Business Overview: A Century of Growth and Adaptation

Chicago Rivet & Machine Co., founded in 1903, has over 100 years of history in the fastener industry. The company initially focused on producing rivets, cold-formed fasteners, and screw machine products. As the decades progressed, they expanded their product offerings to include automatic rivet setting machines, parts, and tools for such machines, demonstrating their ability to adapt to changing market demands.

The company's resilience was tested early on, as it successfully navigated challenges such as the Great Depression and World War II, maintaining operations and continuing to serve customers throughout these difficult periods. A significant milestone in the company's history came in 1939 when it went public, listing its shares on the NYSE American exchange under the ticker symbol CVR.

The latter half of the 20th century saw Chicago Rivet & Machine Co. continue to grow and evolve. The company made strategic investments in new production equipment and capabilities to meet the evolving needs of its automotive and non-automotive customers. To support its expanding business, the company established manufacturing facilities in Illinois, Pennsylvania, and Iowa, further solidifying its presence in the industry.

Today, Chicago Rivet & Machine Co. operates in two primary business segments: Fasteners and Assembly Equipment. The Fastener segment produces a range of rivets, cold-formed fasteners, and screw machine products, catering to both automotive and non-automotive customers. The Assembly Equipment segment specializes in the manufacturing of automatic rivet setting machines, parts, and tools.

The company's geographic footprint spans the United States and foreign markets, with a significant presence in the Midwestern region. While the automotive industry has historically been a key driver of the Fastener segment's revenue, the company has also cultivated a strong non-automotive customer base, including those in the construction and electronics industries.

Navigating a Challenging Automotive Landscape

The automotive industry has faced numerous headwinds in recent years, and Chicago Rivet & Machine Co. has not been immune to these challenges. In 2023, the company's Fastener segment experienced a 11.9% decline in revenue compared to the previous year, primarily due to lower volumes from its automotive customers. This can be attributed to factors such as global supply chain disruptions, chip shortages, and a general slowdown in light vehicle production.

However, the company has demonstrated its agility in adapting to these market conditions. Through strategic pricing initiatives, operational improvements, and a focus on cost-cutting measures, Chicago Rivet & Machine Co. was able to improve the Fastener segment's gross margins despite the decline in revenue. The company's Fastener segment operating profit increased by $584,350, or 165.5%, in the first nine months of 2023 compared to the same period in the prior year.

Diversification Efforts and Assembly Equipment Segment Growth

While the Fastener segment has faced headwinds, the company's Assembly Equipment segment has been a bright spot, with revenue increasing by 31.2% in the first nine months of 2023 compared to the same period in the prior year. This growth has been driven by increased demand from both automotive and non-automotive customers, highlighting the benefits of the company's diversification strategy.

Chicago Rivet & Machine Co. has recognized the importance of reducing its reliance on the automotive industry and has been actively pursuing opportunities in the non-automotive market. The company's efforts to expand its customer base and product offerings beyond the automotive sector have been crucial in mitigating the impact of the industry's challenges.

Financial Performance and Liquidity

Chicago Rivet & Machine Co. reported a net loss of $2.00 million, or $2.07 per share, for the first nine months of 2023, compared to a net loss of $2.86 million, or $2.96 per share, in the same period of the prior year. While the company's financial performance has been impacted by the challenges in the automotive industry, its balance sheet remains strong, with a current ratio of 6.02 and a cash and short-term investments position of $3.16 million as of the end of 2023.

The company's liquidity position has enabled it to continue investing in its operations, with capital expenditures of $1.08 million in 2023. Additionally, Chicago Rivet & Machine Co. has maintained its commitment to returning capital to shareholders, paying regular quarterly dividends, despite the recent financial headwinds.

For the fiscal year 2023, the company reported annual revenue of $31.51 million, with a net loss of $4.40 million. The annual operating cash flow was -$1.93 million, and the annual free cash flow was -$3.01 million. These figures reflect the challenging market conditions the company faced throughout the year.

In the third quarter of 2024, the company's revenue was $6.97 million, representing a 12.3% decrease compared to the same quarter in 2023. The net loss for Q3 2024 was $1.45 million, a 50.2% decrease from Q3 2023. This decline in revenue and earnings was primarily attributed to a significant drop in the automotive fastener segment, which was partially offset by growth in the non-automotive fastener and assembly equipment segments.

The Fastener segment, which includes the production and sale of rivets, cold-formed fasteners and parts, and screw machine products, saw revenues of $5.93 million in Q3 2024, down 15.1% from $6.98 million in the same period of 2023. The decline was driven mainly by a 31% decrease in sales to automotive customers, which fell from $5.18 million to $3.58 million. However, sales to non-automotive customers in this segment increased by 31% from $1.79 million to $2.35 million. Despite the lower volumes, Fastener segment gross margins improved significantly in the quarter, increasing from $161,830 to $703,960.

The Assembly Equipment segment, which includes the production and sale of automatic rivet setting machines, parts, and tools, reported revenues of $1.04 million in Q3 2024, up 7.6% from $968,730 in the same period of 2023. Both automotive and non-automotive sales in this segment increased, contributing to a 250.4% improvement in segment gross margin, from $202,980 to $711,160.

As of September 30, 2024, the company had $1.67 million in cash and cash equivalents and $496,590 in short-term investments, for a total of $2.16 million in cash and short-term investments. The company's current ratio was 6.02 and quick ratio was 3.13, indicating strong liquidity.

Outlook and Potential Risks

As the automotive industry navigates its own recovery, Chicago Rivet & Machine Co. remains cautiously optimistic about its future prospects. The company's management has indicated that it expects the automotive fastener segment's volumes to remain under pressure for the remainder of 2024, as its customers continue to manage inventory levels.

However, the company's diversification efforts and its focus on improving operational efficiency have positioned it to weather the current industry challenges. The Assembly Equipment segment's growth and the continued success in the non-automotive fastener market are expected to be key drivers of the company's future performance.

Potential risks facing Chicago Rivet & Machine Co. include further disruptions in the global supply chain, continued volatility in the automotive industry, and the potential for additional customer-related issues. Recently, the company was notified by one of its customers that certain fasteners manufactured by its wholly-owned subsidiary, HL Tool Company Inc., may not conform to customer specifications. This issue has resulted in the customer having to identify and sort non-conforming parts in its inventory and take certain other related actions. The company has accrued an estimated $243,000 as a contingent liability related to this issue, but the ultimate financial impact remains unclear at this time.

Conclusion

Chicago Rivet & Machine Co. has demonstrated its resilience and adaptability in the face of a challenging automotive landscape. The company's diversified product portfolio, geographic reach, and strategic focus on operational efficiency have been instrumental in navigating these headwinds. While the Fastener segment has faced challenges, particularly in the automotive sector, the growth in the Assembly Equipment segment and the company's efforts to expand its non-automotive customer base have been crucial in mitigating the impact of the industry's challenges.

The company's ability to improve gross margins in the Fastener segment despite lower volumes, coupled with the strong performance of the Assembly Equipment segment, showcases its operational adaptability. The focus on non-automotive customers has proven to be a successful strategy, with significant growth in this area offsetting some of the declines in the automotive sector.

As Chicago Rivet & Machine Co. continues to navigate the evolving market conditions, its strong financial position, commitment to innovation, and dedication to serving its customers will be key factors in its long-term success. The company's robust liquidity position, as evidenced by its healthy current and quick ratios, provides a solid foundation for future growth and investment.

Investors will undoubtedly be closely watching Chicago Rivet & Machine Co.'s ability to capitalize on new opportunities, further strengthen its competitive position within the fastener and assembly equipment industries, and address challenges such as the recent quality issue with a customer. The company's performance in the coming quarters will be critical in demonstrating its ability to adapt to the changing dynamics of the automotive industry while continuing to grow its presence in non-automotive markets.