After outpacing the U.S. economy’s growth in 2014 by growing at 2.7%, the value of all goods and services provided by Meaden & Moore clients, what I refer to as the Gross Meaden & Moore Product or GMMP, increased at a much weaker 0.3% in 2015. It should be noted that 33% of Meaden & Moore clients are in various manufacturing sectors, therefore softness in manufacturing has an outsized impact on GMMP.
Gains in construction (7.4%) and agriculture (9.2%) were offset by weak performance recorded by machinery manufacturing and metal manufacturing which showed sales declines of 8.4% and 3.3%, respectively. Interestingly, the average increase for all companies reporting higher revenues was 10.4% whereas those companies reporting sales declines experienced an average drop of 11.9%. Cost of goods sold did not keep pace with revenues due in part to lower steel and oil costs. As a result, gross profits in dollar terms increased 0.7%.
However, even those industry sectors which performed well in terms of overall revenue during 2015 were hit hard by rising operating expenses. Operating expenses grew at an average of 3.5% across the portfolio causing an average drop in EBITDA of 14.6%. Increased non-cash and interest expenses push profitability farther down as net income dropped at an average of 26.1%. The trends were not all inclusive, however, as several sectors reported highly profitable years including plastic manufacturing, health care and information providers.
Along with the cooling of revenues, total inventory balances fell 5% during 2015, mainly from the metal and machinery manufacturers who saw combined reductions of 14%. This was partially offset by a 10.5% increase in inventories held by chemical manufacturers. Receivable collection periods remained largely unchanged at just over 50 days. The total cash conversion cycles were mostly flat from 2014 to 2015 with the exception of machinery manufacturers who saw a 16 day decrease due to faster collection of receivables.
Large increases in capital expenditures and long-term debt during 2014 brought about optimism of future growth, but 2015 brought a bit of a reversal to those trends. Capital expenditures dropped 21.1% in 2015 as all manufacturers except machinery manufacturers cut back on investment. In conjunction with the cut back in investment, debt balances were largely flat, increasing only 1.5% for the year.
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