8-K: Northern Technologies International Corporation Reports Mixed Results for Third Quarter Fiscal 2024

Northern Technologies International Corporation (NTIC) announced a slight decrease in consolidated net sales for the third quarter of fiscal 2024, with growth in Natur-Tec sales offsetting declines in ZERUST products.

Summary

• Northern Technologies International Corporation (NTIC) reported a 1.4% decrease in consolidated net sales to $20.686 million for the third quarter of fiscal 2024, compared to $20.970 million in the same period last year.
• The decrease was primarily due to a decline in ZERUST product sales, with ZERUST industrial sales down 4.4% and ZERUST oil and gas sales down 31.9%.
• However, Natur-Tec product sales saw a significant increase of 20.1%, reaching a record $5.849 million for the quarter.
• NTIC China net sales also increased by 6.7% to $3.541 million.
• Gross profit as a percentage of net sales improved by 210 basis points to 38.2%.
• Net income attributable to NTIC decreased by 7.8% to $977,000, or $0.10 per diluted share, compared to $1.060 million, or $0.11 per diluted share, in the prior year.
• Cash provided by operating activities increased significantly by 116% to $7.584 million for the nine months ended May 31, 2024.
• The company experienced a 3.6% decrease in joint venture operating income to $2.609 million.
• For the nine months ended May 31, 2024, consolidated net sales increased 4.3% to $61.710 million compared to $59.193 million for the same period last fiscal year.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to mixed results. While Natur-Tec sales and gross profit improved, the overall sales decline and reduced net income temper the positive aspects. The delay in oil and gas sales and the decrease in joint venture income also contribute to the lower sentiment.

Positives

• Natur-Tec sales achieved a record high, demonstrating strong growth in compostable plastic products and specialty resins.
• The company's gross profit margin improved significantly, indicating successful strategies to offset supply chain issues and raw material challenges.
• Cash flow from operations saw a substantial increase, highlighting improved operational efficiency.
• NTIC China experienced solid sales growth, contributing positively to overall performance.
• The company anticipates a rebound in oil and gas sales in the next quarter.

Negatives

• Consolidated net sales decreased by 1.4% year-over-year.
• ZERUST industrial sales declined by 4.4%.
• ZERUST oil and gas sales experienced a significant decrease of 31.9%.
• Net income attributable to NTIC decreased by 7.8% compared to the same quarter last year.
• Joint venture operating income decreased by 3.6%.

Risks

• The company is exposed to fluctuations in demand for ZERUST products, particularly in the oil and gas sector.
• The timing of large orders can significantly impact quarterly results, as seen with the $600,000 delay in oil and gas sales.
• Increased operating expenses, primarily due to personnel costs, are impacting profitability.
• The company faces risks associated with international operations, including currency fluctuations and trade disputes.
• The company is subject to economic uncertainty, recessionary indicators, inflation, and increased interest rates.

Future Outlook

The company expects a significant rebound in oil and gas sales in the fourth quarter of fiscal 2024 and anticipates continued growth opportunities across global markets, particularly in North America, Brazil, and India.

Management Comments

• Our third quarter results reflect the progress we are making navigating a fluid macro environment, while capitalizing on growing demand within our Natur-Tec and ZERUST oil and gas markets.
• We achieved record quarterly Natur-Tec sales driven by continued growth in North America and India for our compostable plastic products and specialty resins.
• While the timing of approximately $600,000 of shipments impacted third quarter ZERUST oil and gas sales, demand for our oil and gas solutions is expanding.
• As a result, we expect to experience a significant rebound in oil and gas sales in the fourth quarter of fiscal 2024.
• The 210-basis point year-over-year improvement in third quarter gross profit is encouraging and was primarily due to recent strategies underway aimed at offsetting supply chain disruptions and raw material challenges, including the insourcing of various finished goods production.
• Overall, fiscal 2024 is shaping up to be a strong year of growth, profitability and strategic investments for NTIC.

Industry Context

The results reflect a mixed performance in the corrosion prevention and biodegradable materials industry, with strong growth in the bio-based sector (Natur-Tec) contrasting with challenges in the traditional oil and gas sector (ZERUST). This highlights the ongoing shift towards sustainable materials and the volatility in the oil and gas market.

Comparison to Industry Standards

• NTIC's performance in the bio-based polymer sector with Natur-Tec is strong, showing growth that is likely above the industry average, which is seeing increased demand for sustainable materials.
• The decline in ZERUST oil and gas sales is concerning, as other companies in the corrosion prevention sector may be experiencing similar challenges due to market volatility.
• The 210 basis point improvement in gross profit margin is a positive sign, indicating that NTIC is managing its costs effectively compared to some competitors who may be struggling with supply chain issues.
• Companies like Cortec Corporation and Daubert Cromwell, which also specialize in corrosion prevention, may be experiencing similar trends in their oil and gas divisions, but their performance in other sectors would need to be compared to get a full picture.
• NTIC's joint venture performance is mixed, with a decrease in operating income, which could be compared to other companies with similar joint venture structures to assess relative performance.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and the decline in ZERUST sales.
• Employees may be impacted by the company's strategic investments and operational changes.
• Customers of Natur-Tec products will likely benefit from the company's growth in that sector.
• Suppliers may see changes in demand based on the shifts in product sales.
• Creditors will be interested in the company's cash flow and balance sheet.

Next Steps

• NTIC will host a conference call to review the results and outlook.
• The company will focus on capitalizing on growing demand in Natur-Tec and ZERUST oil and gas markets.
• NTIC will continue to make strategic investments in operations to support growth opportunities.

Key Dates

Keywords

corrosion inhibiting products, biodegradable polymer, Natur-Tec, ZERUST, oil and gas, net sales, gross profit, joint venture, financial results, operating income