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EnviroStar (EVI: 1.14 -7.32%), formerly DryClean USA, reported 2nd quarter earnings on Feb 12, 2010, which was followed by a 7% drop.

EVI dropped because the company wasn’t able to meet the performance of the prior year, but rather than just looking at top line growth, the balance sheet and cash flow statements reveal some obviously good signs that Wall Street is clearly missing.

Here is the news that caused the drop:

For the first six months of fiscal 2010, revenues decreased by 24.8% to $9,749,931 from a record $12,964,465 for the same period of fiscal 2009. Net earnings decreased by 65.4% to $150,273 or $.02 per share compared to net earnings of $434,691 or $.06 per share for the same period of fiscal 2009.

The following paragraph reads:

For the second quarter of fiscal 2010, revenues decreased by 1.5% to $6,121,661 from $6,213,648 in the comparable period of fiscal 2009. Net earnings for the period decreased by 2.0% to $221,171 or $.03 per share compared to $225,690 or $.03 per share for the second quarter of fiscal 2009.

Quite a different story to the first paragraph. EVI had a terrible 1st quarter and for some strange reason, the “efficiency” of the market took place 3 months later.

The second quarter was actually quite good due to management effectiveness. EVI doesn’t have a complicated financial statement or business model, so quickly running through some key points in the statements:

  • Revenues were on par with the same quarter last year. Fees from development, franchises and licenses decreased substantially and it only makes up about 1-2% of total revenue
  • Big decrease in accounts receivables
  • Big decrease in inventory
  • Still no long term debt and paid off some payables
  • Very low capex
  • Operating expenses is steady, which makes me think the company has hit the efficiency wall or plans to just keep it this way

Overall, there isn’t anything alarming about the company and its performance. Despite the economy and fall in demand for dry cleaning machinery, EVI has plenty of cash, is profitable and is run well as can be seen in the below summary.

So nothing to worry about for another quarter. As I don’t see any alarming red flags, I’m keeping this brief.

EVI Stock Summary

Disclosure: Long EVI

Source: Wall Street Is Clearly Missing EnviroStar's Positive Signals