of specialty electrical transmission, distribution, and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets.

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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:

Corporations continued to report solid earnings, with blended profits up over 10% and revenues up over 5% from last year’s second quarter. The economic data was mixed, with the headline payrolls report showing a better than expected 209,000 new jobs added, but with the ISM Non-Manufacturing Index coming in well below expectations. The S&P 500 gained 0.19%, and it now has the longest streak of days moving less than 0.3% ever recorded (12). Small stocks fared worse (as has been the case all year), as the Russell 2000 declined 1.19%. The yield on the Ten-Year Treasury wiggled down 2 basis points to 2.27%. The UN imposed sanctions on North Korea that cut exports by a third and curbed its citizens working abroad. The fact that China didn’t veto these sanctions might reduce the possibility of U.S. trade actions, and signal an improvement in the relationship between the world’s two largest economies.

This Week:

There will be reports from 36 of the S&P 500, as earnings season ends. It’s a week of industrial data in Europe, where confidence in a sustained recovery is growing. Friday’s CPI data will be in focus as it is an important data point for the Fed’s interest rate policy. Economists estimate that the core rate stayed at 1.7% in July, below the target rate of 2%.

Stocks in the News:

Please feel free to contact us for further information about the highlighted companies. For sake of brevity, we are focusing the comments on a handful of companies, and listing the others that reported results at the end.

Blue Bird Corporation (BLBD): Achieved the highest third quarter bus sales in more than 10 years. The Company authorized a $50 million stock buyback over the next two years, because of their strong fee cash flow.

Johnson Outdoors, Inc. (JOUT): Sales grew 11.5% to a record $155, and net income in the quarter nearly tripled to $1.65 per diluted share. Their flagship fishing brands, Minn Kota and Hummingbird experience particularly strong results.

The Eastern Company (EML): Second quarter 2017 results from most of their businesses improved when compared to the same period last year, benefiting from a better than expected class 8 truck market, a rebound in coal mining and stronger execution in our core businesses. Sales in the Industrial Hardware segment increased by $19.2 million, or 121%, in the second quarter of 2017 compared to the same period in 2016. Sales growth in this segment was primarily the result of the acquisition of Velvac, which contributed $15.9 million in additional sales and 21% growth in their existing businesses.

It’s quite a tongue twister that (CEO August) Vlak bought Velvac.

SP Plus Corporation (SP): Strong results in their airport parking division combined with lower-than-expected cost of health and casualty insurance led to Adjusted EPS of $0.53/share versus $0.34 in the year earlier period. The Company also took an $8.5 million gain on a joint venture transaction.

Alamo Group, Inc. (ALG): Net income for the second quarter was $12.3 million or $1.05 per diluted share, which favorably compares to net income of $10.6 million or $0.92 per diluted share for the second quarter of 2016. Sales grew low single digits in both their Industrial and Agricultural divisions.

Tickers of other companies that reported earnings that we are available to discuss: OESX, GHM, AMC, MUSA, ALSK, CNSL, LEE, MGRC, NTN, BRKS, PMD, DENN, UAA, ARC, MYE, TGNA, DTRX, AHC, ESCA, BBW, BGSF.

 

 

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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:

Corporations continued to post strong results, with blended results increasing to a 9.1% growth rate in earnings, and a 5.2% advance in revenues. Interest rates remained benign, with the yield on the Ten-Year Treasury inching up 6 basis point to 2.29%. There wasn’t any incremental information out of the FOMC meeting, as the Fed left rates unchanged, and said it expects to begin tapering its $4.4 trillion balance sheet “relatively soon”. The US Dollar drifted to a new low for the year, which is good for corporate profits, but we believe also is a longer-term warning sign for the economy. Real GDP grew at 2.6% in the second quarter, up from 1.2% in the first quarter, but most of the improvement came from the effect of inventory swings. The equity market was quiet, with the S&P 500 breaking even, and the Russell 2000 declining 0.46%.

The Cubs are back in first place, while the White Sox are taking the concept of “rebuilding” to new levels. Oh well, we will always have 2005 on the south side.

This Week:

Earnings season will continue in full force, with 133 S&P 500 companies scheduled to report results. On Friday, the June payroll data will be released, and is expected to show a solid 200,000 new jobs for the month. Any surprises in that report could influence the rate hike path.

Stocks in the News:

Please feel free to contact us for further information on the highlighted companies.

United Parcel Service, Inc. (UPS): Announced earnings per share of $1.58 for the second quarter of 2017, an increase of 11% versus the same period in 2016. The improved earnings per share was due to 7.7% higher revenue, while margin improvement came from lower fuel costs year-over-year and lower workers compensation costs. All three business segments generated more profitable product mix, improved yields and better management of operating costs.

Meredith Corporation (MDP):  Fiscal 2017 fourth quarter earnings per share excluding special items in both periods, earnings per share were $1.07, compared to $1.08 in the prior-year period. The relatively flat EPS comparison was due to less political advertising revenue in Fiscal 2017.  As expected for the current fiscal year that lacks substantial national political advertising catalysts, similar advertising revenue comparisons in F2018 should drive EPS of $3.20-$3.50 comparable to $4.00 in F2017.

KKR & Co L.P (KKR):  Strong investment performance drove 2Q17 after-tax economic net income of $752.5 million, or $0.89 per adjusted unit, comparable to $550 million and $0.65 per share in 2Q16.  As of June 30, 2017, Assets Under Management and Fee Paying Assets Under Management were $148 billion and $113 billion respectively, up 13% and 19%, respectively, compared to June 30, 2016.

World Wrestling Entertainment Inc.(WWE): Reported Net income of $5.1 million, or $0.06 per diluted share, as compared to Net Income of $0.8 million, or $0.01 per diluted share, in the prior year quarter. Excluding items affecting comparability, adjusted operating income (AOIBDA) increased to $18.1 million from $7.5 million. WWE remains on track to achieve stated 2017 financial objectives with record revenue, record Adjusted OIBDA results, and record subscriber levels.  The Company also estimates third quarter 2017 Adjusted OIBDA of approximately $31 million to $35 million compared to $24.5 million in the third quarter 2016 primarily due to the contractual escalation of television rights fees and continued growth of WWE Network subscribers.

Wisdom Tree Investments Inc.(WETF): Reported adjusted net income of $7.8 million or $0.06 per share compared to $9.6 million or $0.07 diluted EPS in the second quarter of last year.  Advisory fees of $56.1 million were relatively unchanged from the second quarter of 2016 as an increase in our average global AUM was offset by lower average U.S. advisory fees due to a change in product mix.

BG Staffing Inc.(BGSF): Reported EPS of $0.25 compared to $0.17, driven by 10% revenue growth, 13% gross profit growth, and 15% EBITDA growth.

Build-A-Bear Workshop Inc. (BBW): Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “We are pleased to report top line growth as well as expansion in merchandise margin and gross profit margin enabling us to narrow the pre-tax loss in this year’s second quarter to $2.6 million, which is a $3.6 million improvement over the prior year.

Acme United, Corporation (ACU): Reported net income of $2.8 million, or $0.75 per diluted share, compared to $3.3 million, or $0.91 per diluted share, for the year earlier period. Chairman and CEO Walter C. Johnsen commented, “Although our sales in the second quarter were below last year’s, we see a strong second half of 2017 and a robust full year.  Online sales of our back to school products have grown substantially, and the different timing of shipments appears to have shifted revenues from the second quarter of 2017 to the third quarter. We also had a large promotion during the second quarter of last year that did not repeat, but we have promotions scheduled for later this year that we expect to more than compensate for this differential. “Accordingly, we are reaffirming the Company’s guidance for 2017 of $137 million in revenues, $6.7 million net income, and $1.76 earnings per share.”

 

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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.