When all you have are lemons ..."Despite the robust growth in net sales, gross profit contracted 340 basis points to 25.2%."
Why?
"Gross profit was impacted primarily by higher material costs as well as supply chain issues that continue to adversely affect operational efficiencies,,,,"
But that's an improvement over 4Q21.
"AAON reported record fourth quarter revenue of $136.3 million, up 16.8% from the prior-year quarter. Price increases contributed approximately 10.0% to revenue growth in the quarter. However, gross profit declined 21.7% to $26.5 million, or 19.5% of sales. Gross profit was impacted by supply chain issues, which constrained production, led to operational inefficiencies and unabsorbed fixed costs, and exacerbated the adverse effects of inflation by slowing the turnover of our lower priced backlog and delaying the throughput of orders placed after recent price increases. This resulted in net income of $6.2 million and earnings per diluted share of $0.11, down year over year 68.6%, compared to $0.35 in the prior-year quarter."
Okay, so what my point? First of all, these pricing pressures are industry wide and illustrative of effects upon earnings this last year. Well, this drag on earnings is transitory and not a permanent market fundamental. Loaded spring idea.
My opinion is that as the war ends, inflation cools, and supply chains stabilize, that earnings y-t-y are going to be relativity impressive just when enthusiasm returns to equities. Won ‘t basic materials also gain then? Yes, but at a much higher risk.
Important to consider that there’s 50/50 chance IMO of a deeper recession which would reduce home construction which would reduce demand for residential air conditioning units, which many will wish they had next summer but lack the finances. It would take months to create a government subsidy for home cooling, but commercial spaces and buildings will need to invest in additional cooling now
Reading today about weather in China, and yes, those billions of Chinese are going to want AC too. The demand for copper (tubbing, etc.) is about 5 lb./home unit. Commercial units for non-residential is a multiple of that.
The AAON board is unused if anyone wishes to pursue this strategy.
b.